We interrupt this program to bring you this bulletin

The market is now down two days in a row.  Imagine!  Are you getting weak-kneed?

I hope not.

Let me share a couple of charts with you to provide some perspective.

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The August/September period of the stock market – the chart, above, is of the S&P’s performance from 1929 to 2012 – is the roughest period of the year.  The above chart notes that the average return for August is about +0.7% for the month of August. But isolating monthly returns for August during the last 50 years pull that average down towards September’s more dismal average. Suffice it today, for seasonal reasons that no one understands, August and September are tough months.

Add to this, the goings-on with No. Korea, and we could be in for quite a tizzy. Peace and diplomacy are uppermost in my mind, and probably yours.  But this is a can that’s been kicked down the road for multiple decades.  No. Korea acts up, threatens neighbors or the world, nations agree to talk, more threats are muttered, and time and bribes are offered to stop the hysterics.  That’s been the script.  At least so far. Perhaps, it is time to challenge that script.  Or, are we to continue to permit, or even enable, a nation to act like a terrorist or to facilitate others’ terrorism in various, sordid places around the world until they are ready to stop or to cause us to cower into surrender?  Same goes for Iran, as far as I’m concerned.

Now financial markets are wonderful places to make money over time, but they are dreadful places to find examples of courage.  That, you will need to find within.

If I might offer some encouragement, take a gander at this chart:

Chart of the Day
As I have noted many times, we don’t know why stocks go up or down.  Not exactly.  Skirt lengths, Super Bowl winners, seasonality have all been alleged contributors.  But we seem most sure that the earnings of companies contribute a good deal to the dynamic. So, if that’s the case, then the chart above should give us some courage, in spite of the many voices of fear and negativity, that our economy is doing well.
Our new President may not be doing everything I would have hoped.  His temperament and self-discipline for the tasks he has been elected to perform leave much to be desired.  But his efforts to deregulate our economy by the executive orders and the people he has put in his government have provided a degree of optimism to our land.  I say that in spite of the endless drumbeat to delegitimatize and “resist” his presidency from the media and his many opponents.
So, I hope and pray that our willingness to confront an unpredictable enemy and the general malaise that Aug. and Sept. brings to markets do not rattle your resolve or willingness to do what’s right for the long-term good of our nation or for your retirement portfolio.
God bless us all.
Posted in fear, investment myths, investment wisdom, market corrections, Market falls, market volatility, news biases, political considerations, retirement investing, saving, stock rallies, Successful living | 1 Comment

Now this is what real financial news would look like

Honestly, so much of life is the same thing over and over. It might even be described as boring.

But doing it well and doing it for others is honorable work.

Take a look at this article by a gentleman, Morgan Housel – a wise man – I have quoted before. It is an article, honestly written, about a typical day in business and finance or in much else in life.  It’s worth your (and my) time.

Blessings to you,

Jim O’D

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An Honest Business News Update

NEW YORK – The S&P 500 closed at a new high on Wednesday in what analysts hailed as the accumulated result of several hundred million people waking up every morning hoping to solve problems and improve their lives.

The index finished up 4 points. Goldman Sachs strategist Bill Blake said the move was the result of unidentified marginal buyers being a little bit more motivated than unidentified marginal sellers. “We’ve now had 241 years of people in daily competitive pursuits to do things a little better, and those benefits add up over time. Mix that with some good luck and where we happen to be in the business cycle, and here we are,” he said. “My job is to sound smart, but you can explain this stuff to a five year old,” he laughed.

Corporations earned $5.89 billion in after-tax profits. Financial advisors and middlemen took in $710 million in fees. The difference, Blake said, would accrue to investors over time.

Analysts warned of several metric tons of dopamine and cortisol careening through the global economy, which they said created a near certainty of poor financial decisions. At some point, Blake said, these bad decisions create social proof and feed on each other, leading to recessions. “When is the next recession?” he asked. “I don’t know. Whenever the second mortgage you took out to buy a boat to appease your insecurity convinces your brother in-law to do the same, and his boat gives the boat salesman enough misguided confidence to become a day trader, and then all three of you crack under a collective bout of geopolitical bad luck or something. But we’ll move on.”

About 9,000 new businesses formed on Wednesday. Another 8,200 dissolved. Analysts expect the trend to continue, calling it an “unmistakable example of basic capitalism.”

Fifty-five million American children went to school Wednesday morning, leveraging the compounded knowledge of all previous generations. Analysts expect this to lead to a new generation of doctors, engineers, and problem solvers more advanced than any other in history. “This just keeps happening over and over again,” one analyst said. “Progress for one group becomes a new baseline for the next, and it grows from there.”

Three dozen political pundits yelled at each other on TV in front of an audience of 75 million. Meanwhile, a couple hundred million people were reasonable and productive in front of an audience of zero.

Just over 1,700 patents were filed at the U.S. Patent and Trade Office, with a few expected to change the world over the coming decades. “Pretty damn cool” said Sarah Donald, a PTO spokeswoman. “I wish more people paid attention to this kind of stuff.”

Facebook stock fell $0.23 to close at $169.16. Four-hundred seventy one news outlets covered the move. No one knows why.

Analysts expect more of the same tomorrow, with the trend continuing into next week.

* Nothing, and yet everything, about this post is accurate.

Posted in economic recovery, fear, investment wisdom, Personal Finance, stock rallies, Successful living | 2 Comments

Thoughts on our not-so-new President and markets

It’s now a little more than six months since President Trump was sworn in. World markets show that of 76 countries, stock markets around the world have risen an average of 8% since Trump’s inauguration. Of all 76, all but 14 countries are up for the year.

But before anyone considers that as an endorsement of the new administration, may I say that it is not so. There is a global economic recovery taking place that started well before the November, 2016, U.S. election. And the new administration can claim little credit for that ongoing global recovery.

Look around. The President has accomplished nothing of his larger policy agenda, though much business-friendly, growth-oriented work has been accomplished by executive order. And market indices are at all-time highs.

The talk that this is all Trump, or that if his agenda wasn’t enacted, it would spell big trouble for the markets was simply…wrong.

Still, so many pundits simply can’t wrap their brains around this bull market. Their myopic view dismisses what is really happening and cites any of many issues that arise every week as a reason to sell everything you own.

None of this is meant to minimize the largely pro-business bias that the new administration endorses. But accomplishing any of this will take more time. If any of Trump’s major initiatives is enacted (with the possible exception of trade) even more positive tail winds for American growth, business, and job will follow.

So far this year, optimism in the business community has rekindled and corporate earnings have been nifty. Revenue generation and bottom line profits are growing. Margins are holding at healthy levels. An earnings-driven bull market is taking over from a Federal Reserve-engineered liquidity-driven market. The major banks and other financial businesses, always key to any bull market’s life blood, are performing.

Looking ahead, in spite of the ever-present reality of an possible pullback, I see more growth ahead. Investors fearful of pullbacks should keep in mind that positive results, so far, have being accomplished with none of the administration’s pro business agenda having been enacted as yet.

As I have pointed out before with charts and data, as of today, there is still little evidence that a recession is around the corner, nor much global credit market stress. A low interest rate environment with the Fed moving at a measured pace is raising interest rates slowly. On a more technical side, our U.S. indices and other global markets have broken out to the upside across the board, around the world. As least for now, it simply does not get much better, at least from an investing standpoint, than it is right now.

August is almost upon us. The economic calendar for next month seems clear of any major market moving events. It is at these times, of course, that is when we least expect it, that market weakness might strike. But I mean no prediction by that, just a statement of fact. Again, we’ll get pullbacks from time to time. They can come at any time. If you know of someone who has the date when the next one will begin, please let me know. But, in reality, when pullbacks will occur is unknowable, and they are an unavoidable part of the investing scene.  Moreover, they shouldn’t be feared, especially with the backdrop in place that we currently have. With the strength I currently see, any pullback is likely to remain contained. So I don’t see any bear market drop lurking. And any weakness on the next “scare” should be viewed as a buying opportunity.

I hope this gives my often worried readers a sense of the markets and investing ahead.  Nothing is a given.  N. Korea could act up even more than they are or ISIS could strike an American landmark.  But outside of these sorts of unpredictably events, even a chaotic White House and a Republican Congress that can’t pass legislation that it has dreamed of passing for seven years – if only they had a President willing to sign their bill – things look remarkably encouraging for the investors among us.

Posted in economic recovery, fear, investment myths, investment wisdom, market corrections, market volatility, Personal Finance, retirement investing, stock rallies, Successful living | 3 Comments

What does the the second half of 2017 look like for investors?

There’s much to unsettle us these days in economics, politics, society, and international affairs.  North Korea is up there near the top of the list for many.  Slow economic growth with sticky wage appreciation for others.  Changing societal mores and values for others. But this morning’s Wall St Journal had some words that might be worth reading.

As I again and again point out: focus on the long term, not the next month.  And for the long-term, retirement investor, 2017 has been surprisingly good. So far, at least.

What’s that mean for the rest of the year? Let alone for the next five or ten years? Don’t know, of course.  But listen to what Ryan Detrick told the WSJ this morning:

The S&P 500 has climbed in each of the first six months of this year, a feat not accomplished for more than two decades, according to Ryan Detrick, a senior market strategist at LPL Financial. History is no guarantee, of course, but the last two times the S&P jumped every month in the first half of the year, in 1996 and 1995, the index went on to gain at least 12% in the last six months.

Seasonality also favors additional gains in the final six months of 2017. The S&P 500 ended the first half of the year with 8.2% price advance. Mr. Detrick notes that since 1950 the second half of the year has averaged an advance of 7.1% when the first six months see gains in excess of 8%. That’s well above the 4.5% average. More to the point, strong first half of the year has led to gains to close out the year 84% of all years when the S&P 500 has risen more than 8% from January through June.

“Strength usually begets strength, and we believe a large second-half pullback is unlikely,” Mr. Detrick says.

Posted in economic recovery, fear, investment myths, investment wisdom, market corrections, Market falls, market volatility, Personal Finance, retirement investing, stock rallies, Successful living | Leave a comment

Good advice and perspective

I try to share a sane perspective with my readers.  There are others out there worth listening to. Here’s one of them: Barry Ritholz in an interview with Vanguard.

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From millennials to retirees, investment pro Barry Ritholtz offers deep insights

June 06, 2017-

Barry RitholtzThrough his columns, blogs, and podcasts, the prolific Barry Ritholtz has the attention of thousands of investors and access to some of the most notable names in business and finance.

The co-founder and chief investment officer of Ritholtz Wealth Management, a financial planning and asset management firm, Ritholtz is a columnist for Bloomberg and The Washington Post, hosts Bloomberg’s Masters in Business Podcast, and blogs daily at The Big Picture. He’s also the author of the 2009 book Bailout Nation.

In a recent interview with Vanguard, Ritholtz offered his thoughts on everything from uncertainty about the markets to the biggest worry for retirees to his best advice for millennials.

In a world beset by uncertainty, how do we cope? How do we help ourselves sleep at night?

I love this question, because it’s so important. First, you’re right, the world is beset by terrible uncertainty today. However, it always has been and always will be that way. That’s the default setting. You have to start at that point—start by recognizing that simple truth, which can be very humbling.

Given this uncertainty, what do we tell ourselves, to allow us to sleep at night? Well, there are a few things. First, we really need to understand what is and is not within our control. Stressing out about the things that are out of our control is a total waste of time, effort, and energy. Its psychologically debilitating, and is not how we should be using our finite amount of intellectual capacity and brain power. So, look, we can’t control if it’s going to rain tomorrow, but we can get up each morning, check the weather report, and decide whether to take an umbrella or not. That’s a better approach than stressing about the weather. It’s a simple form of risk management.

The questions we hear all the time goes back to that uncertainty issue: What’s the Federal Reserve going to do? How many rate hikes this year? Where’s the Dow going to be in 12 months? What’s your favorite stock pick?

All those questions are things that you as an investor simply are not going to be able to answer with any degree of accuracy—it’s really a crapshoot. And so, rather than guessing, wasting a whole lot of psychological emotion and energy on it, why not just recognize—and, again, it’s with great humility—recognize what we do know and what we can’t know—and try to adjust accordingly. This leads quite naturally to a portfolio that is balanced and robust enough to withstand the regular market turmoil.

Over the past 20 years, how many market booms and busts have we seen? There was the dot-com boom and bust; the 2008–2009 financial crisis. There have been several 20% pullbacks over the past few years. That is simply the normal state of affairs for U.S. markets. Investors must understand that volatility is part of investing; if you learn that truth about markets, it won’t surprise you when it finally arrives and it shouldn’t disrupt your sleep too much.

What’s the biggest worry for people near retirement or in retirement?

The biggest issue we hear from clients the past few years is a concern with outliving their money. By the time many of our clients retire—we have a huge age range among clients but I would guess the median is mid-50s—by the time these folks retire, human life spans will be closer to 90 than to 70. People have to plan for much longer retirements. Some folks are having trouble wrapping their heads around it, but that’s the overall trend.

What’s a potential answer? Although the traditional 60/40 portfolio is lagging somewhat because of the ultra-low-rate environment we’ve been in for the past decade, maintaining a fairly robust equity exposure that is global and intelligent in its construction really seems to be the best choice for most people. A conservative 50/50 model when you retire no longer makes a lot of sense.

We’ve seen active managers face a lot of questions and challenges in recent years. How do you think active management is going to evolve?

In any one year, 30%, 40%, even 50% of managers might beat their benchmark, but doing so consistently over time has proved quite elusive. That said, some people have demonstrated an ability, which is obvious after the fact, to select stocks or sectors or asset classes that have outperformed their benchmark.

If people want to take a percentage of their portfolio and put it in some form of active management, we don’t tell them that’s the worst idea, but we do want people to recognize the uphill challenge. Active managers tend to have much higher fees than you’d find with passively managed index funds. Be aware of the effect of fees, and the drag they put on returns.

I think the entire active space wildly overexpanded in the postwar period. They pay big salaries, charge big fees, attract a lot of the best and brightest, and suddenly it’s really hard to beat the market because 10,000 other people are doing exactly what you’re doing. There just isn’t that much outperformance to go around.

Bottom line, the shift to indexing is far from over, but I also don’t think active management is going away.

What’s your best advice for a millennial who is just starting out as an investor?

You have a time horizon of 40 to 50 years before you’re going to draw that money down. I would say start investing early, with a heavy emphasis on equities. Root for a market crash, which will let you buy stocks at a 30% or better discount. The reason people have a 60/40 or a 70/30 mix of stocks and bonds is that the bonds offset the volatility of the stocks. As you get closer and closer to retirement, you want to see less and less volatility.

Young investors don’t really need much of a bond portfolio. They should look at it as something that they’re not going to touch for decades. The ups and downs should be irrelevant. Don’t be afraid of crashes. When you’re young, they’re your best friend because they allow you to buy at sales prices. Learn to embrace volatility.

Stocks can be highly volatile and some investors wonder why they should take the risk. In your view, what makes stocks a good long-term investment?

Essentially, you’re betting on human ingenuity. Stop and think about how humans progress and how technology and societies move forward. One of the main purposes of Wall Street is to bring together the people who create new inventions and have new ideas with the people who have the capital. The stock market is essentially the place where ideas get funded, and those ideas subsequently change the world.

When you think about the standard of living that has consistently risen over the past century and a half, that typically takes place because some idea is funded and that funded idea becomes a company, and that company continues accessing the capital markets to grow. Its how prices for food and manufactured goods have fallen so significantly over the past century. And the pace of this is accelerating.

The stock market reflects all of the various growth engines of the economy of the country and of the world, and it’s most likely to generate the highest return relative to the risk investors assume over the course of their lifetime.

We live in an age of wonders. I love the idea that capital plus invention equals a raised standard of living with a side dish of dividends and economic growth.

When it comes to investing, most of us are naturally focused on getting the highest returns, but what do you think is really important?

You know, a lot of this goes back to the question: “What is money?” And I think a lot of people really misunderstand that very basic, very simple question. I look at money as a tool. Money exists; people accumulate money or work for money in order to exchange it for certain goods and services. Included in the list of goods and services are things like health care, security, education, experiences, etc. And so to just pursue returns for their own sake, while it’s fun and exciting and certainly entertaining for the people who engage in that, the question is what purpose does that serve for the average investor? And at what cost?

In the pursuit of outperformance, the typical investor underperforms. It seems like a kind of wasted effort with real negative ramifications for most people.

Putting returns aside for a moment, the reality is that most people need to start saving more. And depending on your situation, you may have to ratchet down your expectations of where you’re going to be at the end of a 20-year period.

But again, the relentless pursuit of outperformance, as we’ve seen in so many studies, as so much academic data has shown us, typically generates less returns than merely accepting the overall average market returns.

 

Posted in fear, fees, investment wisdom, market corrections, Market falls, market volatility, Personal Finance, retirement investing, saving, stock rallies, Successful living | Leave a comment