The Long Term Investor

SO do I.......my property taxes are the lowest they have been in a long time.

I have NOTHING to do tomorrow.....except sit and take whatever the markets want to give me. As usual....I am fully invested for the long term.

HERE is some info on the week ahead.

Bank earnings, retail sales: What to know this week

https://finance.yahoo.com/news/bank-earnings-retail-sales-what-to-know-this-week-162017442.html

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

"A deluge of corporate earnings results and economic data due for release this week will test investors after the stock market's latest record-setting rally.

Traders have been pricing in the likelihood of a rebound in corporate earnings to coincide with the recent batch of better-than-expected economic data. Another round of firming economic data is expected this week, with the effects of the latest round of fiscal stimulus and recent roll-back of more social distancing restrictions bolstering economic activity.

First-quarter corporate earnings likely benefited from this firming economic backdrop. Over the last several months, analysts have raised their aggregate S&P 500 earnings per share (EPS) estimates by a record 6.0%, according to FactSet data.

And first-quarter earnings season will kick off with quarterly reports from the big banks, which have seen some of the sharpest upward revisions to profit estimates. In fact, the financial sector saw the second-largest increase in bottom-up EPS estimates of all 11 sectors in the S&P 500, according to FactSet, coming second only to the energy sector. Financials' EPS estimates were revised up by 13.1%, which marked the second-largest quarterly increase for the sector since FactSet started tracking the metric in 2002.

The rosier outlook for bank profits coincided with a sharp move higher in Treasury yields as expectations for economic growth increased. The benchmark 10-year Treasury yield has advanced by more than 70 basis points for the year-to-date, with highest interest rates helping to boost the income banks derive from their core lending businesses. The S&P 500 financials sector has gained more than 18% for the year-to-date, or double the return of the broader market of the broader market, as the recent rotation into cyclical shares with earnings levered to a strong economic rebound lifted banking stocks.

The banks reporting quarterly earnings results this week — including JPMorgan Chase (JPM), Goldman Sachs (GS), Wells Fargo (WFC) and Morgan Stanley (MS) – will likely already reflect a bottom-line boost from this higher-rate environment. Big banks' first-quarter results will also likely get another boost from trading activity, given the stock markets record-setting rally and volatility in the bond markets so far this year. Fixed-income trading revenues already rose by the most in at least a decade across the bond trading divisions at Goldman Sachs, Citi, Morgan Stanley, JPMorgan and Bank of America last quarter, according to an Axios analysis.

However, with the latest rise in rates now well known and priced in by investors, the next leg higher for bank stocks will likely require a new driver, said Deutsche Bank analyst Matt O'Connor. And last week, cyclical sectors already lost some momentum, as steadying rates prompted a resurgence in technology and growth stocks.

"The next big catalyst for bank stocks is likely to be the return of loan growth. Many view loan growth as one of the biggest long-term drivers of bank earnings and of higher quality than the boost from higher interest rates," O'Connor wrote in a recent note. "Loans are coming in weaker than expected in 1Q... and may be sluggish again in 2Q given likely further deleveraging from fiscal stimulus (and tax returns) and as [the] COVID-19 vaccine rollout will take a good portion of the quarter (likely pushing the expected surge of investment into 3Q or even 4Q)."

"But, we are confident loan growth will pick up and expect a sharp rise in 4Q given a likely robust holiday season, closing of acquisitions and hopefully investment by companies to expand and take advantage of what should be a multi-year economic expansion," he said.

Major sources of loan growth will likely come from both consumer spending during the post-pandemic recovery, and from businesses looking to ramp up deal-making activity and corporate investment as uncertainty around the pandemic diminishes.

Retail sales
A key print on consumer spending will be released on Thursday, with consumption poised to get a boost from the delivery of stimulus checks and warming spring weather.

Consensus economists expect the Commerce Department's March retail sales report to show a monthly gain of 5.4% in March, according to Bloomberg data. This would follow a 3% drop in sales in February, as inclement weather and diminishing effects from the January round of $600 stimulus checks weighed on the month-over-month change in spending. Still, retail sales remained higher by 6.3% in February over the same month in 2020, with consumer spending one of the areas of the economy to bounce back fastest to pre-pandemic levels.

"The latest round of stimulus checks, $1,400 per qualified individual totaling $410 billion, started to go out in mid-March, supporting another surge in spending," Nomura economist Lewis Alexander wrote in a note Friday. "For non-core components, credit card data for food service spending suggests a sharp acceleration as warmer temperatures swept across the U.S. and state and local governments eased restrictions on activity."

"Beyond March, spending should continue to be supported by reopening and continued stimulus check disbursement," he added. "That said, in the months ahead, there could be at least some modest payback following the stimulus-driven surge in spending, similar to the January-February period."

According to Bank of America, the March retail sales report could post an even faster gain than consensus economists are anticipating.

"Based on aggregated BAC card data, retail sales ex-autos increased 11.1% [month-over-month] in March, showing the impact of stimulus, reopening and better weather," economist Michelle Meyer wrote in a note. "This should set up for a very strong Census Bureau report; indeed, we see upside for Census even relative to our 11% growth rate."

During the seven days ended March 20, Bank of America credit and debit card spending surged 45% over the same period last year and 23% over the same timeframe in 2019, which the firm attributed largely to the disbursement of stimulus checks. Recent card spending data from JPMorgan Chase corroborated these trends: Spending on Chase cards was up about 24% year-over-year during the seven days ending March 19, accelerating from growth rates of less than 10% in January.

Economic calendar

• Monday: Monthly budget statement, March (-$720.0 billion expected, -$310.9 billion in February)
  
  
• Tuesday: NFIB Small Business Optimism, March (98.0 expected, 95.8 in February); Consumer Price Index (CPI) month-over-month, March (0.5% expected, 0.4% in February); CPI excluding food and energy month-over-month, March (0.2% expected, 0.1% in February); CPI year-over-year, March (2.5% expected, 1.7% in February); CPI excluding food and energy year-over-year, March (1.5% expected, 1.3% in February); Real average weekly earnings year-over-year, March (4.1% in February); Real average hourly earnings year-over-year, March (3.4% in February)
  
  
• Wednesday: MBA Mortgage Applications, April 9 (-5.1% during prior week); Import price index, month-over-month, March (1.0% expected, 1.3% in February); Import price index, year-over-year, March (3.0% in February); Export price index, month-over-month, March (1.0% expected, 1.6% in February); Export price index, year-over-year, March (5.3% in February); Federal Reserve releases Beige Book
  
  
• Thursday: Initial jobless claims, week ended April 10 (700,000 expected, 744,000 during prior week); Continuing claims, week ended April 3 (3.700 million expected, 3.734 million during prior month); Retail sales advance month-over-month, March (5.1% expected, -3.0% in February); Retail sales excluding autos and gas, March (6.5% expected, -3.3% in February); Empire Manufacturing Index, April (18.0 expected, 17.4 in March); Philadelphia fed Business Outlook index, April (2.7% expected, -2.2% in March); Industrial production, month-over-month, March (2.7% expected, -2.2% in February); Capacity Utilization, March (75.6% expected, 73.8% in February); Business inventories, February (0.5% expected, 0.3% in January); NAHB Housing Market Index, April (84 expected, 82 in March); Total Net TIC Flows, February ($106.3 billion in January); Net long-term TIC flows, February ($90.8 billion in January)
  
  
• Friday: Housing Starts, March (1.602 million expected, 1.421 million in February); Building permits, March (1.750 million expected, 1.720 million in February); University of Michigan Consumer Sentiment survey, April preliminary (89.0 expected, 84.9 in March)
  

Earnings calendar

• Monday: N/A
  
  
• Tuesday: Fastenal Co (FAST) before market open
  
  
• Wednesday: JPMorgan Chase (JPM), Goldman Sachs (GS), Wells Fargo (WFC), Bed Bath & Beyond (BBBY) before market open
  
  
• Thursday: Bank of America (BAC), Charles Schwab (SCHW), Truist Financial Corp (TFC), The Progressive Corp (PGR), US Bancorp (USB), UnitedHealth Group (UNH), PepsiCo (PEP), Delta Air Lines (DAL), BlackRock (BLK), Rite Aid (RAD), Citigroup (C) before market open; Alcoa (AA) after market close
  
  
• Friday: Morgan Stanley (MS), Bank of New York Mellon (BK), PNC Financial Services Group (PNC), Kansas City Southern (KSU), Citizens Financial Group (CFG), State Street Corp (STT), Ally Financial (ALLY) before market open"

MY COMMENT

The OTHER....big item....next week will be the Consumer Price Index data to be released on Tuesday. Earnings should set the tone for the week.....although MUCH is already anticipated....perhaps too much.

Many companies....if not most....should now be doing forward looking statements. This will be the PRIMARY item in any earnings report that.....WILL....determine what the stocks that are reporting do and how the markets react.

 

I generally avoid owning any bank, financial services, or insurance stocks......but I am hoping that they kick off earnings in nice fashion......and.....lead to a good week for the markets.

 

This is going to be one of those.....wait and see....weeks. Or if you prefer a.....show me the money....week. NOT suprrized by the open today....everyone is waiting for earnings and the Retail Sales numbers and the CPI numbers. SO....today and tomorrow could be pretty dull days.
Stock market news live updates: Stocks pull back from record levels as investors await earnings

https://finance.yahoo.com/news/stock-market-news-live-updates-april-12-2021-111129803.html

(BOLD is my opinion OR what I consider important content)
"Stocks fell Monday as traders took a pause after the S&P 500 and Dow logged fresh record highs last week.

The Dow pulled back slightly, shedding fewer than 100 points to steady just below its recent all-time high. The S&P 500 dipped, and the Nasdaq underperformed as technology stocks gave back some recent gains.

For 2021 to date, the cyclical energy and financials sectors have handily outperformed the broader market, overtaking the technology-heavy sectors that led the market higher last year. However, this rotation has lost steam in April, with information technology, communication services and the consumer discretionary sectors outperforming for the month-to-date.

Investors over the past week have eagerly looked ahead to the start of earnings season, with big banks kicking off the first-quarter reporting season later this week. A slew of much stronger-than-expected economic data has suggested that corporate profits would jump tandem with the rebounding economy, especially in those sectors most deeply impacted by the coronavirus pandemic.

"The initial reopening of the economy will trigger a huge rebound in margins across sectors which have been hit hardest by the COVID crisis," Ian Shepherdson, Pantheon Macroeconomics chief economist, wrote in a note Monday. "The unprecedented surge in households' cash balances over the past year – mostly due to the enforced drop in spending on services, augmented by stimulus payments – represents a potential wave of demand, while supply is constrained by business failures, especially in the restaurant sector."

"Fed officials appear to be braced for a period of margin expansion – Chair Powell has talked often of the likelihood of 'transitory' inflation post-COVID – but the key question is whether this will morph into a sustained increase in inflation," Shepherdson added.

Still, however, Federal Open Market Policymakers have to date demurred at the notion that upward price pressures might prove more than fleeting. And Fed Chair Jerome Powell suggested Sunday that the risks were still skewed to the downside – not toward overheating – when it came to the post-pandemic economy, telling CBS News in a 60 Minutes interview that a "principal" concern is that "we will reopen too quickly, people will too quickly return to their old practices, and we'll see another spike in cases.”

—

9:30 a.m. ET: Stocks open lower, steadying below record levels
Here's where markets were trading Monday morning shortly after market open:

• S&P 500 (^GSPC): -7.14 points (-0.17%) to 4,121.66
  
  
• Dow (^DJI): -71.71 points (-0.21%) to 33,728.89
  
  
• Nasdaq (^IXIC): -46.10 points (-0.33%) to 13,854.08
  
  
• Crude (CL=F): +$1.24 (+2.09%) to $60.59 a barrel
  
  
• Gold (GC=F): -$7.30 (-0.42%) to $1,737.50 per ounce
  
  
• 10-year Treasury (^TNX): +0.7 bps to yield 1.673%

8:36 a.m. ET: Microsoft agrees to purchase AI speech recognition company Nuance Communications in $19.7 billion deal
Microsoft (MSFT) announced Monday morning that it agreed to purchase artificial intelligence speech recognition company Nuance Communications (NUAN) in an all-cash transaction valued at $19.7 billion, including Nuance's debt. The announcement confirmed earlier reporting of the deal over the weekend by Bloomberg.

Microsoft will purchase Nuance for $56.00 per share, offering a 23% premium over Nuance's closing price last Friday. Nuance's suite of products include a range of transcribing and other speech-recognition services used by health-care providers, including PowerScribe One and Dragon Medical One.

“Nuance provides the AI layer at the healthcare point of delivery and is a pioneer in the real-world application of enterprise AI,” Microsoft CEO Satya Nadella said in a press statement. “AI is technology’s most important priority, and healthcare is its most urgent application. Together, with our partner ecosystem, we will put advanced AI solutions into the hands of professionals everywhere to drive better decision-making and create more meaningful connections, as we accelerate growth of Microsoft Cloud in Healthcare and Nuance.”"

MY COMMENT

We are seeing MASSIVE investor......expectations......that gains can go on and on. That is perhaps the ONLY negative at this moment......irrational expectations. It makes me cautious about the markets short term behavior when.....EVERYONE....is positive. Not that it matters......we will see many pull-backs in stocks and funds this year.....just like ANY year.....but.....the market direction over the longer term is DEFINITELY very positive.

As we enter earnings season....many investors are probably waiting to see how things will start to play out over the next few days.

ACTUALLY.....I know how it will play out......the same as always. A company will report earnings. The earnings will be GREAT.....but over the next few days the stock of the company will be down 2-4%....just like we have seen for recent years. The media and other will.....latch onto.....some small or obscure language in the report.....usually in the forward looking statements.....and will blow it out of proportion as the USUAL excuse to whine and cry about what was......in reality....GREAT earnings.

As a MSFT holder I am pleased with the recent acquisition of Nuance. I STRONGLY prefer to see a company using cash to acquire technology.....through an acquisition.....compared to using cash to WASTE buying back shares. A good acquisition.....for a reasonable price.

 

Here is a little more info on the Microsoft acquisition. Since it is a DULL day in the markets.......all the action in anticipation of earnings happened LAST WEEK....I will post this little article on one of my holdings.

Microsoft Acquisition Of Nuance Called Strategic 'No Brainer' Move

https://finance.yahoo.com/m/922ba2eb-5403-3770-99bd-de5901b8b00e/microsoft-acquisition-of.html

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

"Software giant Microsoft (MSFT) plans to buy Nuance Communications (NUAN) in an all-cash deal worth $19.7 billion, inclusive of Nuance's net debt. Microsoft stock inched higher in early trading Monday while Nuance stock rocketed on the news.

Microsoft will pay $56 a share for Nuance in a transaction it expects to close this calendar year. The purchase price is a 23% premium to Nuance's closing price on Friday. Bloomberg reported Sunday that Microsoft was in advanced talks to buy the artificial intelligence and speech recognition company.

In premarket trading on the stock market today, Microsoft stock rose 0.2%, near 256.28. Nuance stock blasted 19.3% higher, near 54.35.

Wedbush Securities analyst Daniel Ives called the acquisition a strategic "no brainer" move for Microsoft. He rates Microsoft stock and Nuance stock as outperform, or buy.

Nuance Strong In Health-Care Sector
The deal would give Microsoft more heft in the health-care sector, where Nuance has a strong presence, Ives said. The two companies have been partners in the health-care industry since 2019.

Nuance "represents a unique asset on the health-care front," Ives said in a note to clients. "We also believe Microsoft can further integrate Nuance's advanced speech technology throughout its consumer and enterprise ecosystem over the coming years to leverage this potential M&A move."

About 77% of U.S. hospitals use Nuance technology. Physicians use its software to transcribe their spoken notes into patient records. Burlington, Mass.-based Nuance is at the forefront of digitizing the health-care industry.

Microsoft said the acquisition will accelerate its efforts to provide cloud computing services for health-care customers.

"Nuance provides the AI layer at the healthcare point of delivery and is a pioneer in the real-world application of enterprise AI," Microsoft Chief Executive Satya Nadella said in a news release Monday."

MY COMMENT

This is REAL creation of SHAREHOLDER VALUE. This is a great use of some of that HUGE amount of cash that most big companies seem to have siting around these days. It is nice to see.....REAL.....future value being created....compared to the typical stock buybacks.......a sorry joke.....just LAZY management.

 

SO......a small elephant in the room.....this week.....COINBASE. We will see the direct listing happen on Wednesday. I was seeing a good amount of HYPE in the various financial media this weekend. It will.....no doubt...build through the next couple of days.

HERE.....is a little article that explains the DIRECT LISTING process versus a more common IPO......for any that are not familiar with how both work.

IPO vs. Direct Listing: Knowing the Difference

https://finance.yahoo.com/m/b4d9c449-418d-33cb-8b94-27c835cf219e/ipo-vs-direct-listing-.html

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

"IPO vs. Direct Listing: An Overview

Initial public offerings and direct listings are two methods for a company to raise capital by listing shares on a public exchange. While many companies choose to do an initial public offering (IPO), in which new shares are created, underwritten and sold to the public, some companies choose a direct listing, in which no new shares are created and only existing, outstanding shares are sold with no underwriters involved.


Key Takeaways

• A company looking to raise interest-free capital from the public by listing its shares has two options—an IPO or a direct listing.
• With IPOs, the company uses the services of intermediaries called underwriters, who facilitate the IPO process and charge a commission for their work.
• Companies that can't afford underwriting, don't want share dilution or are avoiding lockup periods often choose the direct listing process, a less-expensive option than an IPO. Without an intermediary, however, there is no safety net ensuring the shares sell.
• Direct listings are also known as Direct Placement or Direct Public Offerings. In this process, the company sells shares directly to the public without getting help from intermediaries.

Initial Public Offering

In an IPO, new shares of the company are created, and are underwritten by an intermediary. The underwriter works closely with the company throughout the IPO process, including deciding the initial offer price of the shares, helping with regulatory requirements, buying the available shares from the company, and then selling them to investors via their distribution networks.

Their network comprises investment banks, broker-dealers, mutual funds and insurance companies. Prior to the IPO, the company and its underwriter partake in what's known as a "roadshow," in which the top executives present to institutional investors in order to drum up interest in purchasing the soon-to-be public stock. Gauging the interest received from network participants helps the underwriters set a realistic IPO price for the stock. Underwriters may also provide a guarantee of sale for a specified number of stocks at the initial price and may also purchase anything in excess.

The underwriter has two options for distributing shares to initial investors—bookbuilding, in which shares can be awarded to investors of their choosing, or auctions, in which investors who are willing to bid above the offer price receive the shares. While auctions are rare, the most notable example is Google's IPO in 2004.

All of these services come at a cost. Underwriters charge a fee per share, which may range anywhere from 3% to 7%.1 This means that a notable portion of the capital raised through the IPO goes to compensate intermediaries, sometimes totaling in the hundreds of millions per IPO.

While the safety of an underwritten public listing may be the best choice for some companies, others see more benefits with a direct listing.

Direct Listing Process

Companies that want to do a public listing may not have the resources to pay underwriters, may not want to dilute existing shares by creating new ones or may want to avoid lockup agreements. Companies with these concerns often choose to proceed by using the direct listing process, rather than an IPO.

The direct listing process (DLP) is also known as direct placement or a direct public offering (DPO).

With a direct listing process (DLP), the business sells shares directly to the public without the help of any intermediaries. It does not involve any underwriters or other intermediaries, there are no new shares issued and there is no lockup period.

The existing investors, promoters, and any employees already holding shares of the company can directly sell their shares to the public.

However, the zero- to low-cost advantage also comes with certain risks for the company, which also trickle down to investors. There is no support or guarantee for the share sale, no promotions, no safe long-term investors, no possibility of options like greenshoe, and no defense by large shareholders against any volatility in the share price during and after the share listing. The greenshoe option is a provision in an underwriting agreement that grants the underwriter the right to sell investors more shares than originally planned by the issuer if the demand proves particularly strong.

Both those companies that elect to follow the direct listing process and those companies that undergo an IPO must publicly file a registration statement on Form S-1 (or another applicable registration form) with the Securities and Exchange Commission (SEC) at least 15 days in advance of the launch.

Upon listing of the company’s stock (whether it's through a direct listing or an IPO), companies are subject to the reporting and governance requirements applicable to all publicly traded companies. The SEC requires all publicly traded companies to prepare and issue two disclosure-related annual reports—one that is sent to the SEC and one that is sent to the company's shareholders. These reports are referred to as 10-Ks.

New York Stock Exchange (NYSE) and Nasdaq Explore Direct Listings

On November 26, 2019, the NYSE laid the groundwork with an SEC filing to allow listed companies to raise capital and go public through a direct listing.2 The NYSE has allowed them in the past with companies including Spotify and Slack, but was hoping to expand the practice pending results of public comment period on the proposal. Under the NYSE's proposal, a direct listing would let both the company and company insiders sell stock at listing, provided that the company sells at least $250 million worth of shares. There are no new lockup requirements, in that insiders can sell shares of the company as soon as it lists rather than wait up to 180 days to do so.3 On December 6, 2019, the SEC rejected the NYSE's proposal, although the NYSE says it will continue trying to appeal the decision.4 5 The Nasdaq is also reportedly working with the SEC to offer direct listings as well.6

On December 22, 2020, the U.S. Securities and Exchange Commission announced that it will allow companies to raise capital through direct listings, paving the way for circumvention of the traditional initial public offering (IPO) process. In a direct listing, a company floats its shares on an exchange without hiring investment banks to underwrite the transaction as an initial public offering. In addition to saving on fees, companies that follow the direct listing process may avoid the usual IPO restrictions, including lockup periods that prevent insiders from selling their shares for a defined period of time."

MY COMMENT

I like the direct listing process. It is a risk....but I like the fact that there are NO new shares created.....and...that there is NO lock-up period. Fro day one....the markets....determine the price with NO artificial conditions imposed on the stock or investors.

 

WOW....oldmanram......$3 to NOW $72.43......sounds like a pretty good WIN to me. ESPECIALLY over a time period of just 12 years. NICE MOVE.

 

I like this little article....so simple...yet so true.

The Most Important Rule in Investing

https://compoundadvisors.com/2021/the-most-important-rule-in-investing

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

"“Rule No. 1: Never lose money. Rule No. 2: Never forget rule No. 1.” – Warren Buffett
With all due respect to Warren Buffett, the most important rule in investing is not anything close to “never lose money.”

In fact, the entire notion is absurd.

Anyone who has ever invested in the history of the world has lost money at one time or another. Buffett himself lost over 50% from late 2007 to early 2009, and over 45% from mid 1998 to early 2000. Being in a drawdown is the norm, not the exception, and is the price you pay in exchange for a higher long-term return than bonds or cash.


Powered by YCharts
So what is the number 1 rule in investing?

That’s an impossible question, but if I had to pick just one it would be the famous line from Peter Lynch: “know what you own, and why you own it.” For if you don’t get that right, you won’t hold any investment long enough to reap the enormous benefits of compounding.

You can have the best portfolio in the world but if you don’t understand what’s in it you will abandon it at the first sign of trouble. And believe me when I tell you that there will be many troubling times (see here and here).

My goal in this post is to dig deeper into stock/bond allocations (the most common portfolio holdings), and hopefully give investors a better understanding of what they own and why they own it. Let’s begin…

1) Why You Own Stocks
Investors own stocks to participate in the growth and ingenuity of human beings and enterprises over time. In doing so, they hope to outpace inflation and earn higher return. Makes sense, but what exactly does that last part mean? Higher than what? How much higher? And why are they giving you this higher return?

Over long periods of time stocks have delivered a higher return than bonds (4.5% higher per/year), and you were able to earn this return because you were being compensated for higher volatility and higher drawdowns (due to economic uncertainty and long-run growth risk).

Since 1976, a 100% stock portfolio (far left side of table below) has had the highest return (11.8%) with the highest volatility (15.0%) and max drawdown (-51%) while a 100% bond portfolio (far right side of table below) has had the lowest return (7.2%) with the lowest volatility (5.2%) and nearly the lowest drawdown (-13%).1


Showing that stocks have earned a higher return with higher volatility over long periods of time is the easy part. The hard part is explaining to investors that they are by no means guaranteed this higher return, particularly over shorter periods of time.

And by shorter periods of time, I mean even as long as 10 years. 10 years, you say, but that’s an eternity. Indeed, but from April 2000 through March 2010 stocks declined 6% while bonds gained 84%. And they did so with 16% volatility versus 4% for bonds.


The lesson: the so-called “risk premium” from stocks is far from constant, and there can be long periods of time where it is negative (stocks lose money with higher volatility than bonds). Understanding that – and I mean really understanding that – is critical in setting realistic expectations. If an investor is not equipped to handle a large drawdown (mentally, emotionally, or financially), they cannot put all of their money in stocks. Which brings us to the next topic.

2) Why You Own Bonds
If stocks never went down there would be little need to own anything else. But as we know, they do go down from time to time. Since 1976, there have been 8 calendar years in which stocks have finished lower: 1977, 1981, 1990, 2000, 2001, 2002, 2008, and 2018. In each of these years, bonds finished higher, cushioning the blow.


And the higher allocation to bonds, the higher the cushion…


A position in bonds allows investors to better withstand stock market declines and to hopefully rebalance back into equities at lower prices/valuations. For investors close to retirement or in the early withdrawal stages, bonds play a more critical role as their tolerance for a near-term drawdown and higher volatility tends to be much lower.

Why do high quality bonds provide downside protection?

Because they are not driven by the same fundamental factors as equities. Bonds are driven by interest rates (both absolute levels and changes) as opposed to earnings growth and multiples. As such, the overall correlation between bonds and stocks is low at .20. During down months for stocks – and this is key – that correlation drops to 0.00.

This effectively means that there is no reason to expect a down month in stocks will spill over into bonds. The performance data supports this. Since 1976, during down months for stocks, bonds have been up 60% of the time. The higher the percentage of bonds, the higher the odds of having a positive return when the stock market is down.


You’ll also note in the table above something of great importance: that exposure to bonds does not mean one should expect a negative return when stocks are up.

In fact, a portfolio that is comprised of 70% bonds and 30% stocks is up 90% of the time when stocks are up. There are two reasons for this: 1) bonds are slightly positively correlated (0.23) to stocks during up periods for stocks (up 72% of the time), and 2) equity exposure is by far the dominant exposure.

To illustrate this second point, let’s have a look at a table of correlations. A portfolio that is evenly split between stocks and bonds has a .95 correlation to stocks and only a .50 correlation to bonds. It is going to behave much more like the stock market than the bond market. This is often a surprise to many, but it should be somewhat intuitive as stocks (on average) have 2.9 times the volatility of bonds. Stock volatility simply overwhelms the movement of bonds. Which is why if you want/need your portfolio to move more directionally with bonds than stocks, you need to have something closer to a 20/80 split.


A final point on the value of bonds in a portfolio comes in observing the steepest stock market declines. In the top 25 largest monthly S&P 500 declines (declines > -6.8%), bonds had a -.12 correlation with stocks and an average return of +0.5%. Why do bonds hold up particularly well during such periods? There tends to be deflationary concerns during large stock market declines, where growth expectations are lowered, and interest rates tend to fall. Falling interest rates boost short-term bond prices, providing a positive hedge to stocks (on average) during the worst months.

Rule Number 1 is Not Enough

Knowing what you own and why you own it may be the most important rule, but it’s just the beginning of the investing journey, not the end.

Once you understand the “what” and “why” the hard work begins. You must have faith that your chosen investing plan will work over time and have the fortitude to stick with that plan through the many periods in which it is “not working.”


This is no small task as us humans are emotional beings and we have little tolerance for things that aren’t always working.


But that is the challenge for which there is great reward at the end; the alternative (a risk-free savings account) always works but will leave you with far less in the long run.

So take a good look at your portfolio today and make sure you know what you own and why you own it. Then ask yourself if you have the faith and fortitude to stick with it over time.

And finally, remember that every investor loses money, even the great Warren Buffett. That’s the price of admission.

MY COMMENT

TIME....is the key consideration when it comes to making money as an investor and achieving the POWER of compounding. The other key considerations....to me....is being a REALISTIC and RATIONAL investor.

I do agree with the comment about longer term being.......10 years......or more. I NOW see people that think long term investing is......ONE YEAR. Traditionally long term has been viewed as 3-5 years......and.....more accurately 7 or more years.

I continue to be fully invested for the long term as usual......YES.....the ACTUAL long term......10-20 years.

 

INTERESTING....my primary account turned green a short time ago. Also as I was looking the SP500 turned green.....very slightly. DOW is not too far behind. NICE to see the markets show some FIGHT today. I was RESIGNED to the markets taking a day off today to wait for earnings.....it will be nice if that turns out to be wrong. I guess I will find out in.....about 3+ hours.

In FACT....at this moment.....a few minutes before noon....EVERYTHING in my portfolio is UP except for....GOOGLE and APPLE.

 

YES......an all time high is an all time high...Zukodany.

Hopefully this little article is....prescient.....and...we will ALL have many more all time highs over the rest of the year.

Stocks Hardly Overvalued: Big Rally Ahead

https://www.newsmax.com/finance/peter-morici/stocks-rally-summer-earnings/2021/04/12/id/1017261/

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

"With stock prices busting new records and price-earnings ratios appearing in bubble territory, investors may be tempted to take some money off the table. That would be a terrible mistake — a big summer rally is in the offing, and small investors who try to time the market usually miss out.

The S&P 500 is currently selling for about 42 times current earnings, and that’s well above the 25-year average of 26 and implies an equivalent interest rate of only 2.4%.

Even with the recent uptick in bond yields, the 10-year Treasury is paying only about 1.6 percent. That’s significantly less than its 3.6% 25-year average and 2.5 percent for the 10 years prior to the pandemic. That makes stocks at current prices look quite attractive.

If investors are not willing to take the risk of interest rates rising further with rising federal spending and deficits, leaving 10-year bonds vulnerable to losses if sold early, stocks are even more attractive as compared to shorter term maturities. For example, the 3-years rate Treasury is paying only 0.33%.

More importantly corporate profits are poised to surge.

The economic recovery is expected to drive up corporate profits by 52% in the second quarter. That would lower the S&P 500 price-earnings ratio to 26 — right in line with historical experience.

Seen in that light, stock prices merely reflect close-in expected gains in corporate profits from robust second quarter growth.

Looking out further, corporate profits are expected to continue surging in the third quarter. All that should support a summer rally — if we don’t get a big spring rally instead."

MY COMMENT

That little article is.....short and sweet. I happen to feel the same way. We are looking at a HISTORIC 1-2 years for longer term investors. In fact.....even for traders.....since....we will be in a generally rising market that lifts ALL boats. going to be a lot of investing......geniuses.....around for the next year or two. MOST....will not realize that they are just being carried along by the markets.

Those of us.....that have been around for a while.....and have had the markets BEAT UP ON US......in the past......will just continue on........realizing that we are ALL INFALLIBLE when it comes to beating the markets all the time. BUT....that is just part of the investing experience.

 

YES......green today.....a moderate but very nice gain. AND....a good beat of the SP500 by .32%.

I am on a little STREAK right now.......6 days in the green in a row.....and.....I believe....but I am not going to bother to look.....5 or 6 days beating the SP500.

Apple and Google were my ONLY negative holdings today. My WINNERS.....SNOW +2.86%.....NVIDIA +5.62%......and....TSLA +3.69%.

If we can get some good earnings going on.....I might have an outside shot at extending this STREAK to 10 days. AND....on top of everything else....another new all time high.

HOWEVER.......the SP500 is STILL kicking my ass......up +9.90% year to date. My year to date is +7.6%. BUT.....I am happy to have that considering that just 3-4 weeks ago I was around FLAT for the year to date.

 

GLAD to see this acquisition for MSFT. There is going to be an UNLIMITED amount of money to be made in health care for the TECH companies going forward. Our population is EXPLODING.....plus....we are at the start of the baby boomer health care era.

Microsoft's $19.7B Nuance deal shows it's going after the 'golden ticket' of health care

https://finance.yahoo.com/news/microsoft-nuance-deal-health-care-golden-ticket-195753997.html

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

"The nearly $4 trillion U.S. health care industry is becoming the next battlefield for Big Tech, and Microsoft (MSFT), on Monday, launched its largest salvo yet with the acquisition of voice recognition company, Nuance (NAUN).

The deal valued at $19.7 billion, Microsoft’s largest since it bought LinkedIn in 2016 for more than $26 billion, will give the Redmond, Washington-based company a big boost in what is expected to be a years-long race against fellow tech giants Amazon (AMZN) and Google (GOOG, GOOGL) to develop health care technology.

Nuance, whose voice recognition technology formed the basis for Apple’s voice assistant, Siri, had already partnered with Microsoft in 2019 to bring artificial intelligence (AI) to doctor’s visits.

“I think this is one of many steps that Microsoft needs to take to solidify their business in the health care market,” Jefferies analyst Brent Thill told Yahoo Finance. “Obviously, Amazon is making a push into the industry as well, and I think everyone is going after the golden ticket of health care.”

Microsoft, Google, Amazon, and even Apple (AAPL) have been working in the health care space for years, but the coronavirus pandemic supercharged the need for health providers to gain access to everything from improved video conferencing capabilities to better electronic health records (EHR) access for patients.

With Nuance, Microsoft will further build out its Microsoft Cloud for Healthcare service, which it launched in November and serves as a one-stop shop for health care providers and patients alike. And there’s plenty of market up for grabs.

According to Microsoft, the Nuance acquisition will double the company’s total addressable market in the health care space, bringing its TAM to $500 billion.

Microsoft is gaining more than new technologies

Nuance, however, gives Microsoft a significant leg up in health care, thanks to Nuance’s wide reach. According to Microsoft, Nuance is currently used by more than 55% of physicians and 75% of radiologists in the U.S., and used in 77% of U.S. hospitals. In other words, Microsoft isn’t just paying for Nuance’s technological prowess, but for its customers too.

“This is to some extent a customer acquisition story,” said Forrester vice president and principal analyst J.P. Gownder. “Nuance's strong position in the health care vertical means Microsoft is buying a customer base as much as anything else.”

The technology acquisition will be good for Microsoft, too, Gownder added. “Nuance's strong position at the edge (medical dictation and transcription) will ultimately tie health care customers more strongly into Microsoft's Azure Cloud and intelligent services,” Gownder said.

And then there’s Microsoft and Nuance’s Dragon Ambient eXperience, or DAX. Launched in September, DAX is an ambient clinical intelligence (ACI) platform that ties into Microsoft’s Teams to quickl record and transcribe secure conversations between doctors and patients.

The service then transforms the notes it records into clinical documentation, reducing paperwork so doctors can focus more on treating patients.

According to Wedbush analyst Dan Ives, DAX has the potential to be a goldmine for Microsoft, especially with Nuance now a part of the company.

“From a valuation [some of the parts] perspective, we believe over time the DAX business alone could be worth between $3 billion to $4 billion to [Nuance’s] valuation that [Microsoft] recognizes front and center, as this AI next generation platform represents a potential paradigm changer for hospitals/health care clinics/specialists over the coming years.”

Competition from the ‘mega clouds’

But Microsoft isn’t the only company vying for opportunities in health care. Amazon, the world’s largest cloud provider ahead of Microsoft and Google, is also using its formidable cloud capabilities to reach doctors and patients via its Amazon Web Services platform Health and Life Sciences.

The offering provides customers with everything from telehealth to the ability to predict patient health events all the way to pharmaceuticals and genomics. Amazon is also already working in the pharmacy space thanks to its 2018 acquisition of PillPack. Now called Amazon Pharmacy, the service allows consumers to order prescriptions through Amazon. And Prime members receive 2-Day shipping for their orders just as they do on normal orders.

Amazon also previously worked with Berkshire Hathaway and JPMorgan on the companies’ Haven initiative, which was meant to address the sky high cost of health care in the U.S. The companies, however, abandoned the effort in January.

Google, meanwhile, provides similar services including virtual care, health and wellness apps for providers, and health care analytics and insights. Google’s parent, Alphabet, also oversees its life sciences company Verily.

“No question...you’re seeing all big three mega clouds are going after the space in a big way,” Thill said."

MY COMMENT

So glad to own this company. I owned MSFT from about 1990 to 2002. At that point their management was a disaster.....so I sold all shares. Years later when the current management took over and got things moving along again.....I got back in. This company is a PRIME EXAMPLE of......GREAT MANAGEMENT.