The Long Term Investor

Good article Zukodany.

My recent STREAK beating the SP500 came to an end today. SP500 beat my by .64%. If the markets can do what they did today, I will WELCOME being beaten by the SP500.

 

Well, I used to own it and sold all shares due to the many negative issues and news items that seemed to show a consistent failure of management over the 737 issues. The stock is still being hammered for all the same reasons and on top of that they will be impacted by the Wuhan virus issues going forward. I like BA, but would not be a buyer at this time.

 

2020corona

The main reason I did not own Amazon earlier is:

I did not follow the stock closely. I would hear, like you that they had no profit. Where we lived......out in the country....was not the best area to use their services. It was not a good thing to have packages left at our farm gate far from view of the house. When we moved to the city, 7 years ago, we became Prime members and started to use them all the time. This triggered me to look more closely at them. I first bought the stock about 6-7 years ago. It has been a very strong performer over that time. I still think it is a great company, with great management, and a great future.

As a start up they were a simple online book company. They survived the dot-com crash and gradually moved from book sales to the current business model. I would call the time period from about 2010 to now their DOMINANT years where they really made their mark. They are STILL a relatively young company.....now......just ten years later.

 

Update. I have been out and about this weekend. Played a show and there were plenty of people in a local neighborhood club. ALSO...played a last minute show on Saturday night........entertainment district........BIG club. Most of the clubs are still open and still doing music. Crowds are down but NOT dismal. People.....at least in those environments.......are still having a good time, going out to eat, drinking, etc, etc. The.......Wuhan Virus...is of course a topic everywhere, but most people seem to be reasonable and rational. I have yet to see a SINGLE mask. Checked out a few grocery stores....even though we did not buy anything. HEB was very busy, but hanging in there. It was obvious that people had been panic buying. Randalls, shelves were picked over and lean for some items, store needed to be restocked, NO crazy lines. Bought some gas.....at $1.89 gallon.

My BIG fear......the "CURE" will end up being worse than the "DISEASE". We are going to see increases in the number of cases. This will simply be due to more and more testing. BUT...the MEDIA will be in 24/7 FULL PANIC mode. The current numbers for the USA are STILL extremely MINIMAL....actually MINUSCULE. In a country of 327,000,000 people we are at about 3000 cases....even with increased testing.....and ONLY 56 fatalities.

As we head into the new week......AFTER all the market GYRATIONS:

DOW year to date (-18.76%)
SP500 year to date (-16.09%)

 

HERE is a simple little article. BUT......so true. AND.....even though people think they are the exception....the return killing behaviors set out in this article happen to many people every time there is some crisis. The LAST big crisis we had.....2008/2009......banking collapse......I saw many many people on money message board debating for LITERALLY years after the crisis was over, whether it was tiem to get back in the markets yet. I saw many many people that missed 1 or 2 or 3 years of gains...waiting for the right entry point to get back into the markets.

Should You Cash Out Of Stock Mutual Funds In A Market Downturn?

https://finance.yahoo.com/m/3c89b4c8-f147-3e96-a5e8-955adc2a992b/should-you-cash-out-of-stock.html

(BOLD is my opinion OR what I consider important content)

"As the stock market sags amid investor fears about coronavirus, mutual fund shareholders wonder how to avoid becoming collateral damage. Is cashing out of stocks and stock funds a smart way to protect their investments? Or should shareholders stay the course, stay fully invested?

The answer depends on which segment of your portfolio you're asking about. There's one answer for the segment of your portfolio that you rely on for money to pay current and near-term retirement expenses. Call that the spending bucket portion of your portfolio.


For that retirement spending bucket portion, park your money in either cash or short-duration bond funds, whose value changes much less than stock mutual funds do amid market volatility.

Cashing Out Of Stock Mutual Funds In A Market Crash: Smart Or Not?
There's another, totally different answer for the segment of your portfolio whose job it is to keep growing faster than inflation. Call that the long-term growth portion of your portfolio.

That's your entire portfolio if you're young and more than about three years away from retirement. If you're within three years of retirement or already retired, it's likely still the bulk of your portfolio.

And that's what this report is all about: how to handle the long-term growth segment of your portfolio during a market crunch like the current Covid-19 virus-fueled market retreat.

Bear Market Status
The Dow industrials officially dropped to bear market status on Wednesday, trading more than 20% off its Feb. 12 high.

It's a classic strategic choice. While the market melts, are you better off cashing out of stock fund shares and seeking safe havens in cash and bonds? Or is it better to stay in your stock funds and wait for the market to rebound?

And people do react to headlines. China first reported that authorities were treating cases of coronavirus on Dec. 31. In January — although it is hard to say how much is due just to coronavirus-impact fears — shareholders yanked a net $39.2 billion from long-term stock mutual funds in the U.S., according to the Investment Company Institute. That was more than calendar 2019's average monthly net outflow of $30.2 billion.

And remember, we're talking about the mutual funds portion of your portfolio.

With your individual stocks, you buy, hold, add or sell based on the rules of a time-tested strategy that tells you when to get in and out of securities.

Stay The Course With Long-Term Funds
With your mutual funds devoted to long-term growth, experts advise: stay the course.

You may ask, Why? Why leave money in mutual funds that lose value in a downturn?

The answer is that individual mutual fund shareholders rarely, if ever, get out of the market near its top. And they rarely, if ever, get back into the market at its bottom.

For instance, in the 10 years ended Dec. 31, 2015, the broad stock market in the form of the S&P 500 rose 7.31% on average each year. But by flitting into and out of the market in reaction to market ups and downs, the typical shareholder in U.S. stock mutual funds gained just 4.23% each year on average, according to research firm Dalbar.

It's like expecting to win a road race despite dropping out. It can't be done.

Sell Low, Buy High?
Instead, time and again shareholders end up selling low — then buying high after missing the often explosive start to a rally.

"Mutual fund investors tend to wait too long to get out, because it's human nature to not want to realize losses," said Samantha Azzarello, global market strategist on the J.P. Morgan Asset Management Global Market Insights Strategy Team. "They also tend to wait too long to get back in. Even once a snapback begins, they're waiting for the market to prove itself."

Meanwhile, if you simply stay put, stay invested, you benefit from the market's remarkable history.

After all, the market has recovered from every downturn.

And that includes the Great Depression, World War II and the Financial Crisis of 2008-2009.

Cashing Out Can Cost You The Market's Best Days
The trouble with cashing out or seeking a safe haven in bonds is that people tend to get out at the wrong time and get back in at the wrong time.

You're likely to miss the typically unpredictable starts of each new run up in the market. Those tend to be among the market's best days.

The price for missing out is that your total returns suffer.

Market Rallies Start Unexpectedly
Look what happened if you had invested $10,000 in the S&P 500 between the start of the year 2000 and last Dec. 31. If you stayed put, remaining fully invested through the market's ups and downs during those 20 years, your average annual return was 6.06%. Your nest egg would have ballooned into $32,421.

But if you got cold feet, cashing out when the market got rocky, what happened? If you didn't get back in soon enough to benefit from rallies after various pullbacks, and you missed just the 10 best market days during that 20-year period, your average yearly return got slashed by more than half to just 2.44%, J.P. Morgan Asset Management calculates. Your end balance would have been a far more modest $20,030.

The more best days that you miss, the worse your portfolio's investment returns would have been.

If you missed just the 20 best market days, your rate of return would have shrunk to little more than break-even, a mere 0.08% average annual gain. Your $10,000 would have turned into $10,167.

If you missed the 30 best days, your return would have been negative. You would have lost money. Your $10,000 would have shrunk to $6,749.

Is that a price you'd be willing to pay to "protect" your money?



Missing The Best Days Is Easy
And it's all too easy to miss the best days after cashing out. Six of the best 10 market days occurred within two weeks of the 10 worst days from 2000 and 2019.


The single best day of 2015 — Aug. 26 — was just two days after the worst day, Aug. 24.

But mutual fund shareholders tend to still be on the sidelines when those rallies make their explosive starts. "Big amounts of institutional money lead to quick snap-backs," Azzarello said. "But individual shareholders tend to still be out of the market."

Hiding on the sidelines feels safe. It ends up being costly."

MY COMMENT

This is one of those times when COMMITMENT to being a long term investor is severely tested in many people. It is NOT FUN to sit and watch an account going down. OR....it is SCARY to see stocks down 2000 point sin one day and UP nearly 2000 points the next day. Drip, drip, drip losses wear people out. BIG, irrational, up and down moves panic people.

ONE reason I set up my LONG TERM portfolio to concentrate on the.......AMERICAN, BIG CAP, DIVIDEND, ICONIC PRODUCT, DOMINANT WORLD WIDE COMPANIES........is for the down markets, especially crisis markets. These sorts of stocks tend to NOT lose as much in a crisis. I TRY to rack up NICE GAINS in the good markets and BEAT the averages in a DOWN market. Being focused on the BIG name companies as I do usually achieves this goal.

BUT......BE AWARE....I AM NOT advocating that anyone else simply follow my portfolio model. It is an aggressive portfolio that may not be suitable for others. My income situation allows me to be......100%...... fully invested in stocks and funds all the time.

 

HERE is a repeat of the portfolio model.......as usual:

I am once again posting my PORTFOLIO MODEL. My initial criteria to start the process to consider a business are.......BIG CAP, AMERICAN, DIVIDEND PAYING, GREAT MANAGEMENT, ICONIC PRODUCT, WORLD WIDE LEADER IN THEIR FIELD, LONG TERM HORIZON, etc, etc, etc.

PORTFOLIO MODEL

"Here is my "PORTFOLIO MODEL" for all accounts managed which is the basis for MUCH of my discussion in this thread. I am re-posting this since I often talk in this thread about my portfolio model. My custom in the past on this sort of thread was to re-post my portfolio model every once in a while since I will tend to talk about it once in a while. I "manage" six portfolios for various family including a trust. ALL are set up in this fashion. If I was starting this portfolio today, lets say with $200,000. I would put half the money into the stock side of the portfolio, with an equal amount going into each stock. The other half of the money would go into the fund side of the portfolio, with an equal amount going into each fund. As is my long time custom, I would than let the portfolio run as it wished with NO re-balancing, in other words, I would let the winners run. Over the LONG TERM of investing in this style (at least in my actual portfolios), the stock side seems to reach and settle in at about 55% of the total portfolio and the fund side at about 45% of the total portfolio over time. That is a GOOD THING since it tells me that my stock picks are generally beating the funds over the longer term. AND....since the funds in the account generally meet or beat the SP500, that is a VERY good thing.

As mentioned in a post in this thread, I include the funds in the portfolio as a counter-balance to my investing BIAS and stock picking BIAS and to add a VALUE style component (Dodge & Cox Stock Fund), a top active management fund that often beats the SP500 (Fidelity Contra Fund) and a SP500 Index Fund to get broad exposure to the best 500 companies in AMERICAN business and economy. The funds also give me broad diversification as a counter-balance to my very concentrated 10 stock portfolio.

STOCKS:

Alphabet Inc
Amazon
Apple
Costco
Home Depot
Honeywell
Johnson & Johnson
Nike
3M
MSFT
PG

MUTUAL FUNDS:

SP500 Index Fund
Fidelity Contra Fund
Dodge & Cox Stock Fund

CAUTION: This is a moderate aggressive to aggressive portfolio on the stock side with the small concentration of stocks and the mix of stocks that I hold and with the concentration of big name tech stocks. Especially for my age group. (70). So for anyone considering this sort of portfolio, be careful and consider your risk tolerance and where you are in your life and financial needs. I am able to do this sort of portfolio since my stock market account is NOT needed for my retirement income AND I have a fairly HIGH RISK TOLERANCE. In addition I am a fully invested, all the time, LONG TERM investor. (LONG TERM meaning many years, 5, 10, 20, years or more)"

MY COMMENT

This portfolio is HIGHLY CONCENTRATED on the big cap side of things. OBVIOUSLY between the funds and my ten stock holdings there is MUCH doubling and tripling up on the stocks. THAT is INTENTIONAL. I strongly subscribe to the view of Buffett and some others that TOO MUCH diversification kills returns. I do NOT believe in the current diversification FAD that most people seem to now follow.......or think they are following. I DO NOT do bonds and think the current level of bonds held by younger investors.....those under age 50.....is extremely foolish.I DO NOT do market timing or Technical Analysis.

 

I was looking at my account today in Schwab. So, I ran a few figures to see how I was doing versus the SP500 over the short term.

Year To Date My Account (-14.31%)
SP500 (-15.73%)

Past Three Months My Account (-12.39%)
SP500 (-14.03%)

So.......at the moment......I an BEATING the SP500 year to date by 1.42%. I am also BEATING the SP500 over a three month time period by 1.64%. These figures seem a little high to me.........no doubt due to the fact that they are very short term and we are in a very UNUSUAL market time period.

 

WELL.....here is the top story TOMORROW......today. The Fed has cut rates to "0" and will do some big time buying of Treasuries.

Fed takes emergency steps to slash rates and ease bank rules

https://apnews.com/cf1d8e5487eee5e9eb649f0c6700ded6

(BOLD is my opinion OR what I consider important content)

"The Federal Reserve took massive emergency action Sunday to try to help the economy withstand the coronavirus by slashing its benchmark interest rate to near zero and saying it would buy $700 billion in Treasury and mortgage bonds.

The Fed’s surprise announcement signaled its rising concern that the viral outbreak will depress economic growth in coming months, likely causing a recession, and that it’s poised to do whatever it can to counter the risks. It cut its key rate by a full percentage point to a range between zero and 0.25%.

The central bank said it will keep its rate there until it is “confident that the economy has weathered recent events.”

The Fed will buy at least $500 billion of Treasury securities and at least $200 billion of mortgage-backed securities. This amounts to an effort to ease market disruptions that have made it harder for banks and large investors to sell Treasuries as well as to keep longer-term borrowing rates down.

All told, the Fed’s aggressive actions are intended to keep financial markets functioning and lending flowing to businesses and consumers. Otherwise, as revenue dries up for countless small businesses that have suddenly lost customers, these employers could be forced to lay off workers or even seek bankruptcy protection in some cases.

“This is a break-the-glass moment” for the Fed, said Mark Zandi, chief economist at Moody’s Analytics. “They are throwing everything they’ve got at this. My sense is they must be nervous about the credit system not functioning properly. They are trying to shore up confidence.”

By slashing its benchmark short-term rate and pumping hundreds of billions of dollars into the financial system, the Fed’s moves Sunday recalled the emergency action it took at the height of the financial crisis. Starting in 2008, the Fed cut its key rate to near zero and kept it there for seven years. The central bank has now returned that rate — which influences many consumer and business loans — to its record-low level.

The new bond purchases will be similar to the several rounds of “quantitative easing,” or QE, that the Fed conducted during and after the Great Recession to bolster the financial system and the economy. Chairman Jerome Powell, in a conference call with reporters, said the Fed’s purchases are intended to ensure that credit markets function properly.

Shoring up the Treasury bond market and other sources of credit, Powell added, is vital to the health of the economy.

Powell warned that the economy would likely shrink in the April-June quarter because of the widespread shutdowns from the coronavirus and a broad pullback in consumer spending. He noted that the necessary behavioral changes being made across the country to stem the outbreak — an avoidance of travel, shopping and mass gatherings — are inherently harmful to the economy, which he said had been in solid shape before the virus hit.

“Ultimately, the virus will run its course and the U.S. economy will resume a normal level of activity,” Powell said, though he didn’t speculate on when the rebound might occur.

“The virus is having a profound effect on the people of the United States and across the world,” Powell said. The primary response will need to come from health care providers, he stressed, as many experts have.

Still, he added that “economic policymakers must do what we can to ease hardship caused by disruptions to the economy, and support a swift return to normal once they’ve passed.”

Powell acknowledged a concern sounded by many economists in recent weeks: That the Fed, the European Central Bank and other leading central banks have only a limited ability to ease the economic damage caused by the virus. The chairman said that Congress and the White House would also have to use tax and spending policies to boost the economy.

“We don’t have the tools to reach individuals and particularly small businesses,” he said on the conference call. “But this is a multi-faceted problem, and it requires answers from different parts of the government and society.”

A statement from the Federal Reserve Bank of New York noted that the central bank’s new Treasury purchases will begin with $40 billion on Monday, while the mortgage bond purchases will total roughly $80 billion over the next month.

“We’re going to go in strong, starting tomorrow, Powell said, “and ... do what we need to do to restore market function.”

The Fed is also joining in a coordinated global action, with the the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank and the Swiss National Bank, to provide cheap dollar credit to banks. This move is intended to ensure that foreign banks continue to have access to dollars that they lend to overseas companies.

Powell said the Fed acted Sunday after having decided to meet this weekend in lieu of the meeting its policy committee had been scheduled to hold Tuesday and Wednesday this week. He also said the central bank decided not to issue its usual quarterly projections for the economy and interest rates this week because the virus is altering the economic picture too quickly to make such projections useful.

U.S. stock futures began falling after the Fed’s announcement. Futures for the S&P 500 index were down about 4.5%. Gold prices rose 3.5%.

Sunday’s action drew rare praise from President Donald Trump, who had attacked the Fed as recently as Saturday, as he has frequently, for not acting quickly or aggressively enough.

“It make me very happy,” Trump said as he opened a White House briefing on the coronavirus. “I think that people and the markets should be very thrilled.”

One dissenting Fed member, Loretta Mester, president of the Cleveland Federal Reserve, voted Sunday against the full-point rate cut, favoring a half-point cut instead. She did support the Fed’s other actions to boost credit markets.

As more businesses across the country see their revenue dwindle as consumers stay home, many of them will seek short-term loans to maintain their payrolls. The Fed said it has dropped its normal requirement that banks hold cash equal to 10% of its customers’ deposits, thereby allowing banks to lend that money instead. It also said banks can use additional cash buffers that were imposed after the 2008 financial crisis for lending.

“It confirms that the Fed sees the economy going down ... very sharply” toward recession, said Adam Posen, president of the Peterson Institute for International Economics, said.

Yet with the virus’ spread causing a broad shutdown of economic activity in the United States, the Fed faces a hugely daunting task. Its tools — intended to ease borrowing rates, facilitate lending and boost confidence — are not ideally suited to offset a fear-driven shutdown in spending and traveling.

“This isn’t going to be the magic bullet that saves everything,” said Timothy Duy, an economist at the University of Oregon who follows the Fed, but sends a signal to Congress that the economy needs emergency stimulus.

Duy predicted that the Fed will follow up with further actions, including possibly changing its inflation target to allow for more stimulus and providing more support for commercial paper — the short-term notes that companies issue to meet expenses.

“I don’t think they’re done yet,” Duy said.

Earlier Sunday, Treasury Secretary Steven Mnuchin said that both the central bank and the federal government have tools at their disposal to support the economy.

Mnuchin also said he did not think the economy is yet in recession. Many leading economists, though, have said they believe a recession has either already arrived or will soon. JPMorgan Chase predicts the economy will shrink at a 2% annual rate in the current quarter and 3% in the April-June quarter.

Two weeks ago, in a surprise move, the Fed sought to offset the disease’s drags on the economy by cutting its short-term rate by a half-percentage point — its first cut between policy meetings since the financial crisis"

MY COMMENT

A good move.....done poorly. The FED has once again FREAKED OUT the markets with a surprise move. I like the language that the "virus is having a profound" impact on the people of the United States. Not really, it is the panic and self fulfilling actions of PEOPLE that is causing all the various issues. The virus is really NOT spreading rapidly or causing rapidly escalating deaths or economic turmoil, outside of Iran and Italy. At the moment we have about 3000 confirmed cases with about 61 deaths. Not exactly earth shattering numbers, especially in the context of ANNUAL FLU. As I said, the cure will be worse than the disease. BUT.....that is all part of the same process. Having lived through MERS, SARS, ZEKA, EBOLA, AIDS, etc, etc over many years......those similar or worse events did NOT involve people and governments acting like they are now. Not even close.

BUT....for now it does not matter what is driving perceptions and actions. AND....it does not matter if it is overreaction. All that matters is the fact of what is happening to the economy and what the impact will be. CAUSE is irrelevant.

It will be an interesting FIGHT TOMORROW between the various forces that now want to push the markets down and those that want to push it up. I "suspect" that DOWN will win out tomorrow by the close. I "hope" that I am wrong and we see a pretty big drop at the open and than a recovery through the day to the close.

 

Seems like a TYPICAL Monday........lately.

Personally, I am with TomB16.......(see his investment blog). NOW.....is NOT the time to be buying anything. I really dont have much fear or concern for the virus. I DO have concern that the steps governments at all levels are taking in response are WAY BEYOND reason and are going to put the economy into a real problem. When you start to shut down businesses.....bars, restaurants, movies, etc, etc, and the Fed and others start to take panic steps, etc.......you are risking starting a HUGE SNOWBALL of economic consequences. NOT the time to be buying anything in the markets.

 

Well boys and girls.........I have decided to put together a plan to take a number of family and personal accounts to cash over the next few days. Just as I did in the 2008/2009 potential banking collapse.

To BEAT A DEAD HORSE.....I have ZERO concern for the virus. In the scheme of things, a death rate at the level of FLU....or.....even double FLU (up to 1%), which I think is the max death rate,..........is not a crisis from a very clinical standpoint and totally disregarding the personal human impact. We live with similar death rates year in and year out with the Flu and never blink an eye. This is an economic decision...so...there is NO place for feelings for those that are impacted on a human level.

My BIG CONCERN.....is the impact that governmental decisions are going to have on the US economy and the world economy. At this point we are seeing government shut down:

restaurants
movie theaters
bars
clubs
gatherings over 50 people
schools
colleges
cruises
airlines

Many other businesses and industries ARE AT RISK and will be at risk if our.......LEADERS.....from the local level on up are all trying to micro manage the UNMANAGEABLE. The potential for severe economic disruption is present and real at the moment....not because some small percentage will die from the virus....but because of the OUT OF ALL PROPORTION responses of people and politicians.

I will certainly sit in cash for some months and probably till the election. I am willing to take economic risk....BUT.....what is starting to happen now is NOT economic risk. When I sold out in 2008/2009 it was because I thought there was a........"POSSIBILITY"....not "probability" of a banking collapse world wide.....perhaps 15-20%. NOW.....I think there is a......"POSSIBILITY"....of a severe world wide economic disruption...perhaps 15-30%. As I see the odds.....I would rather just avoid the entire situation. I am willing to erase a year or two of gains and sit and wait till it is clear that we are no longer operating out of TOTAL PANIC. When I say total panic, I mean the FED, AND all levels of government.

Anyway as usual I am posting what I intend to do. Not intending anyone else to follow or care. BUT....this is basically my investing BLOG, so I put it all out there on here. If my plan changes or evolves over the next few days.....I will post it.

 

Getting ready to go out and support a local restaurant. My sister asked me about stopping some funds that sweep into the SP500 every month. I told her...NO WAY. Those funds will be golden as they go into the markets monthly at great prices.

 

"I have decided to put together a plan to take a number of family and personal accounts to cash"

So AFTER evaluating the accounts here is what I have decided to do:

There are 6 accounts that I handle:

The trust account will remain 100% fully invested as usual in my usual fashion. No one in the current generation will be taking anything out of this account. The first distribution to grandchildren will be in 32 years.

I will go to all cash in ONE of my TWO personal brokerage accounts. The funds will sweep into the money market portion of the account. I will put in the trades for the open tomorrow and hope to hit a wave of buyers looking for bargains.

I will go to all cash in my sisters brokerage account. The funds will sweep into the money market portion of the account. The trades will happen tomorrow at the open.

Two other family brokerage accounts will remain 100% fully invested as usual.

So that is it.....not as dramatic as it sounds. We were out and about. The first restaurant we went to was closed for TWO DAYS due to the scare. WTF? Two days? The second one where we ate had about 30% of normal business. We had to go to the store for dog food. Most basics were there but shelves were very empty. Dog food was fine. We tried to get Q-tips, they were sold out. WHY? I dont know. Tooth paste aisle was also devastated. WHY? Who knows. I did see my first people wearing masks....three of them.....the first I have seen in Texas.