Letters
AAII’s Top Funds Guide
To the Editor:
You use the term “yield” and spend a paragraph or two explaining how you define the term [in the “Guide to the Top Mutual Funds,” February 2011 AAII Journal]. Yield, to a major corporation, has to do with the earnings over a specific period of time. These earnings are achieved by, primarily, the normal function of the business. Yield defines the success (or failure) of said business based upon its stated operations for the period.
Does my concept of yield differ from yours? I assume that allotting a column to “yield” means that you consider it important. I know it is important in my understanding of the stock market.
Robert C. Campbell
The Editor Responds:
The yield information presented in our Top Funds Guide differs from the equation used to analyze the success (or failure) of a business.
If I understand your letter correctly, you are referring to a company’s earnings power. A different term may be net profit margin, or earnings divided by revenues. For an owner of a small corporation, the income available for distribution would be any cash that does not need to be reinvested for normal business operations.
(Some investors use “earnings yield” to evaluate a stock’s valuation. This is earnings per share divided by the per share stock price. It is useful for drawing a comparison against bonds for the same company.)
A mutual fund’s yield is per share cash distributed to shareholders over a 12-month period divided by net asset value per share. For example, if a fund has a net asset value of $20 per share and shareholders have been paid dividends and distributions of $1 per share during the past year, the yield is 5% ($1/$20).
To the Editor:
This is just a note to thank you all for your very helpful website. I’m a senior citizen who just began investing in the market. I have used the information from your site to begin my portfolio, although I am doing so quite late in life.
More importantly, I am utilizing the information in the February AAII Journal [“Guide to the Top Mutual Funds”] to help determine an appropriate Roth IRA stock fund for my 18- and 20-year-old grandchildren. We are all quite excited about this process and where it can lead. Thank you from a grateful grandfather.
Richard Smith
To the Editor:
I just want to thank you for the “Guide to the Top Mutual Funds.” It is a very helpful comparison of mutual fund performance. It is well-organized for quick reference to individual funds and is a great service to your members.
Warren G. Reynolds
Researching Shadow Stocks
To the Editor:
In researching the Model Shadow Stock Portfolio’s passing companies list for possible purchases, I discovered an article on China Sky One Medical Inc. (CSKI) stating that a firm in New York City by the name Zamansky & Associates was investigating the company for filing false and misleading financial statements. As a beginning investor, how much credence do I place on “online” articles such as this one (which I have no clue how to verify)? As there doesn’t appear to be anything going on other than an “investigation,” do I let it negatively impact my decision to invest?
Michael McAnally
James Cloonan Responds:
As a general rule a single-source story (particularly online) is a reason to do more research rather than act. In this case, however, there are multiple concerns about Chinese stocks that became registered through backdoor approaches. These are not the Chinese stocks that have gone through the regular IPO (initial public offering) route. As I discussed in my Model Portfolios column in the January 2011 issue of the AAII Journal and again in this issue [on page 33], I dropped all the Chinese stocks that came up on my screens because I couldn’t check their backgrounds thoroughly. They may well pass the screens based on data that is questionable.
In general, if you are selecting stocks for the Model Shadow Stock Portfolio prior to seeing the selections in the AAII Journal or on our website, you will have to be extra careful in checking the news about issues you are thinking about buying.