Skip to main content

Sound Advice: December 7, 2022

Strategy of the Day, Week, Month, Year, etc.

Knowledgeable investors can only gag at the plethora of schemes that bombard the public every day.  Whether it’s 10 stocks to buy now, funds you can hold forever or strategies to make money in up or down markets, there seems to be no end to these preposterous enticements.

Unlike Las Vegas, Atlantic City or Monte Carlo, the odds of success when investing in stocks and bonds are on your side.  However long a period you choose, assuming it’s 20 years or more, there has always been a positive return on stocks.  Indeed, over the past half century, the Dow Jones Industrial Average has risen more than 50-fold.

Yes, the increase over the five-decade period has not been consistent. During some decades, such as 2000-2010, the stock market went nowhere, yet in the 10 years that followed, the annual gains from stocks were nearly double the historic average. 

It’s a cyclical thing that depends largely on valuations.  Back in the mid-1970s, amid an extended period of stagflation, the typical valuation on stocks had shriveled to the mid-single digits.  What followed during the 1980s was an enormous rise in valuations, which peaked during the dot.com era.

High valuations are followed by weak markets and vice-versa.  We’re somewhere in between at the moment, though there’s a distinct possibility of slower economic growth over the next few quarters as the Fed continues its program of rising interest rates and tighter credit. 

The prospective aftermath will be more interesting as it is likely to bring with it an acceleration of economic progress and an easing of credit.  These are the ingredients of a strengthening stock market and higher bond prices.  That’s predictable.

Proper analysis of earnings prospects and financial health will assist in the selection of worthwhile holdings, whether they be stocks or funds, but suggestions offered in the media about esoteric approaches, hot lists, and the like are today’s equivalents of snake oil.  Avoid them like the plague.

If there really were methods that produced consistent improvements over time, you can bet those who developed them would take advantage of what they had to offer.  No doubt, there are professionals who have found small tweaks in their techniques that may result in small improvements, but as others have come aboard and done similarly, the impact has always diminished.

Consistent long-term growth of profits combined with strong finances is always reflected in good stock performance.  Anything else is essentially a crapshoot.   

N. Russell Wayne, CFPÒ

www.soundasset.com

Any questions?  Please contact me at nrwayne@soundasset.com


Comments

Popular posts from this blog

Sound Advice: March 16, 2022

Pullback . . . and then what?   The one certainty about the stock market is well illustrated by an account of a 1955 story about J. Pierpont Morgan given by the U.S. Secretary of the Treasury George M. Humphrey. The story is as follows: Somebody said: ‘Mr. Morgan, you are familiar with the stock market.?’ He said: ‘Yes.’ They said: ‘You know quite a lot about it?’   And he said: ‘Yes, I do.’ They said: ‘Do you think you can tell us what the stock market will do?’   He said: ‘Yes, I can.’   They said: ‘That is very interesting.   Will you please do so?’   He said: ‘Yes. It will fluctuate.’ Equally on point is a quotation from Benjamin Graham, widely known as the father of value investing and co-author with David Dodd of the recognized text on Security Analysis: “Most of the time common stocks are subject to irrational and excessive price fluctuations in both directions as the consequence of the ingrained tendency of most people to speculate or gamble . . . to give way to hop

Sound Advice: December 29, 2021

“Hope smiles from the threshold of the year to come, whispering, ‘It will be happier.’”                                                         ALFRED LORD TENNYSON           N. Russell Wayne, CFP ®

Sound Advice: August 3, 2022

Are tech stocks worth the additional risk?   Companies whose focus is technology have been accounting for an increasing proportion of the total value of the Standard & Poor’s 500 Index over the latest 10 years.   Since the giant tech companies have grown more rapidly and now represent 28% of the total, the S&P Index has become more volatile. The S&P has been largely propelled by a group that had been known as the FAANGs: Facebook, Amazon Apple, Netflix, and Google.   The propulsion goes both ways.   This year, the combination of a lingering pandemic, hyperinflation, and conflict in Ukraine has sent the investment markets tumbling, with this group leading the way down. For this reason, it seems worthwhile to think about investing in the broad market in slightly different ways.   Since the S&P Index is biased toward the largest companies, it would be interesting to consider the results if all stocks in the index were equally weighted.   That would be an exchange-tra