The Long Term Investor

OK......a little weekend article. You know that I.....DO NOT....do market timing. When I buy or sell I do so immediately. I do NOT wait for exit and entry points. When I have money to invest.....I put it ALL IN IMMEDIATELY......no dollar cost averaging....no timing. I stay invested.....all in all the time for the long term.

THIS.....article covers ALL the little........FALLACIES......that people believe and follow when buying and selling. This STUFF.......is the TRUTH.....but....your human brain....will TRICK you....and...... will tell you otherwise.

A Guide to Moving from Cash to Investments

https://compoundadvisors.com/2021/s...at-once-over-time-or-only-after-a-bear-market

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

"This is a story many of you will be familiar with.

You have money to invest that’s been sitting in cash, either from the sale of a business, a recent inheritance, or built-up savings. This is money you don’t expect to need or access for more than 20 years, if ever.

You know that cash is likely to significantly underperform a diversified investment portfolio over the next 20+ years, but you just can’t pull the trigger.

You know you can’t time the market, but…

• “Valuations are high.”
• “Stocks have had an incredible run, how much higher can they go?”
• “I’m just waiting for a correction to get in.”
• “What if there’s another recession after all of the stimulus ends?”
• “Interest rates are near historic lows. What happens when they rise?”

These are all reasonable things to think about when allocating a lump sum of money that has been sitting on the sidelines.

But what does the data suggest?

Specifically…

• What is the opportunity cost of sitting in cash?
• What are the odds that you will have a chance to buy in at a lower price than today?
• What are the odds that waiting for a bear market will allow you to buy in at a better price than today?
• If you could have predicted the start and end of all prior recessions with perfect precision, how helpful would that have been in terms of returns?
• What are the odds that dollar-cost averaging into the market will beat a lump today?
• Should you time new money allocations based on valuation?
• Should interest rates play a role in timing the market?

Let’s take a look at each of these questions…

1) The Opportunity Cost of Sitting in Cash

Most studies on market timing compare stock returns with a 0% return on cash, assuming it is held in a no-interest checking account or stuffed under your mattress.

The reality is with minimal effort cash can indeed have a positive return over time, and it is more accurate to use this return in determining the true cost of “sitting on the sidelines.”

The average yield on cash since 1928 has been 3.4%, but as you can see, the rates have fluctuated considerably over time.


Note: in this post I’m using 3-month Treasury Bills as a proxy for Cash.
Going back to 1928, the odds of beating the S&P 500 while sitting in cash were 30.6% over rolling 1-year periods. The longer you sit in cash, the lower your the odds of beating the market. An investor in the S&P 500 has beaten cash in every 25-year period, including those who bought at the peak in 1929.


Monthly Data, January 1928 – December 2020
What does sitting in cash cost you? Sometimes nothing, if markets are down and there’s a long bear market.

But much more often, it is costing you something, with that something increasing as the years go by. Over 1-year periods the average cost of holding cash has been around 8%. Over 25-year periods, this grows to nearly 1,300%.


2) What are the odds that you will have a chance to buy in at a lower price than today?

Many investors will tell you they’re just waiting for a correction to get in. This a fine thought, and buying stocks on sale is generally a good idea.

The only problem is that correction may not come for some time, and when it does, it may never take stocks below today’s levels. You could very well be waiting forever to get invested.

Let me explain.

Historically, stocks have a 74% probability of closing lower at some point in the future (note: monthly total return data going back to 1928). Those are pretty good odds, but it means that 26% of time, stocks just keep on running, and you don’t ever have an opportunity to buy in at a lower point than today.

My favorite example of this is 1995. Stocks ran higher out of the gate, and by the end of February, the S&P 500 was up over 6% on the year. Let’s say you were an investor at that time with cash on the sidelines, and you wanted to wait for a measly 5% pullback to get back in.

Well, you would’ve had to wait until July 1996 before that pullback would come. And when it did, the S&P 500 was still more than 25% higher than where it closed in February 1995.


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Would you have deployed your sideline cash then? It’s doubtful. Which is why waiting for a correction can be a difficult game to play.

3) What are the odds that waiting for a bear market will allow you to buy in at a better price than today?

Some investors want more than a correction or lower price point to get invested. They want a significant decline.

Let’s say you want to see a minimum of -20% on a monthly closing basis. How often would waiting for such a drawdown allow you to buy in at a lower level than today?


Going back to 1928: only 21% of the time.

And I’m being generous here in allowing for a larger than 20% drawdown to hit your lower level target (I’m taking the lowest monthly close of each bear market to compare to prior prices).

That means 79% of the time, even if you have the discipline to wait for a 20+% decline before investing (no easy task), when it finally comes it will be at a higher level than today.

Following the Bear Market low in March 2009, stocks went vertical, rallying 7 months in a row and 9 out of the next 10 months into year-end. At the time, many thought it would be prudent to wait for another 20% pullback before getting back in.


Fast forward to 2021 and that 20% decline on a monthly closing basis has yet to occur. If it were to happen today, it would only bring the S&P 500 back to last year’s levels.

Another 50% drop like we saw in 2007-09 would take stocks back to 2017 levels, but that would still be 137% higher than where stocks ended 2009.

The lesson here is clear. If you’re waiting for a large decline to get invested, you have to be prepared to wait a very long time with the understanding that when the decline eventually comes, it could very well leave stocks at a higher level than today.

4) What are the odds that dollar-cost averaging into the market will beat a lump sum today?

Up until now, we’ve assumed that you are investing all of that sideline cash at once, otherwise known as a “lump sum” investment.


There is an alternative to this approach known as dollar-cost averaging.

Let’s say you have $100,000 of sideline cash to invest. You could put all of it into the market today or you could invest x$ per month over y years.

Let’s assume you invest that $100,000 in equal installments over a period of 12 months, or $8,333.33 per month while keeping the balance in cash (3-month Treasury Bills).

How often would such a strategy beat a lump sum investment ($100,000 all at once)?


32% of the time.

Here’s a chart illustrating the 12-month returns of a lump sum investment minus the 12-month returns from dollar-cost averaging. 68% of the time, the lump sum is outperforming.


The longer the period you dollar-cost average over, the lower your odds of beating a lump sum investment. If you spread the same $100,000 over 36 months, your odds of beating a lump sum move down to 27%.


Importantly, the 27% odds are not distributed evenly over time. The last 36-month period in which dollar-cost averaging beat lump sum was October 2008 through September 2011. Starting in November 2008, a lump sum has beaten a 36-month dollar-cost-averaging strategy every single time.

Yes, this is a function of being in one of the most unrelenting bull markets in history, but it illustrates just how long the odds of timing via dollar-cost averaging can be out of favor.

5) Should you time new money allocations based on valuation? What are the odds that such a strategy will be successful?

US equity valuations are high.

How high?

At 37, the S&P 500’s CAPE Ratio (aka “Shiller P/E”) is above 98% of historical readings.


As valuations tend to be inversely correlated with future long-term returns, this is a concern for many investors.


Going back in time, how would a market-timing system based on valuation fared?

Let’s take a look.

First, we need to come up with a system.

Starting in 1928 (assuming CAPE data was available then), let’s say you moved from stocks to cash every time the CAPE ratio moved above the 90th percentile and only got back into stocks when it moved back below the 90th percentile. (Note: using a rolling percentile as you wouldn’t have had the full historical data set at that time).

How would such a strategy have fared? Not terrible, but at 8.8% annualized, still lower than the S&P 500’s buy-and-hold return of 9.6%.

Importantly, though, you would’ve had to sit in cash through some incredible runs in stocks. The most memorable of these would be the 1990’s, when the CAPE ratio first moved above the 90th percentile in February 1995. Over the next five years, the S&P 500 would more than triple as valuations went to heights never seen before.

It would come crashing down thereafter (2000-02 bear market), but how many investors could sit in cash for five years during such a run? Even after the crash, stocks weren’t exactly cheap, with a low CAPE of 21 in February 2003 still in the 86th percentile. Would that have been cheap enough for a value-conscious investor? Not likely.

More recently the CAPE ratio moved above the 90th percentile in October 2013. Stocks have more than doubled before finally moving briefly back below the 90th percentile in March 2020.

This system assumes that investors who are concerned about valuations will buy back in once valuations are no longer above the 90th percentile. But for someone that has sat out of stocks for years on end, this is probably not a realistic assumption.

What if we change the system to say that an investor who went to cash after stocks moved above the 90th percentile only got back into stocks when they were below the 75th percentile? How would such a system have fared?


Pretty much the same: 8.8% annualized versus 9.6% for buy-and-hold.

But is the 75th percentile “cheap”? It doesn’t sound like it, but lowering the threshold from there will leave you out of the market for even longer stretches of time. The last time the S&P 500 had a CAPE ratio below the 50th percentile was in April 2009. A month later, they were no longer “cheap” and haven’t been since. Stocks are up 6x since then.

That’s not to say valuations don’t matter. At extremes, they most certainly do as they tend to lead to below-average future returns. We should expect that today from US equities. But we have no way of knowing the path of those lower returns, making it quite difficult to time. A long bear market could start tomorrow, stocks could continue to run for years before a larger decline, or stocks could simply trade sideways for years working off that higher valuation.

Additionally, over the long run, returns from high valuations are often still positive (ex: with dividends, the S&P 500 has more than tripled since the March 2000 valuation extreme), making cash a less attractive option.

An alternative approach to trying to time high valuations is to increase your diversification into asset classes that aren’t at similar extremes. Japanese investors in the late 1980s would have benefited greatly from this principle after the historic bubble they experienced.

6) What is there’s another recession coming?

Many investors are asking: what if there’s another recession after the stimulus ends? Wouldn’t that take stocks down with it? Should you wait for recession before investing?


Let’s take a look.

Historically, bear markets associated with recessions have indeed been steeper, averaging 42% vs. a 29% decline for stock downturns not accompanied by a downturn in the economy.


But have all recessions led to bear markets?


No. In 1945 there was an 8-month recession without any stock market decline of note. The 1953-54 and 1960-61 recessions had declines of only 14% in stocks, while the 1980 recession saw stocks decline 17%.


So while a recession is likely to lead to a sharp decline in stocks, it is by no means guaranteed.


But getting back to the question of timing.

Let’s say you are the best economist that ever lived. You know exactly when recessions start and end in advance, and allocate to cash during recessions and stocks only during expansions.


What would your returns look like since 1928? 10.5% per year versus 9.6% for buy-and-hold.

Not bad, until you dig into the data and see that all of this outperformance came from avoiding the bulk of the losses during the Great Depression (when stocks declined 86%). Since the Depression, if you were able to time every single recession perfectly, you would have had underperformed with a 10.4% return versus 11.5% for buy-and hold.

In reality, no one could’ve predicted every recession with such precision. Let’s say you were early in getting out and moved to cash a year before the recession, and you got back into stocks a year after it ended. Or more likely, let’s say you were a little late and moved to cash six months after a recession started and moved back into stocks a year after it ended.

That would still be pretty remarkable timing. How would these have fared?

a) Move to cash a year before recession starts, move to stocks a year after recession ends….


Including the Depression: 8.9% vs. 9.6% for buy-and-hold. Excluding the Depression: 9.1% vs. 11.5% for buy-and-hold.


b) Move to cash six months after recession starts, move to stocks a year after recession ends…


Including the Depression: 8.1% vs. 9.6% for buy-and-hold. Excluding the Depression: 8.1% vs. 11.5% for buy-and-hold.

So your timing has to be almost perfect when it comes to recessions, and even then, higher returns are no guarantee.

How can that be?

The stock market is not the economy. It often starts going down before the economy turns south and starts turning back up before the downturn ends. Getting that timing right on both ends is nearly impossible.

Complicating matters is the fact that stocks can go down without a recession (though many will assume we are in one when it happens – see 2011 & 2018 for recent examples) and there can be a recession with only a small or short-lived decline in stocks (2020 is the perfect example, with a 1-month bear market, the shortest in history), making timing such a move that much more difficult.

7) Should interest rates play a role in timing the market?

Interest rates are low.

How low?

At 1.63%, the current 10-Year US Treasury yield is lower than 98% of historical readings. In 2020, rates fell below 1% for the first time, hitting an all-time closing low of 0.52%.


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That scares a lot of people because of the widespread belief that low interest rates are “propping up” the stock market. When interest rates finally rise, it is said, stocks will come crashing down.


While that’s certainly possible, what does the evidence suggest? Are rising interest rates bad for stocks?


As it turns out, not exactly.

There’s almost a 0% correlation between changes in interest rates and changes in stock prices. In plain English that means even if you could predict the direction of interest rates (no easy task), it would tell you nothing about the direction of stock prices.

Since 1928, the 1-year average returns for the S&P 500 are almost exactly the same (11.4%/11.5% respectively) during periods of rising/falling 10-year Treasury yields.

That’s not to say that higher rates cannot act as an impediment to economic growth or stock market returns at times. They most certainly can. But they are just one variable in a highly complex system that is the stock market.

Still not convinced? Let’s go back in time.

From the start of 1949 to the end of 1968, a 20-year period, the 10-Year Treasury yield rose from 2.32% to 6.03%.


How did stocks fare? They were up over 1,500%, or 14.9% annualized.

Summary: How to Think About Investing Cash on the Sidelines…

When it comes to deploying cash on the sidelines, there are no easy answers.

Investing is just a game of odds and the historical probabilities up until now suggest the following:

• If you sit in cash over a 1-year period, you have a 30% chance of outperforming the market. If you sit in cash for 10 years those odds fall to 16%. Over 25-year periods, cash has yet to beat the US stock market.
• Sitting in cash has an opportunity cost on average, and that opportunity cost increases with time (8% over 1-year periods, 1,297% over 25-year periods).
• If you are waiting for lower prices to get in, chances are you will get them (74% of the time), but you also have to be prepared to wait forever (26% of the time there’s no lower low).

• If you are waiting for a bear market (-20%) or more to get in at lower prices, you may never get that chance (only happens 21% of the time).
• Slowly wading into the market via dollar-cost averaging has beaten a lump-sum only 32% of the time over 1-year periods and 27% of the time over 3-year periods. The longer the time period you spread that initial investment over, the lower your odds are of outperforming a lump sum today.
• Timing the market based on valuation is not an easy task, and you have to be prepared to sit in cash for many years or even decades depending on your methodology. Had such a strategy been applied historically, it would have lagged buy-and-hold because equities with high valuations can still have positive (and cash-beating) returns over time.
• Predicting recessions with precision on both ends is nearly impossible, and even if you could’ve done so historically, there’s no guarantee you would have earned a higher return (since the Depression ended in 1933, you would have actually earned a lower return than buy-and-hold even if you were able to predict the exact start and end date of the next 13 recessions).
• Timing the market based on interest rates is not a strategy supported by the data which shows almost no correlation between the two variables. The notion that rising rates are “bad” for equities is a myth.

Does that mean everyone should just close their eyes and invest all their cash on the sidelines today in a lump sum? Most certainly not.

Successful investing is about psychology more than anything else and if putting everything in today via a lump sum causes you to lose sleep at night, you will not be able to stick with that portfolio for a week, never mind the next 20+ years.

The portfolio with the highest expected return is completely irrelevant if you can’t handle its higher level of risk. Far better to be in a portfolio with lower returns that you can compound over 20+ years than one with a higher return that you are likely to abandon at the first sign of trouble.

We started this post by posing a hypothetical where an investor did not need the cash for more than 20 years, if ever. Under that scenario, there should be a pathway to investing at least some of that money to earn a higher long-term return. Not for everyone (if you can’t handle any volatility, cash is the only option), but for most people.

For simplicity, I assumed a 100% allocation to US equities in this post, but in reality most investors would be better served with a more diversified portfolio and a lower risk profile. This is particularly true for investors who have been sitting out of the market in fear of getting in at the top. The last thing they need is confirmation of that view if a steep market decline were to occur shortly after investing. A lower initial risk profile than necessary would cushion the blow if that were to occur, and provide an opportunity to increase equity exposure into the decline.

The goal for all investors should be to remain invested long enough to reap the enormous benefits of long-term compounding. That starts with finding a portfolio and a plan that is best suited to you."

MY COMMENT

YES......market timing for selling or buying....DOES NOT WORK. LUMP SUM investing BEATS dollar cost averaging. Trying to time recessions and other economic events DOES NOT WORK.

Basically......ALL....of the things that your BRAIN tells you to do.....ARE WRONG.

BUT...as the article says......an investor has to do what makes them comfortable....even if it is NOT in line with the PROBABILITIES. I could count on......one hand.....perhaps.....on one finger.....the number of people that are able and willing to invest as I ALWAYS DO........lump sum into the market.....NO timing.......NO entry or exit points.....NO dollar cost averaging......staying invested all in all the time......etc, etc, etc. MOST people just CAN NOT bring themselves to do it.

WELL.....that is OK too.....the point is to invest and if you can NOT bring yourself to follow the.....ACTUAL PROBABILITIES.....that is FINE. The main point is to get into the market SOMEHOW.....in a way that allows you to participate and compound that money you are investing.

I HATE to compare the markets and stock investing to a CASINO.....but.....small differences in the odds over a long period of time bring BIG RETURNS and are what gives the house their edge. My GOAL......... is to CAPTURE those small odds in my favor at EVERY point I can in the investing process....from fees to any other investing PROBABILITY that will.....over the long term.....give me some small....but POWERFUL....edge in terms of the ODDS. With the.....POWER OF COMPOUNDING.....small differences in return over the long term EQUAL......BIG GAINS.

OF COURSE......the final piece of the puzzle for me is....investing in the CREAM OF THE CROP of the American business world. Either through a vehicle like the SP500 or through stock investing in the greatest businesses in the world. I think that gives a a little bit of an edge in terms of the odds over the long term.

 

My little weekend....local....real estate report.

The market here in Central Texas is EXTREMELY HOT.....as usual. The realtors that I talk to tell me that everything is getting multiple offers and there is NO inventory. I see that in my little neighborhood of 4200 homes....BUT.....right now we have the MOST inventory we have had in a long time.

We currently have.......15.....active listings out of 4200 homes. Homes seem to go pending in an average of about 2 weeks. I am noticing a few homes come back on the market after they were under contract. I think some of this is EXUBERANT buyers putting out high offers and than finding out the home will NOT appraise.

FIVE of the FIFTEEN listings in the neighborhood are OVER $1MILLION. The HIGHEST listing is at.....$10MILLION. The LOWEST listing is at $530,000.

CASH....is STILL.....KING. NORMALLY......a few years back.....at this time of the year there would be between 100 and 150 listings in the neighborhood. I DO NOT see things getting back to a normal market....or a buyers market....here in this local area for a LONG TIME. Our neighborhood is fully BUILT OUT and there is NO new construction going to happen in the future......ANYWHERE.....in this general area.

SO....the insanity continues......with owners reaping big rewards for being a home owner in this general area. A......once in a lifetime......REORDERING.......of real estate prices in this local area.

 

Hey Xx....glad to see you posting here.....ALL are welcome to post about their investing experiences. Questions are ALSO...always welcome.....there are many posters here and someone is likely to have some insight into any question.

YES....for younger people in many areas of the country home ownership is a CHALLENGE right now. there is no guarantee that you will see a better market for buyers in the near future....but, at least there is a chance. I will say......going for 7-10% above the market....may....now BE the market. If that is what homes are selling for.....that IS the market. But there is hope for you guys....prices can go UP......and....DOWN. I hope you get a chance to buy when the time is right for you.

CONGRATULATIONS.......on the new baby.

 

Hi rg7803.....good to see you around lately. Feel free to share your Technical Analysis views on here. We dont see a lot of Technical analysis on here....and....for those that are interested it would be educational.

Emmett....is trying to give us some BASIC insights into the Technical side of analysis lately. Not a bad thing.

 

I like this little article dealing with the FED and stock investing.

Why Central Banks Aren’t Propping up Stocks
The bull market is more robust than many claim.

https://www.fisherinvestments.com/en-us/marketminder/why-central-banks-arent-propping-up-stocks

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

"A few weeks ago, we pointed out that some central banks have started to taper their quantitative easing (QE) bond purchases without any ill effects, which shouldn’t be surprising since there weren’t any when they tapered over the past decade. But it seems the chorus of doom has only grown now that some Fed people have publicly alluded to taper talk being on the docket later this year. It could get louder, too, given the Fed’s announcement yesterday it will sell the (paltry) $14 billion worth of corporate bonds and corporate bond ETFs it amassed through its 2020 emergency facility by this year’s end. We think you can tune it all down. There is little reason to think tapering—or emergency credit programs ending—is bearish, as we will explain.

The main fear stems from the belief stocks’ recovery and subsequent new heights are due solely to central banks’ extraordinary policies. Supposedly, without the flood of liquidity the Fed (et al) unleashed, stocks would be struggling. As evidence of stocks’ artificial elevation, bull market critics point to allegedly sky-high valuations and outsized leverage. The implication: If central banks withdraw their monetary support, the house of cards will collapse. Hence, taper fears. Just talking about it is apparently cause for concern, breeding uncertainty and volatility, which attracts further attention—and dread.

While central banks’ financial lifelines may have helped calm the initial panic last March, don’t overrate them. (The Fed may even have precipitated some of that panic itself.) As we said then, beyond just being a lender of last resort, the Fed’s programs were a mixed bag. To the extent they allowed otherwise solvent institutions access to funds, we think they helped boost confidence. Verbally backing the corporate bond market—which they did more than through actual buying, as the tiny amounts in yesterday’s announced unwind shows—may have helped steady markets a bit. But it is a mistake to consider that monetary “stimulus.” (Similarly, emergency fiscal support has mostly replaced lost income.) Greasing the wheels to allow financial markets to function normally doesn’t automatically equate to overheating.

But also, supersized QE has done little to boost credit in the economy. The Fed has created enormous reserves, but banks have mostly sat on them. Bank lending isn’t exactly gushing, circulating through the economy and supercharging growth or inflation. Upticks in GDP growth and inflation look temporary, tied to reopening. Loan growth is slowing down, not ramping up. That could change—and is worth monitoring—but if excess reserves simply pile up, they generally don’t set the economy on fire.

Moreover, central banks are incapable of taming viruses or reopening the global economy, which is overwhelmingly what has shaped growth and growth expectations over the last year. That, in our view, is driving stocks. Not QE, but improving economic activity and earnings. For stocks though, that is old news at this point. Markets look ahead about 3 – 30 months, weighing the likely reality against the expectations they previously moved on. Stocks priced in the lockdown shock in February and March 2020. They have rallied since, looking forward and anticipating the recovery in advance—which we are now seeing.

It isn’t as if stocks are unaware of potential tapering over the next couple years. Rather, we think they are rightly signaling that it just doesn’t matter much. The last time tapering drew so much attention was May 2013, when then-Fed head Ben Bernanke touched on the subject in an address to Congress. Then too, people fretted the bull market’s demise. Everyone said the same stuff that they say now, and it wasn’t correct. While there was a slight pullback in the immediate wake of Bernanke’s suggestion, the S&P 500 rose 24% from the Congressional hearing and throughout actual tapering up to QE’s end in October 2014. It then continued beyond, adding another 87% amid rate hikes and the beginning of QE’s unwind.[ii] Headlines warned about supposed monetary policy “tightening” all the while, until February 2020 when impending lockdowns clobbered markets.

This wasn’t a disconnect, but normal, rational forward-looking market behavior. Against prevailing sentiment for catastrophe to descend upon QE’s removal, the economy and earnings fared fine. There was no recession. Except for 2015, when Energy profits plummeted tied to oil prices’ collapse, S&P 500 earnings grew. The bull market didn’t end. For stocks to rise, they only need reality to exceed expectations—which is generally the case. The S&P 500 has risen in 68% of calendar years since 1925, suggesting markets’ bias is generally upward.[iii] In other words, if you aren’t in a bear market, you are in a bull market—and that is highly unlikely to end for no reason. So, absent a good reason to be bearish, be bullish.

We think the bull market is in its later, more optimistic stages, picking up where it left off after last year’s lockdown-driven interruption. Usually, optimism continues heating up into broad euphoria with time—eventually blinding investors to lurking negatives. Folks fretting over taper threats suggests to us sentiment remains far short of that—there is still room for stocks to run."

MY COMMENT

This little article seems familiar.....I may have posted it earlier.....I dont know since I read and post so many. In any event it is worth posting....whether for the first time or as a repeat. The fear mongering over the FED......is just that....fear mongering.

The FED can do whatever they want....whenever they want. They are NOT the cause of the great stock earnings and price increases we have seen. It was caused by the businesses themselves....putting up great earnings in the face of a closed economy. NOW that the economy is re-opening......the economy is going to BOOM......REGARDLESS or what the FED does or does not do.

OBVIOUSLY......any action or lack of action by the FED.....just like inflation.....is TOTALLY baked into the markets at this point. Any impact of anything the FED does going forward will likely be.......a 1-2 week event and than we will move on to the next topic.

 

Xx...asked about the stock DraftKings. I ran into this little article today. NOT saying it is the.....end all be all....but it does have some info and ONE view of the stock.

DraftKings Stock: Is It A Buy Right Now After Diving On Earnings?

https://www.investors.com/research/draftkings-dkng-stock-buy-now/?src=A002

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

"As sports-betting legalization spreads across U.S. states, DraftKings (DKNG) is at the forefront of the online betting industry. Amid a huge move since its April 2020 debut, is DKNG stock a buy?

The expanding legalization of digital sports betting is an emerging trend. The November election results showed voters in several states largely approved ballot measures that legalized sports betting and other gaming expansion measures.

Boston, Mass.-headquartered DraftKings is primed to take advantage of this burgeoning shift in state attitudes toward sports betting. DraftKings is an online sports platform that allows users to play daily fantasy games and win cash prizes.

DraftKings is on the road to profitability. After losing $3.26 a share in 2019, the company lost $2.76 a share in 2020. Analysts expect the company to lose $1.42 in 2021 and $1.00 per share in 2022, according to IBD data.

DraftKings Stock Fundamental Analysis: Strong Revenue Growth

On May 7, DraftKings reported a smaller-than-expected loss and booming revenue growth. DraftKings lost 36 cents a share as revenue jumped 252% to $312 million.

Monthly unique paying customers surged 114% to 1.5 million. Average revenue per user climbed 48% to $61.


The company raised its full-year revenue target to $1.05 billion-$1.15 billion, up from a prior view of $900 million-$1 billion and above consensus estimates for $999.7 million.

DraftKings IBD Stock Ratings

As a result of the company's lack of profitability, DraftKings' EPS Rating is a weak 27 out of a best-possible 99. The EPS Rating measures a company's ability to grow profits year over year, using the most recent two quarters and the past three to five years of earnings growth.

According to the IBD Stock Checkup, DKNG stock shows a mild 74 out of a perfect 99 IBD Composite Rating. The Composite Rating helps investors easily measure a stock's fundamental and technical metrics.

DraftKings Stock News

On Jan. 5, New York Gov. Andrew Cuomo announced legislation to allow mobile sports gambling in the state.

"New York has the potential to be the largest sports wagering market in the United States, and by legalizing online sports betting we aim to keep millions of dollars in revenue here at home, which will only strengthen our ability to rebuild from the COVID-19 crisis," Cuomo said in a statement.

On Jan. 22, Michigan launched online sports betting and casino games.

On Jan. 24, DraftKings announced the launch of DraftKings Sportsbook in Virginia, marking the 12th state in which DraftKings is available.

On Jan. 26, DraftKings surged over 5% after Goldman Sachs upgraded DKNG stock from neutral to buy, while raising the price target from 45 to 65. Meanwhile, Bernstein started coverage with an outperform rating and a 71 price target.

According to Goldman analyst Stephen Grambling, "We upgrade DKNG to Buy as we expect ongoing sales beats versus consensus driven by 1) sustained market leading position in new and existing markets, 2) ability to participate in the economics of single operator states, and 3) presence of national partnerships that should allow them to accelerate growth and achieve scale sooner than the broader peer group."

On Feb. 4, the company announced it expanded its exclusive daily fantasy partnership with the NFL to Canada. Previously, the deal between DraftKings and the NFL was limited to the U.S.

On Feb. 8, Ark Invest added 502,400 total shares in its portfolio of ETFs. On Feb. 1, Cathie Wood's Ark Invest disclosed a new position of 620,300 shares on Feb. 1 for the ARK Next Generation Internet ETF (ARKW).

On Feb. 19, Oppenheimer boosted its price target from 65 to 80, while maintaining an outperform rating. The analyst cited optimism ahead of the sports betting company's fourth-quarter results.

On March 3, DISH Network and DraftKings announced a strategic agreement to provide the DraftKings app on the DISH TV Hopper platform. The agreement also allows for subsequent DraftKings sportsbook and daily fantasy experiences with DISH Network's SLING TV and Boost Mobile in the future.

On March 4, DraftKings announced a deal with the UFC to be its official sportsbook and "daily fantasy partner" in the U.S. and Canada.

On April 15, DraftKings and the National Football League said that the sports entertainment and gaming company will become an NFL official sports betting partner. The NFL and DraftKings also said that DraftKings' relationship as the NFL's exclusive official daily fantasy partner will be extended.

On April 26, Needham initiated coverage on DraftKings with a buy rating and an 81 price target.

DKNG Stock Technical Analysis

On April 24 last year, DraftKings stock broke out above a 19.60 buy point in a cup base. Shares advanced as much as 128% from the buy point before the formation of the next base.

After a 38% decline, the stock formed the right side of a cup base featuring a 44.89 buy point. DraftKings broke out on Sept. 14 and quickly rose as much as 43%. But the stock couldn't hold its lofty gains and they dissipated over the next few weeks.

DKNG stock gave up the entirety of a double-digit gain from a previous 56.08 buy point in a cup with handle, according to IBD MarketSmith chart analysis. Following a round-trip sell signal, shares are below their 10-week moving average line and long-term 40-week line.

The stock is about 35% off its 52-week high.

Is DKNG Stock A Buy Right Now?

DraftKings stock is a promising long-term prospect in the sports-betting industry, and the company's potential is encouraging. Despite a lack of earnings, the company has huge revenue growth and is one of the leaders in the online betting megatrend.

DKNG stock rose nearly 1% Friday, and is about 33% off its 52-week high. Shares remain below their long-term 200-day line. Since the stock is far below a key support level, it is not a potential buy right now. Wait for DKNG stock to form a new base, which would offer a new buy point.

MY COMMENT

I have NO view on the stock. But the above is some info that a potential buyer might want to consider. The actual article has charts to go along with the Technical Analysis. I am sure there is MUCH INFO available on this stock on the internet.

 

As a little example of how the media LOVES to fear monger the markets.....I present the Ten Year Treasury Yield. It just had its BIGGEST FALL since April and hit a 7 week LOW after the May jobs data. Who would have ever known.....especially a month or two ago when EVERYONE was.....FREAKING OUT....over the Ten Year yield and the stock markets. NOW.......NEVER MIND.

10-year Treasury yield falls after jobs report comes in just short of expectations

https://www.cnbc.com/2021/06/04/us-treasury-yields-mixed-ahead-of-jobs-report.html

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

"Key Points

• The May jobs report was hotly anticipated as market players believe it will be a crucial piece of data when the Federal Reserve meets later this month.

Treasury yields slid on Friday after the May jobs report that showed a smaller-than-expected gain in employment.

The yield on the benchmark 10-year Treasury note fell nearly seven basis points to 1.56% at 1:30 p.m. ET. The yield for the 30-year Treasury bond slid five basis points to 2.244%. Yields move inversely to prices. (One basis point equals 0.01 percentage points).

The May nonfarm payrolls report showed that the U.S. economy added 559,000 jobs last month. Economists expected the report to show 671,000 jobs added in May, according to a survey conducted by Dow Jones.

The report was heavily anticipated as investors believe it will be a crucial piece of data when the Federal Reserve meets later this month

In recent weeks, some central bankers have broached the possibility of slowing down the Fed’s asset purchases that were instituted last year to calm financial markets during the pandemic. That tapering is widely seen as the first move the Fed would make to tighten up its policy stance during the economic recovery.

Aberdeen Standard Investments Deputy Chief Economist James McCann said in a note that the May report was unlikely to alter the Fed’s path.

“Nothing from today is going to move the needle for the Fed imminently. Many members have hinted that it is nearly time to start debating tapering, setting the scene for a wind down in asset purchases in 2022,” McCann said.

In the previous jobs report, the economy added 266,000 jobs in April, a dramatic miss compared with expectations for 1 million new jobs. The April number was revised slightly upward to 278,000 in the new report.

The surprisingly weak report renewed concerns, especially from Republican politicians, about the expanded unemployment benefits that had been extended as part of the American Rescue Plan. Several Republican governors have since moved to end the program early in their states in an effort to accelerate the recovery in the jobs market.

Democrats pointed to concerns about Covid and the uneven reopening of schools across the country as reasons for why job seekers might be less aggressive about finding a job than in previous economic cycles.

Other labor market indicators, including the ADP private payroll report and the initial jobless claims data released this week, have been strong recently, suggesting that April’s jobs report may prove to be a temporary blip in the recovery.

Elsewhere in economic data, Factory orders for April declined 0.6%, weighed down by weakness in the transportation sector.

MY COMMENT

A CLASSIC lesson in the value of.....IGNORING the media. A month or two ago it was ALL fear and doom and gloom based on Treasury yields. NOW.....crickets. The Ten Year Treasury yield is moving around in the same range it has been in for a long time now. It is at a historic 100 year LOW end of the scale.

MUCH of the reactions and news items we saw a month or two ago were driven by TRADERS....doing their USUAL media manipulation to try to set up their short term trades.

I try to NEVER invest according to GENERAL economic data......inflation, treasury yields, various economic reports that come out weekly and monthly, the CONSTANT talk from the FED.......and......all the other general BLATHER you see sensationalized in the financial media every day.

SINCE.....I am investing in an actual business....I prefer to invest according to the ACTUAL business results and prospects of the companies that I own. I am NOT investing in the general economy or the FED or the risk of inflation, etc, etc, etc......so why am I going to make any investment moves or changes based on this.....STUFF.

PLUS....the financial media is not there to give investing advice. They have to publish EVERY DAY.....so....their focus is on the day to day topics. They deal in generalities and DRAMA. Their focus is about one day.....and....than it is on to the next story line......usually.....as a herd of lemmings. I dont fault them....that is their job. I would fault investors that allow this sort of "stuff" to impact their investing decisions.

 

Looking forward to the new week......and....making some money. I dont see ANYTHING in the news that is new and dont anticipate anything this week that will impact the general markets. Looks like a good week to end up in the green.....even nicely in the green.

ALTHOUGH the May consumer price data will be reported on Thursday......and.....of course....the FED will be meeting on June 15 and 16. As the week progresses we will see the typical media hype of the Consumer price data build to a crescendo.

 

Welcome CheonbsonMi. Always good to see a new poster.

As to......Is this a good time to start investing or should I wait for a dip?

I refer you....to the article in this thread......on this page...... that discusses this very issue......and the research findings. The answer is in that article. BUT......your BRAIN will tell that that can not be true....yet it is.

The title to the article is:

"A Guide to Moving from Cash to Investments"

 

HERE is a little preview of the week.
GameStop earnings, consumer inflation data: What to know this week

https://finance.yahoo.com/news/game...on-data-what-to-know-this-week-143700353.html

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

"This week is set to be a relatively quiet one for investors in terms of economic data releases and earnings reports. Officials from the Federal Reserve will also enter their "blackout period" ahead of their June policy-setting meeting.

Still, new data on consumer price inflation will be of interest, since market participants have been looking for signs that the post-pandemic recovery is generating a surge in prices amid supply chain and labor shortages and booming demand.

The Labor Department's May consumer price index (CPI) on Thursday will show the latest on these price trends for the average American. Consensus economists are looking for the index to register a 0.4% month-on-month increase after a 0.8% surge in April. And over last year, the headline CPI is expected to jump 4.7%, or by the most since 2008.

The core CPI, or more closely watched measure excluding volatile food and energy prices, is expected to rise 0.4% month-on-month and 3.4% year-on-year. The latter would mark the greatest jump in nearly three decades.

"Thursday’s CPI data will be scrutinized after last month’s report sent up a flare on higher inflation," David Donabedian, chief investment officer of CIBC Private Wealth, wrote in an email on Friday. "While the consensus is for a 0.4% monthly increase, the risk is probably to the upside as bottlenecks and other supply constraints push costs higher."

Last month's greater-than-expected surge in the April consumer price index contributed to a 2% selloff in the S&P 500, with concerns over fast-rising and persistent inflation threatening to dampen the growth potential of longer-duration stocks especially. Market participants have also been monitoring inflation data with an eye to its implications for monetary policy, with the Federal Reserve looking for inflation to average above 2% for a period of time before rolling back some of its crisis-era support.

Most Fed officials and outside economists have suggested the jump in inflation reflected in the data for this spring will be transitory, largely reflecting the result of base effects off last year's pandemic-depressed levels. However, consumers have also begun to increasingly expect higher inflation in the future, with this shift in psychology also contributing in part to the Fed's decision-making. In one example, the University of Michigan's final May consumer sentiment index dipped compared to April in part due to concerns that higher inflation would weaken spending power.

"Shifting policy language and a small rate increase could douse inflationary psychology; it would be no surprise to consumers, as two-thirds already expect higher interest rates in the year ahead," Richard Curtin, chief economist for the University of Michigan's Surveys of Consumers, said in a press statement at the time.

Still, inflation and price stability represents just one prong of the Federal Reserve's dual mandate, with the other being achieving maximum employment. To that end, Friday's May jobs report suggested the economy remained a ways off from the Fed's goals, with U.S. employers adding back just 559,000 payrolls versus the 675,000 expected and leaving the economy still 7.6 million jobs short of pre-pandemic levels.

"The inflation narrative is secondary for the taper discussion, but it is still a consideration. With inflation pressures rising, the risk assessment has likely shifted a bit," Michelle Meyer, Bank of America U.S. economist, wrote in a note on Friday. "The concern for Fed officials is less about strong core CPI prints and more about the drift higher in inflation expectations coupled with signs of a wage-price push. This can make the temporary gains in inflation more persistent."

GameStop earnings
Some fundamental news will be coming out this week for investors in GameStop (GME), one of the original names to be swept up in the "meme stock" frenzy at the beginning of this year.

GameStop is set to report fiscal first-quarter results Wednesday after market close, offering an update on the company's business as retail investor interest in the stock remains heightened.

Consensus analysts expect GameStop will post adjusted losses of 59 cents per share for the three months ended in April, with this loss narrowing from the $1.61 per share reported in the same three months of last year. Revenue is expected to grow 14% to $1.17 billion.

Investors on the Reddit forum r/wallstreetbets pushed up shares of GameStop initially in January, flocking en masse to the heavily shorted stock to force short-sellers to cover their positions and push the stock's price even higher. Shares of GameStop have rallied by more than 1,200% for the year-to-date through Friday's close.

According to data from S3 Partners' Ihor Dusaniwsky, short interest in GameStop totaled $2.99 billion as of Friday's close, with 11.58 million shares shorted for a 20.3% short percent of float. Short sellers in GameStop were down by $294 million last week, he added.

But in recent weeks, AMC Entertainment (AMC) — another heavily shorted stock — eclipsed GameStop in terms of online interest and in share price appreciation. Shares of AMC have risen by more than 400% over the past one month, compared to a 56% increase in shares of GameStop. And AMC's market capitalization eclipsed that of GameStop last week, with the former's market value jumping above $30 billion.

The vast majority of the moves in the meme stocks were driven by social media popularity as opposed to traditional measures of stock valuation such as earnings and expected future cash flows. However, some have asserted that there is a fundamental argument to be made for investing in shares of AMC and GameStop, with the consumer-facing, brick-and-mortar businesses benefiting from the same "reopening trade" rotation that has lifted airline, cruise line, leisure stocks and retailers.

Still, most Wall Street analysts remain on the sidelines. Three analysts gave GameStop's shares a sell recommendation and two offered a hold, according to Bloomberg data last week. Likewise, AMC garnered four Sell ratings and five Holds. No analysts rated either stock as a Buy, with the vast majority of analysts suggesting the stocks' prices had outrun the underlying value of the businesses. And last week, major banks including Bank of America, Citigroup and Jefferies tightened rules over which clients could participate in short selling of the meme stocks, in an attempt to limit exposure to the extreme volatility these securities have witnessed recently, Bloomberg reported.

But given the lasting explosion in meme stocks this year, many have conceded that social media-driven trading represents a paradigm shift in the market.

“This is no longer our grandparents’, or for that matter, our parents' stock market,” Zephyr Market Strategist Ryan Nauman told Yahoo Finance. “Now, investment professionals need to start focusing more on looking at alternative data sets, rethinking their investment thesis to consider this growing cohort of retail investors.”

Others suggested the heightened speculative trading among retail investors may begin to dwindle once more investors are pulled back into workplaces in person and time at home for trading becomes scarcer.

"Participation of the retail investor in U.S. equities has very, very closely followed inversely the COVID timeline. So one of my favorite charts is looking at an Apple mobility index for the U.S., you invert it, and you overlay whatever your favorite measure of retail participation is ... and there is a very striking correlation," Binky Chadha, Deustche Bank chief global strategist, told Yahoo Finance on Thursday. "So I would argue that the participation is following this ... and the thesis is that as markets reopen, retail participation is going to come down."

"We tend to think of it as a flash in the pan as opposed to a change in the trend," he concluded.

Economic Calendar

• Monday: Consumer credit ($20.000 billion expected, $25.841 billion in March)
  
  
• Tuesday: NFIB Small Business Optimism, May (100.5 expected, 99.8 in April); Trade balance, April (-$69.0 billion expected, -$74.4 billion in March); JOLTS Job Openings, April (8.123 million in March)
  
  
• Wednesday: MBA Mortgage Applications, week ended June 4 (-4.0% during prior week); Wholesale inventories, month-over-month, April final (0.8% expected, 0.8% in prior print)
  
  
• Thursday: Consumer price index, month-over-month, May (0.4% expected, 0.8% in April); Consumer price index excluding food and energy, month-over-month, May (0.4% expected, 0.9% in April); Consumer price index, year-over-year, May (4.7% expected, 4.2% in April); Consumer price index excluding food and energy, year-over-year, May (3.4% expected, 3.0% in April); Initial jobless claims, week ended June 5 (372,000 expected, 385,000 during prior week); Continuing claims, week ended May 29 (3.771 million during prior week); Household change in net worth, Q1 ($6.93 trillion in Q4); Monthly budget statement, May (-$225.6 billion in April)
  
  
• Friday: University of Michigan sentiment, June preliminary (84.0 expected, 82.9 in May)
  

Earnings Calendar

• Monday: Coupa Software (COUP), StitchFix (SFIX) after market close
  
  
• Tuesday: N/A
  
  
• Wednesday: RH (RH), GameStop (GME) after market close
  
  
• Thursday: FuelCell Energy (FCEL) before market open; Chewy (CHWY), Dave & Buster's Entertainment (PLAY) after market close
  
  
• Friday: N/A

MY COMMENT

Yes......I DO NOT believe in the slightest that the recent INSANITY by retail investors represents anything more than temporary insanity. It is NOT a new normal......It is NOT a new era.....it is simply a bunch of young males that got some extra money.....decided to do some crowd investing.......... as a substitute for online gambling.

In my view......any professional that begins to trade or invest on this......STUFF.....and starts to reconsider their investing thesis or.....looking at alternative data sets.......is.....a complete MORON.

As to the usual inflation content above......DUH.....you close down the economy for over a year and disrupt the entire supply system.......and you are surprised that prices and supply and demand are out of WACK during the re-opening? Well what is happening is EXACTLY what you would expect.....and......as re re-open more fully and disruptions in the supply and demand and flow of goods evens out......it will all be JUST FINE.

SO.......DONT WORRY.....BE HAPPY.......tomorrow is a new day and the start of a new week.

 

I like this little article. It highlights another item of economic data.....that no one will care about....as usual.

The Record-Setting May Economic Data That Should Bore You
May’s PMIs tell a widely known story, in our view.

https://www.fisherinvestments.com/e...etting-may-economic-data-that-should-bore-you

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

"May purchasing managers’ indexes (PMIs) have rolled in, and some readings are historic. While we enjoy a nice milestone as much as anyone else, PMIs are still backward-looking, and the latest batch reveals basically nothing new or surprising. We think markets are looking far beyond what these data show—and investors should, too.

PMIs are surveys in which services and manufacturing businesses indicate whether activity across a range of categories rose or fell from the prior month. Readings above 50 mean over half of responding companies reported growth, implying broad expansion, but that isn’t airtight since PMIs don’t measure growth’s magnitude. So while we don’t know how robust May’s manufacturing growth was, PMIs suggest factory activity was very broadly growing, with a couple of exceptions.

Exhibit 1: May and April Manufacturing PMIs


Source: IHS Markit, the Institute for Supply Management and the National Bureau of Statistics of China, as of 6/3/2021. * denotes series high.

While record readings grabbed headlines, some common themes emerged, as manufacturers in the US, UK, eurozone and Australia highlighted similar developments. Business was burgeoning thanks to reopenings and strong demand, but firms groused about well-known headwinds including delivery delays, soaring materials costs and capacity constraints. Record-setting aside, May’s numbers simply added to an ongoing trend: The COVID-driven demand for goods (and the components that comprise them) remains robust, leading to well-known shortages for semiconductors, timber and other “stuff.” However, this was notably a developed market trend: Factory activity hasn’t been as strong in Emerging Market countries still struggling with COVID outbreaks, including Brazil, Mexico and India. Brazilian manufacturing output did pick up after falling for two straight months, but Mexico’s PMI has been in contraction since February 2020. India’s PMI dropped from April’s 55.5 to 50.8 in May—barely expansionary—as the country grappled with a tragic second COVID surge. China, meanwhile, is back to its longer-running trend of moderate growth, which we think is a good preview for the rest of the world once the initial post-lockdown boom fades.

May’s services PMIs were generally not as robust as manufacturing’s, but this isn’t a big surprise given COVID restrictions’ disproportionate impact on services. While many factories shut during last year’s first lockdown, they stayed open through subsequent waves even as restaurants and retail shuttered again.

Exhibit 2: May and April Services PMIs


Source: IHS Markit, the Institute for Supply Management and the National Bureau of Statistics of China, as of 6/3/2021. * denotes series high. Notes: China’s official PMI includes both services and construction. IHS Markit doesn’t produce services PMI for Canada, Taiwan, South Korea and Mexico.

May’s services readings align with nations’ current COVID status—a seemingly obvious point. If businesses were closed or restricted due to virus measures—and those measures go away—reporting an uptick in activity and orders naturally follows. That was the case for both the US and UK, which credited strong demand to reopenings and vaccine rollouts. Eurozone services businesses have trailed their American and British peers—no shock given the Continent’s lagging vaccine distribution. In contrast, services activity fell where COVID restrictions returned. Japan’s services PMI remained in contraction as the country reinstated a state of emergency, and India’s PMI fell below 50 for the first time in eight months as the government reinstated COVID restrictions.

For investors, these data provide confirmation and color, but little else. Analysts have been anticipating—and yapping about—a reopening-driven boost since last year. Supply shortages and bottlenecks, delivery delays, capacity constraints and higher material costs aren’t great—but these issues have also hogged headlines for months. Ongoing COVID outbreaks are tragic, but their economic impact is well-known at this point. India’s crisis is likely affecting all facets of its society, including the economy. Japan, too, is grappling with rising cases—and headlines commonly wonder if the rescheduled Olympics are at risk. For both the good and bad stories, May’s PMIs confirm a reality familiar to nearly all. The findings rehash the top stories on the nightly news.

Rather than dwell on the latest numbers, we suggest looking ahead. Beyond the reopening pop these surveys and other data suggest Q2 GDP is highly likely to show in much of the West. Beyond the lingering COVID-lockdown issues in Japan and India. Beyond the temporary supply chain hit that is showing up virtually everywhere. There is nothing wrong with the data, but backward-looking numbers that confirm what we all already knew and expected should play next to no role in your view of stocks going forward."

MY COMMENT

ACTUALLY.....I dont know why we report any of this economic data anymore. WHO CARES........at least in terms of the markets.....after all.....it is all different now...it is no longer your fathers or your grandfathers stock market. EVERYTHING...is different....it is a new normal. We are investing on......alternative data sets now.....the old stuff is irrelevant.

YET....every day the financial news is full of.....the same OLD stuff....that is the basis of the markets for 100 years.

 

AND....right on cue.....I see the articles RAMPING UP today hyping the inflation angle as news....since the May numbers come out later in the week. The FRENZY will escalate all through the week....as usual.