Sound Advice

Ignore the folks who say "It's Different This Time" It's never different, though there are times when some of us are tempted to believe there are good reasons to think that dramatic changes taking place demand a new mindset.   Remember the New Economy of 1999-2000.   Those were the good old days when things like profit and loss statements and balance sheets no longer mattered.   Concepts were in.   Sensible analysis was out.   It was a time when we as advisers ended up in most uncomfortable situations.   Clients wanted to own whichever hot issues they had heard about, regardless of the underlying fundamentals.   Whether or not companies were making any money was of no importance.   It was the ideas that counted. For those of us who kept our heads screwed on right, our efforts to maintain some semblance of sanity by focusing on time-tested themes such as consistent growth of profits and strong financials often fell on deaf ears.   Why buy the Steady Eddies when &

                                          SOUND ADVICE:  November 11, 2020   Why You Should Be Concerned About High Stock Prices   In the wake of the market plunge that took place in late February and March, the stock market staged an extraordinary comeback.   But even with the breaking news that vaccines now in Phase III clinical trials are showing promising results, we are all better advised to take a deep breath and put things in perspective. Let’s begin with the reality that just prior to the latest jump in prices, the Standard & Poor’s 500 Index on an equal-weighted basis was actually down for the year to date.   It gets worse since the S&P has been largely driven by the huge advances of the FAANG stocks: Facebook, Amazon, Apple, Netflix, and Google.   Ex those companies, the typical year-to-date result for most stocks was a loss between 5% and 10%. So much for talk about a roaring bull market. Given this perspective, the question to be asked is whether stock valu

  “If I’d only followed CNBC’s advice, I’d have a million dollars today — provided I started with a hundred million dollars.”                                                                                                      Jon Stewart I do not have any interest in "The Stock of the Day" or why the latest news requires me to reposition my portfolio.  Yet, this is exactly what you will hear when you tune your TV to CNBC, which prides itself as being a prime source of investing information. Sad to say, CNBC's scores highest on TMI, too much information that is unrelated to any worthwhile action that I or any investor should be taking. The station’s message is little more than ongoing prattle by a series of ostensibly intelligent talking heads who fill the hours of the business day with lots of words of questionable value. Between the continuing shifts in camera angles and ongoing remote pickups, combined with background graphics that are ever on the move, there’s l

  “Stop trying to predict the direction of the stock market, the economy or elections.”                                                                 Warren Buffett As we get closer to Election Day, people are increasingly concerned about the impact on the stock market of the possible results.   Although it’s easy enough to waste an extraordinary amount of time substantiating the theses on both sides, the reality is that from any reasonable time perspective, the net result will not be much different.   It’s quite likely that the immediate reaction will be a sharp uptick in volatility, but the longer-term probability is that the market will rise the majority of the time, as it always has.   The chart below tells the story: What is most obvious is that the market has risen as time has passed and there’s every reason to expect that this will continue in the future.   Even if we take a closer look, there is no basis to come to a different conclusion. In the six most recent pres

  Can You Make Money in a Flat Market?   Yes, you can.   Although over many decades annual returns for the Standard & Poor’s 500 stocks have averaged about 10%, that includes gains and losses in some years that were a multiple of that rate.   So a target of about 10% might be reasonably achievable for a long-term investor, but the long term would mean at least three to five years and probably longer.   Given the relatively rich valuations that are currently prevailing, it seems entirely possible that returns in the single digits are more likely in the years just ahead. Since 1926, the inception of the S&P 500, there have been more than a few years with plunges of better than 20% or 30%.   Let’s not forget 2001-2002, 2008-2009, and this past March.   Those were painful pullbacks that rattled all but the most steadfast investors.   That kind of volatility, however, is part of the program.   Standing fast in the face of roller-coaster markets is the price we pay for the potent

“I like the dreams of the future better than the history of the past.”                                                                                                Thomas Jefferson History is a useful, though not infallible, guide to what lies ahead. Invariably, excess in one direction is followed by offsetting movement in the other direction.   Strength is followed by weakness and vice-versa.   Within the universe of investments, there are those that do better than the averages and those that do worse.   When interest rates are low and credit is loose, the stage is set for an acceleration of growth.   When interest rates are climbing and credit gets tighter, the brakes are being applied to economic advances. Stocks tend to rise when investors expect earnings to rise.   They weaken when the view ahead is less rosy.   Bonds rise when interest rates are dropping. Typically, this takes place when monetary policy eases or when investors’ fears prompt a flight to quality.   As busines