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Fidelity’s Low-Priced Stock Fund Manager Delivers Market-Beating Returns

John Tillinghast, manager of the Fidelity Low-Priced Stock Fund, (MUTF: FLPSX ) ” owns one of today’s best investment records ,” according to a profile proceeding a recent interview published in Barron’s. In the 26 years he has managed the fund, it returned an average of 13.7% annually (more than 4% higher than the S&P 500). Tillinghast is restricted by the fund’s charter to buying stocks priced at under $35 per share. He explains: “the original idea was that low-priced stocks weren’t well-followed by Wall Street” and “$35 is just above the average price of stocks listed on the New York Stock Exchange.” Tillinghast “look[s] for a highly visible discount to fair value… and management that is fair and honest” and holds “large stock ownership” in the company. He observed that the fund holds about 9% cash at present, down from 11% last year, because “in the past year or two, I have gone from being a little standoffish about small stocks to thinking that there are a decent number of opportunities, but they are still not abundant.” Speaking about political developments that may affect the foreign stocks making up about 35% of the fund, such as Japan’s recession, Tillinghast commented: “My approach to cycles is to pay less attention to the statistics, but to have a general notion of where we are in the cycle, and what that means for valuations,” noting that “In Japan, there are still a lot of cheap companies with great balance sheets.” Regarding energy stocks, Tillinghast has “an index-like weighting” because of uncertainty in the sector, which he describes as “brutally tough for a value investor.” Comparing conditions that favor value versus growth approaches, he said: for a sustained outperformance of value, you need more dispersion in valuations,” but “when everything is priced the same, it’s lousy for value investors and for active management in general.”

GeoInvesting’s Dan David: 6 Things You Can Learn From My Shorting Mistakes

By Dan David, Co-Founder and VP of GeoInvesting Shorting stocks is rarely easy. In keeping with our practice to not only bring investors quality research, but also educate them, I wanted to run down some of the top mistakes I have made in the past when shorting stocks. If you are considering short selling or are already short selling, perhaps knowing the mistakes I’ve made in the past will help you become a better investor. Over the last seven years, our research-based, on-the-ground due diligence has led to over 10 U.S.-listed China-based stocks delisted or halted. In addition, we have exposed over 10 pump-and-dump stocks that have resulted in 90%+ gains for those who shorted them. Shorting U.S.-listed China-based companies can be grueling, mostly due to the fact that the companies you are up against can make up or fabricate information to combat your allegations. Many times I have opened a short position and have been immediately greeted by the company announcing a buyback or issuing a dividend in hopes of driving the short position out of the company. This happened when I shorted China Green Agriculture (NYSE: CGA ) in 2014, and management declared a special dividend. The issue is that some of these companies have stolen so much money from the capital markets through stock offerings that they have money to play with even when their companies are not generating real revenue. Shorting Stocks Opens You Up To Infinite Losses Shorting stocks is a far more inherently dangerous practice than going long companies, and there is more risk in being short. The most you can make when going short is 100%, but your loss can be infinite ( Remember KaloBios (NASDAQ: KBIO )?). Even if you are right, your short position can be forced to be closed. Furthermore, you can pay ridiculous amounts of interest, sometimes 100% per year, on the shares you have shorted. Apparently usury is not illegal in the stock market. As such, we wanted to lay out that risk here today. Here are some of the top mistakes I have made over the years short selling that hopefully you can avoid. Leave Your Emotions For Your Romantic Life, They Will Kill Your Portfolio This is a universal shorting rule, but must be said; take emotion out of it. It’s also one of the hardest rules. If you know you are right, dig deep inside and realize that when fraudulent stocks rally, they will likely eventually come down. One of the sickest feelings I have had is when I cover a rallying stock out of fear, only to see shares come right back down. Assuming That Insiders Will Not Lie Is Naive Failing to pay attention to insider ownership, which includes funds that have “special” relationships with management, is a mistake I made early in my investing career. The bigger the ownership, the more the chance that management will try to pump its stock by issuing false press releases in response to a short report. This has taught me to keep some powder dry for the pump. Know The Risks Of Being A Hero Be careful shorting shares of a state-owned enterprise (“SOE”). Accusing an “SOE” of fraud is accusing the China government of fraud. From my experience, the SOEs I have run into are frauds or at least have some material accounting misrepresentations, but the government will crush you before it ever admits that fact. Always have a second or third account to play the “PR pump.” Remember, a fraud can say anything since they have nothing to lose once they are exposed, so more often than not they will put out a PR pump to squeeze you and dump their shares. I learned the hard way that if you just cover and try to short again at the top, you will never find the borrow again. Go long in an alternate account to box your short. Putting Too Much Faith In The System Will Cost You Money Do not count on the exchanges to halt a security. In my view, as a matter of policy, both the NASDAQ and NYSE are hard pressed to halt. They have come to realize that the risk of a suit by the halted company is much greater than the risk of any individual investor – and lest we forget, the exchanges themselves are for-profit companies that are paid by companies they list. You also can’t count on the SEC to halt a U.S.-listed China-based company. The SEC has no power or resource to investigate inside of China. ‘Nuff said. Not Covering Enough Shares Ahead Of A Halt Trading halts have gone from a desired outcome for shorts to a nightmare for all. As I already touched on, brokers are now known to raise interest rates from the high teens to over one hundred percent during a halt on borrowed shares! This gives the halted company insiders the ability to collect on the majority of that interest from their broker on shares they lent out to be short, which acts as an incentive to insiders of halted companies to prolong a halt as long as possible. This new trading dynamic is causing chaos on both sides of the trade. Remember that shorting stocks is a volatile enterprise, and even experts have to expect the unexpected in situations where they are short. So, if you plan on involving yourself with this kind of investing, I hope that these tips and tools help you out going forward. This article originally published on geoinvesting.com on 3/29/16. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

5 ETFs To Buy For Q2

After a terrible start to the year, the U.S. stock market made a stunning comeback in the last six weeks of the first quarter. This is especially true as the major U.S. bourses recouped all the losses after falling more than 14% (as of February 11) from their recent peak levels. Notably, both the S&P 500 and Dow Jones were in the green at the end of the quarter, having logged in 0.8% and 1.5% gains, respectively. The impressive rally was driven by a rebound in oil prices, a spate of upbeat U.S. economic data, extra easing policies in Europe and Japan, and stabilization in the Chinese economy. Additionally, the Fed’s dovish comments infused more optimism in the stock markets lately. The bullish trend is likely to continue at least in the second quarter given the substantial improvement in the economy, an accelerating job market, pick-up in inflation as well as increasing consumer confidence. Further, the Fed is not expected to raise interest rates anytime soon given the global growth concerns that should drive the U.S. stocks higher. Nevertheless, bouts of volatility will keep threatening the bulls. Some of the headwinds include relatively higher valuations, risk of earnings weakness like what we saw in the fourth quarter, and oil price instability. As the U.S. economy is leading the way amid global uncertainty, investors should focus on the domestic market. We have highlighted five picks for 2Q that should outperform and cost less than many other products. These funds have either a Zacks Rank of 1 (Strong Buy) or 2 (Buy). iShares MSCI USA Minimum Volatility ETF (NYSEARCA: USMV ) Low volatility products generate impressive returns or often outperform in an uncertain or a crumbling market while providing significant protection. This is because these funds include more stable stocks that have experienced the least price movement in their portfolio. As a result, low-volatility strategies appear safe in a turbulent market, and reduce losses in declining markets while generating decent returns when the markets rise. As such, USMV could be a great pick with an AUM of $11.3 billion and an expense ratio of 0.15%. It offers exposure to 168 U.S. stocks having lower volatility characteristics than the broader U.S. equity market by tracking the MSCI USA Minimum Volatility Index. The fund is well spread across a number of securities with none holding more than 1.71% of assets. From a sector look, financials, health care, information technology and consumer staples take the top four spots with a double-digit allocation each. The fund trades in solid volume of 3 million shares a day and has gained 6.4% in the year-to-date time frame. It has a Zacks ETF Rank of 2. SPDR S&P Dividend ETF (NYSEARCA: SDY ) Dividend-focused ETFs have been riding high this year on investors’ drive for income amid heightened uncertainty in the stock market. This is because dividend paying securities are the major sources of consistent income when returns from the equity market are at risk. Dividend-focused products offer safety in the form of payouts and stability in the form of mature companies that are less immune to the large swings in stock prices. Further, longer-than-expected interest rates have made this corner a hot investment area. As a result, SDY seems an interesting choice for the second quarter. This is one of the popular and liquid ETFs in the dividend space with AUM of $13.2 billion and average daily volume of about 940,000 shares. This fund provides exposure to the 109 U.S. stocks that have been consistently increasing their dividend every year for at least 25 years. This can be done by tracking the S&P High Yield Dividend Aristocrats Index. Though the fund is slightly skewed toward the financial sector with 22.7% share, industrials, utilities, consumer staples, and materials make up for a nice mix in the portfolio with a double-digit allocation each. The fund charges 35 bps in fees per year and yields 2.51% in annual dividend. It has added 9.9% so far this year and has a Zacks ETF Rank of 2. Consumer Discretionary Select Sector SPDR Fund (NYSEARCA: XLY ) With the U.S. economy on a modest growth path and the spring season underway, the consumer discretionary sector is expected to get a boost. The auto industry is booming, the manufacturing industry seems to be stabilizing having ended a five-month declining streak with accelerated production and rising new orders, and the housing market is geared up for the spring buying fervor. Further, cheap financing will continue to entice consumers to buy more homes and avail auto loans, thereby propelling the stocks of this sector higher. While there are several options to play the surge in the sector, the ultra-popular XLY having AUM of $10.7 billion and average daily volume of around 8.2 million shares looks attractive. It tracks the Consumer Discretionary Select Sector Index and holds 88 securities with higher concentration on the top four firms at 30%. Other firms hold less than 4.9% share each. In terms of industrial exposure, media takes one-fourth share while specialty retail, internet retail, and hotels, restaurants & leisure round off the next three spots with a double-digit exposure each. The fund charges 14 bps in fees per year and has added 2% so far this year. It has a Zacks ETF Rank of 1. SPDR S&P Homebuilders ETF (NYSEARCA: XHB ) A solid labor market along with affordable mortgage rates will continue to fuel growth in a recovering homebuilding sector, creating a buying opportunity in homebuilders and housing-related stocks. In addition, slower and gradual rate hikes will not impede the growth prospect of the sector, at least in the second quarter. The most popular choice in the homebuilding space, XHB, follows the S&P Homebuilders Select Industry Index. In total, the fund holds about 37 securities in its basket with none accounting for more than 5.73% share. The product focuses on mid-cap securities with 65% share, followed by 27% in small caps. The fund has amassed about $1.5 billion in its asset base and trades in heavy volume of about 3.6 million shares. Expense ratio comes in at 0.35%. XHB has lost modestly 0.1% in the year-to-date timeframe and has a Zacks ETF Rank of 2. iShares 20+ Year Treasury Bond ETF (NYSEARCA: TLT ) Treasury bonds, in particular the long-term ones, are the biggest beneficiaries of lower interest rates. The longer the duration, the more sensitive the fund is to the changes in interest rates. As such, bonds having a higher duration will experience significant gains for as long as interest rates remain low. Additionally, long-term bonds will continue to get an impetus from the negative interest rates in the other developed world like Europe and Japan that made the U.S. bonds attractive to foreign investors. Given this, the ultra-popular long-term Treasury ETF – TLT – looks exciting for the second quarter. It tracks the Barclays Capital U.S. 20+ Year Treasury Bond Index, holding 32 securities in its basket. The fund focuses on the top credit rating bonds with average maturity of 26.61 years and effective duration of 17.77 years. It charges 15 bps in annual fees and exchanges about 8.7 million shares in hand per day. With AUM of $8.1 billion, TLT has gained 8.6% so far this year and has a Zacks ETF Rank of 2. Original Post