Outlook: Cloudy with a Chance of Meatballs
Monthly Outlook: October 2016 During our in‐house strategy meeting today, we bantered about markets, monetary policy, political possibilities, economics and more. There are just so many cross currents and potential outcomes that a high conviction outlook is difficult. Bob summed it up best, “So it’s cloudy with a chance of meatballs!” (after the children’s book/movie). That sounds about right. In September, U.S. stocks were flat once again. The S&P500 started the month at 2,171 and ended at 2,168. It’s just stuck and seems to be waiting for something. Remember, the S&P500 was flat for the first six months of the year, too, starting the year at 2,044 and it was still 2,038 on June 26th. Then, in an incomprehensible rebound rally in response to Brexit, it floated 6% higher in 10 days to 2,065 on July 14th, where it’s been stuck ever since. So really, the whole year’s gain was [...]
Fundamental vs. Central Banks
Monthly Outlook: September 2016 Markets seemed to be on vacation in August as low volume and low volatility ruled the day. For the month, U.S. stocks (S&P500) lost a scant 0.12% and international stocks (EAFE) sagged by 0.21%. U.S. Bonds (with interest) lost a mere 0.32%. On the one hand, investors have to ponder fundamental data that mostly supports the notion of a slowing or, at least, slow‐growth economy. On the other hand, it’s also clear that global central banks remain committed to stimulus plans and, through their asset purchase programs, provide a supportive floor to prices. It’s a Dr. Doolittle Pushmi‐Pullyu market (do little indeed!) But markets don’t typically remain flat for long. We could handle either outcome – up or down – but this sideways and stuck action isn’t helping anyone. Fundamental Outlook Investments are supposed to represent the present value of future cash flow streams, adjusted for [...]
Is the Fat Lady Singing?
Dollars & Sense August 2014 Q. I’ve managed to stay invested for a long time now and have made good returns. But I’m growing more nervous lately and am wondering what your take on the markets is. Is it over – is the fat lady singing? A. Yes, that’s the big question on every investor’s mind right now. Unlike the opera, there is no song, no bell, no single indicator for the stock market to signify the end of a bull market. Of course, that doesn’t mean there aren’t clues. Let’s consider three of them. Let’s start with the big picture and valuations. Markets hit bottom in late 2008 and early 2009 after the Great Recession of 2008. Over the last six years, markets have rallied and valuations are back to “peak” levels. There are lots of valuation metrics, but I would point you to three of them that have [...]
Compared to What?
Dollars & Sense June 2014 Q. I’ve spent a lot of time picking great stocks, a few mutual funds, and some gold. I’m making money, but I don’t think my portfolio is keeping up with the S&P500. What am I doing wrong? A. The only thing I can tell you’re clearly doing wrong is comparing apples to oranges. You’re not alone as I see this all the time. At least you’re tracking performance and trying to assess your success. But when you assess a portfolio and its performance, you have to ask, “compared to what?” Before we get to appropriate benchmarks, let’s review the investment process. First, all investors need to assess their situation; age, liquidity, taxes, tolerance for volatility, experience, and other unique factors. Based on your answers, you (or your advisor) can come up with an overall, long‐term, strategic plan for your portfolio. Only then, should you proceed [...]
When Would You Sell?
Dollars & Sense February 2014 Q. I’m worried about giving back all my recent gains, but my financial advisor never seems to sell. I lost big time in 2008 and don’t want to do that again. Isn’t there something I can do? A. You’ve asked the million dollar question that is on most investors’ mind right now! Many investors suffered 25% or bigger losses in 2008 and it has taken them 4 or 5 years to get back to even or slightly ahead. But they haven’t forgotten that sick feeling they had in 2008 and they never want to experience it again. It sounds like you’re one of them. Professional money managers, myself included, are generally trained to follow a similar path. We’ve all studied “Modern Portfolio Theory” (MPT), which was “discovered” back in the 1950s. Its creators even won Nobel Prizes, so it must be right, right? The cornerstone [...]
Thoughts for 2014
Dollars & Sense December 2013 Q. What are your predictions for 2014 and how should I invest? A. We are all bombarded by all-knowing predictions this time of year and you know what? Most of them are going to be wrong. I’m tired of it and I’ll bet you are too. Instead, I’ll share with you a dozen thoughts on investing that I’ve gleaned over the past three decades. Know Thyself. Before you invest, you have to really know your goals, needs, wants, concerns, time horizon, tax bracket, tolerance for volatility, preferences and so on. These “objectives” should drive your investment plan. Allocation is Everything. What you invest in determines your returns and volatility. You need to determine what asset classes are appropriate for you and how to allocate amongst them. Allocation, more than stock-picking, will drive your returns. Choose your Weapon. Are you going to buy individual stocks – [...]