Sound Advice

  Stocks NOT To Buy Now Of all the silly information regularly offered to investors, the most useless and omnipresent is typically phrased as “10 Stocks to Buy Now” . The latest to come across my desk is from Barron’s , the well-respected (in some quarters) Dow Jones financial weekly that is a sister publication of The Wall Street Journal .   The article, in the December 21 st issue, was entitled “10 Timely Stock Picks For 2021.” Just in case readers got too excited about the list of stocks provided, the article let them know the 10 picks they anointed in December 2019 returned an average of 11%.   In most years, that would be been considered an OK return, but over the same period the S&P 500 index returned 18%.   Barron’s response to the shortfall: Who could have predicted 2020?   The reality is that no one can predict the returns for any year.   Indeed, any and all efforts to forecast the short-term future for the investment markets are futi...

The Stock Market’s Too High . . . and it’s going higher. Over the many years I’ve been a stock analyst and money manager, I have periodically heard the words of the song that never ends: “The stock market is too high.” The first time I heard it was back in the 1970s, when the Dow Jones Industrial Average was meandering through a 15-year channel in which the high-water mark of 1,000 seemed to be an impenetrable peak.   Then in 1982, the Dow finally managed to break through and continued to rise almost nonstop until October 19, 1987.   That was the day of the Great Crash: The averages dropped more than 22% in one day.   Even so, by the end of 1989, only a bit more than two years later, Dow had recovered all of that loss and added another 500 points, rising to 2,753.20.   As of this writing, it stands at 30,216.45, a gain of approximately 1,000% in 31 years. Are stocks undervalued, fairly valued or overvalued?   That depends on which stocks you are looking at...

  SEEING THE FUTURE: Sunny, with occasional clouds Estimating earnings (the prime determinant of stock prices) can be a fascinating task, especially if there’s a substantial basis for making such estimates. Some analysts develop their numbers starting from an overall economic and industry perspective. Others build their numbers from the bottom up.  Either way, the critical factor when considering estimates of earnings is the level of confidence in the numbers. The level of confidence is indicated by the Coefficient Variance, a technical term that measures the dispersion of estimates. If, for example, the mean of all analysts’ earnings estimates is $2.00 a share, with a low of $1.00 and a high of $3.00, that’s a wide dispersion and the Coefficient Variance will be high, probably 5.00 or greater. In such a case, it seems as if everyone’s guessing, since there’s little agreement on what the number will be. In contrast, when the mean is $2.00, with a low of $1.90 and a high of $...

  Gold: Marching to a Different Drummer As a complement to traditional asset classes, it is not unusual to consider precious metals such as gold, silver, platinum, and palladium. During times of economic stress, these kinds of commitments have tended to provide a measure of emotional comfort, which may or may not be accompanied by a price counterpoint to the course followed by stocks and bonds. Gold and silver have been the more common safe harbors, rising sharply on occasion and then moving sideways for extended periods. Though most frequently viewed as raw materials for jewelry, they have additional uses. Platinum and palladium have broader application, the most important of which is in automotive catalytic converters. Given the array of investment vehicles that has become available, it is now relatively simple to add precious metals to one’s portfolio. The simplest way of doing so is by buying mutual funds or exchange-traded funds that invest directly in the metals themselves....

  Security Analysis: Science or Art? In 1934, McGraw-Hill published the first edition of Security Analysis, a 700-page text that was to become the bible of Wall Street research. This weighty tome, often referred to as Graham & Dodd, the authors, debuted as an analytical response to the stock market debacle of 1929- 1933. Replete with a plethora of evidence supporting the authors’ contention that there is indeed a cause-and-effect for movements in stock prices, the book set a standard for stock evaluation that has remained in place for decades. When pondering the subject of security analysis, one of the key questions is whether a good company is also a good investment. There are more than a few good companies, but when recognition of these companies is widespread, valuations tend to get stretched, occasionally far beyond what might otherwise be considered defensible levels. So an ostensibly interesting situation may in fact turn out to be one that is supported by a Utopian t...

 The Customer's Man . . . working for the customer, not the firm. Customer’s man was what a stockbroker used to be called. That was a time when registered representatives took pride in working for the customer and brokerage firms were less involved in client relationships. That was then. These days, those who could still be called customers’ men are few and far between. They are a small minority who have learned their trade, built strong relationships, and tailored their efforts to the needs of their clients. They recognize the benefit of putting their clients’ interests first. And then there is the overwhelming majority of today’s brokers, euphemistically known as financial advisers, whose emphasis is exclusively on the here and now. Those are the folks who took a crash course before taking a Series 7 exam, started off with the title of Assistant Vice President to be sure that folks would be impressed, then cold-called prospects ad nauseam with the hot ideas that had been de...

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 bu...