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Sound Advice: November 16, 2022

Professional Investment Management ? ? ? I was taken aback by several recent conversations with ostensibly experienced professional investors. In the days of yore, investing was a task that required considerable due diligence, primarily about stocks and bonds. Slightly after the exodus of the dinosaurs, which was when I first got started in the research end of the business, I and my colleagues learned to be immersed in such exciting things as income statements and balance sheets. The goal of those efforts was to evaluate the future prospects and financial health of the companies being reviewed. In all cases, we looked for the ability to grow supported by sufficient capital to provide resources for that growth. The most promising cases were companies that had done well in the past, a trend that one would hope would continue in the years ahead. An above average rate of past growth was certainly worthy, but from the standpoint of valuation the critical point was the sense of

Sound Advice: November 9, 2022

The paradox of changing interest rates With rare exception, the predominant belief is that when interest rates are rising, the stock market will slide . . . and vice-versa. As recently as the early part of 2020, when the pandemic led to a widespread plunge in the economy, the Fed slashed interest rates and stocks did an abrupt about-face following a distressing drop and ended up the year with a well above average gain. A silver bullet, indeed. But the reality is that over extended periods, there’s more than sufficient evidence to show that the market’s reactions to the Fed’s efforts to stimulate or ease the pace of the economy vary widely. At the moment, we are faced with an inflation rate in the high single digits and, despite the central bank’s recent series of unusually high hikes in the federal funds rate, one suspects that even more tightening will be needed to get an unacceptably high rate of price increases under control. Over the last 50 years, when the Fed did appr

Sound Advice: November 2, 2022

The investment times they are a’changing. Turn the clock back to the 1950s and 1960s and you’ll be back in a time when stockbrokers were the gatekeepers of the investment markets for most investors. Those were the early days of stocks and bonds, customers’ men who got one or more shoeshines daily, and commissions for individual stock trades were $100 or more. Mutual funds were still a new concept. Exchange-traded funds, largely a new millennium addition to the roster of investment vehicles, barely existed. In May, 1975, things changed dramatically. That’s when President Gerald Ford signed the Securities Acts amendments, which started the process of commission discounting. Now, nearly half a century later, commissions are down to zero at most broker-dealers. Back in those early days, mutual funds were quite costly. The entry fee for new investments, known as a load, a.k.a. sales charge, was 8%. So when you invested $1,000, you had an immediate loss of $80. These da

Sound Advice: October 26, 2022

Why Technical Analysis Is Useless (Excerpted from Seeking Alpha) Pure technical trading strategy is fruitless. “Fidelity recently conducted a study to identify their best performing clients. They neatly fell into two groups: people who forgot they had an account at Fidelity, and dead people. It all underlines the futility of trading the markets without true professional guidance, something many aspire to, but few actually accomplish. This is an industry filled with professional marketers, charlatans, and con men. Let me point out a few harsh lessons learned from a recent (2017) meltdown, and the rip-your-face-off rally that followed. We are now transitioning from a “Sell in May” to a “Buy in November” posture. The period from October to March is one of historical seasonal market strength (click here for the misty origins of this trend at “ If You Sell in May, What To Do in April? ”) The big lesson learned was the utter uselessness of technical analyses. Us

Sound Advice: October 19, 2022

Dead Cat Bounce? One of the most common occurrences during times of market weakness is what’s known as a dead cat bounce. A dead cat bounce is a short-term, often only one day, rally of considerable proportion. These days, that kind of jump would probably be in the range of at least 500 to 1000 points in the Dow Jones Industrial Average. It would be tempting to think that these interim rebounds are indicative of more to come, but almost always they are nothing more than temporary relief from a lengthy plunge in the leading indexes. It would be naïve to think that they signal a continuing change in the direction of the market. Current economic prospects are not encouraging. The Fed has already increased the federal funds rate from essentially zero to 3.25%, thanks to a trio of 0.75% jumps, and indications are that there is more to come. Indeed, one might well expect to see this key indicator near 4.50% before the program of tightening ends next year. This is the Fed’s primar

Sound Advice: October 12, 2022

More Pain Ahead? It’s been a difficult year for the investment markets, but tough times have happened before and they will certainly happen again. Sometimes recoveries are relatively quick and sometimes a hefty dose of patience is required. No two downdrafts are alike, but the net result is always a rebound to even higher levels than seen before. One of the most uncomfortable stretches over the last half century took place during the oil embargo days of the early and mid-1970s. Market valuations fell to the high single digits, a level that was about half the historic average. For investors, this was one of the great sales of all time. Those who had the courage to get aboard reaped huge rewards. More recent pullbacks of note took place during the dot.com days of the turn of the millennium and the banking crisis of 2008-9. The former period was marked by what appeared to be investors’ absolute indifference to longstanding measures of reasonable value. If a company had