Investment Quiz

The following was taken from Weston Wellington’s Down to the Wire dated July 11, 2012.  Weston is a Vice President of Dimensional Fund Advisors and his Down to the Wire provides timely commentary and insight in response to prominent financial media headlines and topics concerning investors today.

Investment Quiz
by Weston Wellington

Question:
The twenty-two prominent firms listed below share a common characteristic. What is it?

  • AT&T Inc.
  • Abbott Laboratories
  • Allstate Corp.
  • Altria Group
  • Amgen Inc.
  • Berkshire Hathaway ‘A’
  • Bristol-Myers Squibb
  • Coca-Cola Co.
  • Colgate-Palmolive
  • Costco Wholesale
  • Hershey Co.
  • Hormel Foods
  • Johnson & Johnson
  • Kimberly-Clark
  • Eli Lilly & Co.
  • Merck & Co.
  • Monsanto Co.
  • PepsiCo Inc.
  • Union Pacific
  • Verizon Communications
  • Wal-Mart Stores
  • Weyerhaeuser Co.

Answer:
If you guessed each firm is a constituent of the S&P 500 Index, you would have been close–but wrong. (Weyerhaeuser is not included.) If you guessed that each firm pays a dividend, you were close again–but still wrong. (Berkshire Hathaway has not paid a dividend since 1967.) The correct answer is that the stock price of every firm on the list (and dozens of others) hit a fifty-two-week new high last week.

It is also intriguing to see a long list of homebuilding and building materials firms on the new high list, including nine of the eleven stocks in the Standard & Poor’s Supercomposite Homebuilding Sub-Industry Index. If we cheat and include the previous week, M.D.C. Holdings also makes the list, making it ten out of eleven. KB Home is the lone holdout.

  • D.R. Horton *
  • Hovnanian Enterprises Cl ‘A’
  • Lennar Corp ‘A’ *
  • Louisiana-Pacific
  • Lennox Intl. Inc.
  • M.D.C. Holdings *
  • M/I Homes *
  • Meritage Homes *
  • NVR Inc. *
  • Pulte Group *
  • Ryland Group1 Standard Pacific *
  • Smith (A.O.)
  • Toll Brothers *
  • USG Corp.

We don’t want to read too much into this exercise lest we get tempted to start predicting market trends by studying the squiggles in stock price charts. But we suspect many investors would be surprised to learn how many widely held stocks are quietly inching their way higher despite unsettling news from unemployment numbers, European finance ministers, or the presidential campaign trail. Investors waiting for a more opportune time to purchase stocks may discover that, by the time cheerier news headlines appear, the price tags on a wide range of businesses are sharply higher.

Footnotes & References:
* Standard & Poor’s Supercomposite constituent.
NYSE New Highs and Lows, Wall Street Journal, (accessed July 9, 2012).
Standard & Poor’s Stock Guide, June 2012.

Gordon’s Note:
The focus of an investor should be on developing an Investment Plan based upon his or her goal’s and risk tolerance, implementing the Plan with diversified asset class investments, and remaining disciplined throughout the various market cycles.  Those activities will increase the investor’s probability of having a successful investment experience.

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