What is the Investing “EFFICIENT MARKET ” Hypothesis?

Posted on August 20, 2024 by Dr. David Edward Marcinko MBA MEd CMP™

By Dr. David Edward Marcinko MBA MEd CMP™

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According to colleagues Jeffrey S. Coons PhD CFA, the Efficient Market Hypothesis (EMH) states that securities are fairly priced based on information about their underlying cash flows and that physician investors should not expect to consistently outperform the market over the long-term. 

There are three distinct forms of EMH that vary by the type of information that is reflected in a security’s price:

Weak Form: This form holds that investors will not be able to use historical data to earn superior returns on a consistent basis.  In other words, the financial markets price securities in a manner that fully reflects all information contained in past prices.

Semi-Strong Form: This form asserts that security prices fully reflect all publicly available information. Therefore, investors cannot consistently earn above normal returns based solely on publicly available information, such as earnings, dividend, and sales data.

Strong Form: This form states that the financial markets price securities such that, all information (public and non-public) is fully reflected in the securities price; investors should not expect to earn superior returns on a consistent basis, no matter what insight or research they may bring to the table. 

While a rich literature has been established for doctors regarding to test whether EMH actually applies in any of its three forms in real world markets – probably the most difficult evidence to overcome for backers of EMH is the existence of a vibrant money management and mutual fund industry charging value-added fees for their services. 

In fact, no less than Warren Buffett has suggested that the markets are decidedly not efficient. 

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PREFERRED versus COMMON Stock?

Posted on August 20, 2024 by Dr. David Edward Marcinko MBA MEd CMP™

Is there a Difference?

What is the Difference?

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By Dr. David Edward Marcinko MBA MEd CMP®

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A common stock is the least senior of securities issued by a company. 

A preferred stock, in contrast, is slightly more senior to common stock, since dividends owed to the preferred stockholders should be paid before distributions are made to common stockholders. 

However, distributions to preferred stockholders are limited to the level outlined in the preferred stock agreement (i.e., the stated dividend payments).  Like a fixed income security, preferred stocks have a specific periodic payment that is either a fixed dollar amount or an amount adjusted based upon short-term market interest rates. 

However, unlike fixed income securities, preferred stocks typically do not have a specific maturity date and preferred stock dividend payments are made from the corporation’s after tax income rather than its pre-tax income.  Likewise, dividends paid to preferred stockholders are considered income distributions to the company’s equity owners rather than creditors, so the issuing corporation does not have the same requirement to make dividend distributions to preferred stockholders. 

So, preferred stock is generally referred to as a “hybrid” security, since it has elements similar to both fixed income securities (i.e., a stated periodic payments) and equity securities (i.e., shareholders are considered owners of the issuing company rather than creditors). 

Convertible preferred stocks (and convertible corporate bonds) are also considered hybrid securities since they have both equity and fixed income characteristics.   A convertible security whether a preferred stock or a corporate bond, generally includes a provision that allow the security to be exchanged for a given number of common stock shares in the issuing corporation. The holder of a convertible security essentially owns both the preferred stock (or the corporate bond) and an option to exchange the preferred stock (or corporate bond) for shares of common stock in the company. 

ASSESSMENT: Thus, at times the convertible security may behave more like the issuing company’s common stock than it does the issuing company’s preferred stock (or corporate bonds), depending upon how close the common stock’s market price is to the designated conversion price of the convertible security.

CITATION: https://www.r2library.com/Resource/Title/0826102549

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DAILY UPDATE: NAR Commissions Down as Stock Markets Rise

Posted on August 20, 2024 by Dr. David Edward Marcinko MBA MEd CMP™

MEDICAL EXECUTIVE-POST – TODAY’S NEWSLETTER BRIEFING

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On last Saturday, a class-action settlement with the National Association of Realtors (NAR) went into effect, ripping up the playbook on how real estate agents are compensated. The NAR was accused of artificially inflating commission rates, which have historically ranged from 5% to 6%, a higher fee than the rest of the world. Consumer advocates hope the new rules will lead to lower commissions, shift power away from agents, and add transparency into what’s been an opaque system.

CITE: https://www.r2library.com/Resource

What’s up

  • AMD rose 4.52% on the news that it will acquire server manufacturer ZT Systems for $4.9 billion. While this escalates the AI arms race, competitor Nvidia rose 4.35% regardless.
  • FuboTV soared yet another 17.65% after a judge temporarily blocked the launch of a sports streaming service created by Disney, Warner Bros. Discovery, and Fox last week.
  • McDonald’s climbed 3.25% after Evercore ISI analysts raised their price target for the stock to $320 per share.
  • Zim Integrated Shipping Services rocketed 16.74% higher after the marine shipping company posted impressive earnings and raised its full-year guidance.

What’s down

  • Trump Media & Technology Group fell 3.56% as the Democratic National Convention kicks off in Chicago today, with investors fretful that the stock could be more volatile than usual during the event.
  • HP sank 3.65% after Morgan Stanley analysts downgraded the stock from Equal Weight to Overweight, though they kept their price target the same.
  • Sweetgreen dropped 6.82% thanks to Piper Sandler analysts downgrading the stock from Overweight to Neutral after the company’s big pop last week made shares too pricey.

CITE: https://tinyurl.com/2h47urt5

Here’s where the major benchmarks ended:

  • The S&P 500 index rose 54.00 points (0.97%) to 5,608.25; the Dow Jones Industrial Average® ($DJI) added 236.77 points (0.58%) to 40,896.53; the NASDAQ Composite®($COMP) points increased 245.05 (1.39%) to 17, 876.77.
  • The 10-year Treasury note yield (TNX) fell about two basis points to just under 3.87%.
  • The CBOE Volatility Index® (VIX) fell to 14.61, near one-month lows.

CITE: https://tinyurl.com/tj8smmes

Stat: 12%. That’s how much mpox vaccine maker Bavarian Nordic’s stock shot up after the WHO declared a global health emergency. (Fortune)

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