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Dividend reinvestment plan or DRIP, sometimes called DRP, is a very popular investment strategy which helps investors to gradually grow their share in a company. DRIP is an investment program run by a company for its shareholders. As the name suggests, it includes reinvesting the dividend owned to purchase more company stocks.

Dividend reinvestment plans usually work like dollar cost averaging, but have some unique features and benefits. The main beneficiaries of DRIPs are small investors who wish to benefit from the long-term performance of companies by buying-and-holding those shares. There are now many companies offering DRIPs and one can enroll oneself in a plan by buying as low as one share of the company. Many companies allow their DRIP investors to purchase stocks at discounted rate and most of these plans have very low minimum requirements.

Most dividend reinvestment plans come with two unique features.

• No commission or brokerage fee: as the investor is directly dealing with the company, no brokerage fee is involved. Moreover, most companies reinvest the dividend without any fees or commissions.
• Percentage share ownership: dividends are reinvested in a way that the investors can own partial stocks in addition to whole numbers. For example a $1 dividend for a $10 stock can be reinvested to own 1/10 of a share. The company keeps detailed records of share ownerships.

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Matching high is a bearish trend reversal candlestick pattern indicating the reversal of an existing uptrend. The pattern generally forms at the top of an existing downtrend; but is less popular than bullish matching low pattern. This is a two candlestick pattern composed of two bullish (white or colorless) candlesticks.


The requirements of bearish matching high candlestick pattern include,

• The pattern should form in an established uptrend.
• The first day is a long bullish day closing at a new high.
• The second day is also a bullish day which closes at or very close to the first day's close.

Bearish matching high candlestick pattern forms when the price tends to reverse after touching a short-term resistance level. The fact that the second day is a bullish day, which closed at previous day's close, indicates that the resistance is successfully tested; now the trend can reverse as traders tend to close their open positions.

Bearish matching high is a moderately reliable candlestick pattern, which requires confirmation of trend reversal before one can take any short positions.

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Style ETFs, as the name suggests, are exchange traded funds which passively follow an investing style like growth investing style or value investing style. Rather than investing directly in growth or value stocks, they track specific style indexes like S&P, Russell or Barra style composites. Eg: Russell 2000 growth, Russell 2000 value, S&P/Barra Small Caps, etc. By following a specific style, style ETFs try to achieve some specific portfolio goals like less risk or more return rather than tracking a more broad/narrow index.

Style ETFs are very good instruments to include in an investing portfolio.

• They help investors to passively explore an investing style; thus can be used to achieve some specific investing goals.
• They are very good instruments for portfolio diversification.
• They allow investors to test different investing strategies; and their past performance can be evaluated and compared to easily find out a most suitable investing style.
• They are very good hedging tools; especially when you are dealing with a less-diversified portfolio composed of one style investments.
• They are good instruments for long-term investments and take less time to screen than screening stocks they passively track.

Now there are many style ETFs available for investors, especially for US investors. They vary greatly in investing style and the index they follow. One thing to remember is, the style indexes are reconstituted periodically; once or twice a year. Thus one index can have very different stocks than the other, so does a style ETF tracking it. Thus finding the right style ETF can greatly enhance portfolio performance.

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The Week Ahead: Despite the strong Q4 GDP number, the economy is lagging badly in many areas not the least of which is the poorer showing in new home sales from January to February do to high unemployment and higher lending standards. Future GDP comparisons will be tough. The ISM Manufacturing Index, Personal Income, and Construction Spending reports will start the week off on Monday. Auto Sales arrive Tuesday. The Non-Mfg. Index on Wednesday will provide a peak at the service sector. Factory orders on Thursday and the Employment Report on Friday should be the most noteworthy of the week.

Stocks to Watch: Bancorpsouth (BXS), a regional bank, fell 13.74% after it delayed its annual report do to the review of asset quality measurements and setting aside $35 million for bad loans. Deckers (DECK) footwear beat estimates handily as sales and profits margins rose propelling the stock to 52 week highs. Nuvasive (NUVA), a medical device maker, shot up 35% on word that Aetna insurance will cover its final surgery procedure, but Rockwell Medical (RMTI) collapsed 27% after disappointing results for its experimental anemia drug.

Special Note: The Mutual Fund Cash to Asset Ratio of 3.6% at year end 2009 has reached the second lowest level since the data for this series began tracking it in the 1960's. As some may be aware, readings this low notoriously accompany major tops in stocks nearby. The last reading near this level was in July 2007 when the ratio reached its lowest 3.4% three months before the big top. It's an important contrary statistic to keep in mind as it is showing extreme bullish sentiment among fund managers with little wiggle room to meet redemptions.

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Channel stuffing, also known as trade loading, is an illegal business practice used by companies to blow up their sales and earnings figures. It is the ponzi practice of sending more products through its distribution channel than the distributors/retailers can sell. When the products are shipped from the company, they may be considered as sold and may be used to boost the figures.

Companies can do channel stuffing for various reasons like,

• Painting the fundamentals like sales and earnings figures; to get better stock prices and media attention.
• To meet up with competitors' (or its own previous) performances or targets.
• To highlight/paint its performance over a specific channel like international trades or a specific product.
• Poor sales force management can also be a cause; trying to meet-up the long-term target in a short-term.

Channel stuffing can be regarded as a short-term practice with long-term consequences.

• As more products are shipped, the distributors tend to return the unsold ones or stop giving further orders; thus the future figures get worse.
• Creating more products for channel stuffing can demand factory overtimes, and returning unsold products or lack of orders can result in factory shutdowns.
• The fundamentals can become less and less attractive and can adversely affect stock prices.
• The marketing and selling of products become more and more complex and unmanageable.

Many companies regardless of their size have been identified and criticized for their channel stuffing activities. In the U.S., the Securities and Exchange Commission has litigated some companies for these activities.

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Matching low is a bullish trend reversal candlestick pattern showing the reversal of an existing downtrend. The pattern usually forms at the end of strong downtrends and somewhat resembles bullish ladder bottom pattern. This is a two candlestick pattern formed of two bearish (black or colored) candlesticks.


The requirements of a bullish matching low candlestick pattern include,

• The pattern should be formed in an established downtrend.
• The first day is a long bearish day closing at a new low.
• The second day is also a bearish day where price closes at or is very close to the first day's closing price.

Bullish matching low candlestick pattern occurs when prices tend to bounce back after touching a short-term support level. The first day candlestick shows that the downtrend is still strong. On the second day the prices open above previous close, but close at previous close. This indicates that the support level has been successfully tested and it is now time for the shorts to cover their position. On the next trading day, the price can reverse to form an uptrend.

Matching low is a moderately reliable candlestick formation. Traders can enter trades after the confirmation of trend-reversal, which can be a bullish candlestick, gap above opening or higher close on the next trading day.

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Treynor ratio, also known as Treynor Index and Reward to Volatility ratio, is used to measure the return for risk taken. The ratio was developed by Jack L. Treynor, hence the name. Treynor ratio is similar to Sharpe ratio; the difference is that it uses the beta or the volatility factor to evaluate the returns rather than the standard deviation of portfolio returns.

Reward to volatility ratio is calculated by subtracting the average risk free portfolio return from the average portfolio return and then dividing the result by beta value of the portfolio.


Where Rp is the portfolio return and Rf is the return from a risk free investment like a US treasury bond.

Treynor ratio is also interpreted like Sharpe ratio; high values mean better return for risk taken or better portfolio performance and lower values mean just the opposite. It should be noted that Treynor ratio measures just the actual returns and does not account for any effect of active portfolio management. The ratio best works for sub-portfolios of a broader diversified portfolio. As the ratio measures the reward against systematic risk, it is not very useful for measuring returns of a less diversified portfolio with high unsystematic risk.

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