The Long Term Investor

Ok here is how we did this week. I am surprised by the year to date of the DOW. It was the STAR of the year and now it has fallen to +8.77% year to date. It is now the lowest YTD of all the major averages. I dont really see the DOW as being relevant to much.......my primary average is the SP500.

DOW year to date +8.77%
DOW for the week (-3.45%)

SP500 year to date +10.93%
SP500 for the week (-1.91%)

NASDAQ 100 year to date +9.01%
NASDAQ 100 for the week +0.37%

NASDAQ year to date +8.86%
NASDAQ for the week (-0.28%)

RUSSELL year to date +13.31%
RUSSELL for the week (-4.20%)

 

How true.....and....how sad.

Market Narratives Have Pushed Aside Fundamentals
Logic and mathematics once made up the basic laws of investing. No more.

https://www.bloomberg.com/opinion/a...d-aside-fundamentals?srnd=personal-finance-v2

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

"Filmmakers use the phrase “Narrative Is Everything” to emphasize the importance of storytelling to their craft. They understand how a good storyline communicates to the viewer, draws them in and makes them root for the protagonist. Without a good narrative, even the best casts inhabiting the most wonderful characters risk failing to entertain. Great narratives can terrify you, warm your heart, or compel your attention.

It seems that narratives have everything to do with markets these days, which is also creating new risks for investors. The biggest, most divisive debates are about stories rather than fundamentals, ranging from the utility of cryptocurrencies to whether the current spike in inflation is transitory, and from whether sky-high valuations are warranted to whether there is too much fiscal and monetary stimulus.


This is in stark contrast to how beliefs about investing have evolved -- beliefs based on mathematics and cold, hard logic. The “narrative paradigm” can be traced to a communication theory conceptualized by the late Walter Fisher, professor emeritus at the USC Annenberg School for Communication and Journalism. Fisher observed that meaningful communication occurs via storytelling because “stories are more persuasive than logical arguments.”

Consider the following examples of narratives as the drivers of, well, just about anything in markets today:

Bitcoin: Fiat currency has been debased by government bailouts, central bank largesse and other ill-advised interventions! It is an eventuality that this recklessness leads to a massive shift to digital currency. Buy Bitcoin and drive Lamborghinis or stay with fiat currency and own worthless paper.

Worker Shortage: Generous unemployment benefits are keeping lazy, ungrateful scoundrels from going back to work! Counter-narrative: Many schools are still operating remotely and childcare is hard to find. Plus, a large number of new business formations and a record number of people quitting their jobs shows workers are not lazy, just avoiding inflexible, low-paying jobs.

Passive Indexing: It is hard to pick winning stocks! Not only that, it’s expensive to hire the people who might be able to pick winning stocks (and you don’t know who they are until too late). Why not instead just buy a cheap index of the biggest stocks, or the entire market?

Inflation: Combine ultra-low interest rates and big stimulus with pent-up demand as the vaccines lead more of the economy to open. This story is the perfect formula for rising prices and higher inflation expectations!

Valuation: Buying stocks below their intrinsic value is a good way to make money over the long-term. Counter-narrative: Traditional measures of value must be more robust than just price-to-sales or price-to-earnings ratios; it must include growth rate and intangibles such as patents, algorithms and business processes.

Meme stocks: The collective power of the internet can stick it to the man! r/Wall Street Bets can identify heavily shorted stocks, and as a group buy out of the money calls, forcing a massive short-squeeze. Power to the people!

The idea of meme stocks as a narrative led me to reach out to Yale University professor and Nobel laureate Robert Shiller to ask whether “everything is narrative” is an overstatement. He is also the author of “Narrative Economics: How Stories Go Viral and Drive Major Economic Events.” In an email exchange, he pointed out that narrative is but half of it:

“A story becomes newly on everyone's lips not because it is true but because its contagion rate has gone up or recovery rate has gone down, just as viruses can see surprising new spread because of a subtle mutation. Contagion rates of stories are affected by such things as superficial resemblance to recent events, celebrity connections, and even sometimes by their outrageous daring falsehoods.” "

MY COMMENT

Pretty much defines much of the short term speculative gambling that is rampant today....among some population groups. HOWEVER......I DO NOT believe that this sort of investing is the ACTUAL norm......for most investors. Consider the typical 401K investor.

Perhaps this story is another......narrative. I could not resist......I do agree with the basic view of this article. This thread is.....full of....examples of daily media narratives that are put out there and impact young and inexperienced investors.

BUT...this is nothing new. ALL the basic.....BAD....investor behaviors documented over centuries....fit what this little article is saying. THIS is why the typical......average investor....can NOT even come close to beating or equaling the un-managed Indexes.

It is a RARE investor that can use ACTUAL analysis or logic. FORTUNATELY....most of the investors on this board are in that....RARE....category.

 

Emmett. What you need to do with the above is give us the updated analysis of the chart and action on that stock. I dont know anything about it....but from your chart.....it does look like it has had a good run UP for the past year.

 

Everyone is ALWAYS preparing for the negative......sometimes it is a good thing to prepare for the POSITIVE.

How To Prepare For a Lengthy Bull Market

https://awealthofcommonsense.com/2021/06/how-to-prepare-for-a-lengthy-bull-market/

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


"Following the Great Financial Crisis, a slew of books came out promising to help you navigate market crashes.

Here’s how to hedge this. Here’s how to hedge that. Here’s how to remain in the fetal position with your portfolio. Here’s how to prepare for Armageddon (just in case).

I get it.

There were plenty of investors who weren’t prepared for one of the worst crashes in history. I’ve spilled plenty of ink myself when it comes to preparing for a correction or crash.

And while it’s always a worthwhile endeavor as an investor to hope for the best but prepare for the worst, that fetal position mindset can be detrimental if you’re unwilling to accept some risk.

There has never been a risk-free way to earn solid returns in the markets, but that’s more true than ever today with rates where they are.


The other side of preparing for bear markets is preparing for a bull market.

Yeah, that’s right, I said it. I know valuations are high. I know the U.S. stock market has been positive 11 out of the past 12 years. I know the past 15 months or so have been a crazy orgy of excess and speculation in certain parts of the market.

But bull markets can last longer than you think.

Consider the U.S. stock market returned 15.5% annually from 1942-1965. That’s 24 years of above-average gains. Or how about the 17.7% returns over the 20-year stretch from 1980-1999.1

It’s hard to wrap your head around the idea that this bull market could still have a number of years to run but stranger things have happened. I’m not saying it’s going to happen, just that it could.

Since we’ve been inundated with pieces about how to prepare for a bear market, here’s how to better prepare for a bull market:

Expect pullbacks along the way. Returns in the previous long bull markets were extraordinary but they didn’t come without setbacks.



There were plenty of corrections and bear markets during this lengthy bull market:


I count 14 different double-digit downturns which works out to one every year-and-a-half or so. There were also four different bear markets with losses in excess of 20%. I’m sure every time one of these bears hit people assumed the bull was over yet it kept coming back.


A similar dynamic played out in the 1980s and 1990s:



There were nine double-digit drawdowns from 1980-1999 including the 34% 1987 crash and nearly a 30% hit from 1980 through 1982:


What if the Corona crash was our 1987 moment?

I’m just throwing it out there.

Figure out how to stay invested. If you wish to earn high returns in the stock market you can’t get scared out of stocks when those inevitable setbacks occur.

Holding on during a bull market can be harder than it sounds. The longer the gains last the more tempting it is to time the market.

What if I just go to cash and wait it out until the next crash?

This sounds like a reasonable plan until you realize how challenging it can be from a psychological perspective. And figuring out the right time to get out is nearly impossible.

The simplest way to stay invested is by creating an asset allocation you would be willing and able to hold during both bull markets and bear markets alike. The whole point of diversification is balancing out various market and economic environments.

Rebalancing isn’t as sexy as calling tops and bottoms but it’s much more prudent because it allows you to stay invested, occasionally take profits in your outpeforming assets classes to buy your underperforming asset classes, and manage risk along the way.

The perfect portfolio is only known with the benefit of hindsight so there isn’t necessarily a right or wrong asset allocation. It all depends on your willingness, need and ability to take risk.

Filter out your FOMO. One of the worst parts about bull markets is seeing others take irrational risks and make more money than you. It’s difficult to stay satisfied when you see otherworldly returns elsewhere.

The best way to avoid FOMO is by creating filters to define what you will and won’t invest in. If you have a specific set of strategies, asset classes and securities you’re comfortable with it’s much easier to say no to everything else, regardless of how much money others are making.


If you don’t understand it, don’t invest in it is a pretty good rule of thumb.

Avoid unnecessary mistakes. A combination of FOMO and greed can make people take really dumb risks with their money during a bull market. This opens you up to all sorts of scams, frauds, charlatans and hucksters looking to take advantage of loose risk parameters.

If it sounds too good to be true, it probably is.

Of course, there’s no guarantee the lengthy bull markets of the past will repeat. I could write an entire follow-up piece on the differences between now and then. Things that have never happened before seem to be happening all the time these days.

It always feels better investing when things are moving up than when they’re moving down but bull markets still present their own set of challenges."

MY COMMENT

With the economy now re-opening it is possible that we will see a 12-24 month......or longer.....continuation of the BULL market. With the exception of a few months due to the pandemic....we have been in a BULL MARKET since 2009.

The way to capture ALL the BULL MARKET gains.....continuous long term investing. The Key.....risk management.....that allows you to stay invested regardless of the INEVITABLE bumps along the way.

 

this little article is a very DETAILED summary of the recent FED announcements and CURRENT policy. I am just going to post the summary at the end of the article. I will leave it to readers to read the whole thing if they choose....to get down into the weeds.....of FED policy and inflation.

Fed Still Hasn’t Found What it’s Looking For

https://www.schwab.com/resource-center/insights/content/fomc-meeting?cmp=em-QYC

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

HERE IS THE articles conclusion and summary:

"In sum
Investors will likely remain uber-focused on inflation over the next couple of months. At least a portion of the upside pressure—the base effects relative to last year’s pandemic-related deflation—should begin to fade quickly.

Supply chain disruptions and bottlenecks could take a bit longer and will vary from product to product and industry to industry.

Longer term, inflation’s trajectory will be largely dependent on the labor market and whether wage growth becomes persistent and pervasive—possibly leading to a “wage-price spiral” type of inflation. For what it’s worth, we sit in the transitory camp.

While we wait to see how this fleshes out, it’s important to point out that inflation can’t be viewed in a vacuum. It’s too soon to judge whether the Fed’s firm belief that inflation will be “transitory” comes to fruition; but other factors need to be considered in the meantime, including economic (and productivity) growth and further healing in the labor market."

MY COMMENT

OBVIOUSLY.....I am in the....WAGE/PRICE SPIRAL.....camp when it comes to bad inflation or the potential for a sustained inflationary problem that becomes very difficult for the economy. I have mentioned this many times in this thread.

This......WAS.....the primary issue that caused the massive inflation and economic disruption that we experienced in the late 1970's and early 1980's. The REGAN tax cuts and business policies ended this....ERA OF STAGFLATION.....and set in motion a 20 year ECONOMIC BOOM.....that ended with the Dot-Com.....fraud economy...... collapse.

The more TRANSITORY type of inflation that we......MIGHT.....experience now with the reopening....SUPPLY/DEMAND based price increases......will simply pass within about a year. The......ACTUAL......length of time that this lasts will depend on how difficult it is to get a closed economy back open and FUNCTIONING. Since we have NEVER done this before....who knows.

REGARDLESS.....I DO know one thing......having my money invested in QUALITY stocks and funds.....WILL.....beat any other place that I could park that money. STOCK INVESTING is the.......ONLY.....shot that any "regular" person.....a non-business-owner.....has for a chance at WEALTH CREATION for themselves and their family.

 

Just like Lumber....lately. this is what happens when DEMAND out strips SUPPLY due to short term conditions or market events.

Copper gutted as China, Fed pressure metals
Copper is down 12.9% since its record high of $4.7785 hit in early May

https://www.foxbusiness.com/markets/copper-china-fed-metal-commodities

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

"Copper got crushed this week in what seems to be a perfect storm for the industrial metal.

Prices dropped 8.35%, the biggest percentage pullback since March of 2020 as tracked by Dow Jones Market Data Group. Front-month COMEX Copper for June delivery lost 37.90 cents per pound, closing at $4.1625.


(Courtesy: Trading Economics )

China announced plans to release copper, as well as aluminum and zinc from the country's reserves, according to the National Food and Strategic Reserves Administration. The move is the first in about a decade, according to Reuters. The move was made to help replenish a market that has been met with strong (demand) being drive by the post-pandemic recovery.

Adding to the selling, the Federal Reserve signaled it will begin to raise interest rates from near zero sometime in 2023. Some policymakers hinted a rate hike could come as early as 2022 if the economy rebounds and inflation heats up.

Even so, Federal Reserve Chairman Jay Powell signaled the recent price increases in commodities, such as lumber and copper, are likely due to supply and bottleneck issues and will come down as the market normalizes from post-pandemic kinks.

"These bottleneck effects have been larger than anticipated," Powell said during his press conference following the Wednesday meeting. "As these transitory supply effects abate, inflation is expected to drop back toward our longer-run goal, and the median inflation projection falls from 3.4 percent this year to 2.1 percent next year and 2.2 percent in 2023."

Also pressuring copper and other commodities was a stronger dollar. The Wall Street Journal Dollar Index on Friday booked its fifth day of gains."

MY COMMENT

We.....WILL NOT...hear much about this....or.....the HUGE drop in lumber prices in the news. The financial media has not realized yet that they can fear-monger and sensationalize this sort of news just like inflation.

The......COMING.....DEFLATION CRISIS.

 

WELL the old sellers market continues in REAL PROPERTY. LOCALLY.....we have 4200 homes and ONLY 14 for sale at this moment. SEVEN are over $1MILLION and SEVEN are below. The lowest priced home is $600,000....the highest is $1,550,000. The market seems to have SETTLED into an average of about 15 homes for sale at any one time for the PEAK selling season. Buyers seem to have a BIT more time to make up their mind now......a week or two......versus the previous...... day or two.

MORTGAGE rates continue at HISTORIC LOWS....in spite of all the FED talk you see every day. The Ten Year Treasury, Thirty Year Treasuries, bond yields, saving account yields, CD yields and ANY other conservative interest rate paying vehicles CONTINUE to be in the TOILET for safety and security conscious people that want some SAFE income. YOU would think....from all the STUFF we see every day.....that this would be a nice time for yields and safety oriented investors.......BUT.......NO such luck.

 

YES.......as to the broad Index investing. AND....actually....YES.......to the long term value investing.

 

WELCOME Richard G. Prall......feel free to post about your investing, portfolio, questions, or other info.

 

INTERESTING......this is the FORTH article I have seen today in the financial press saying that........the economy will NEVER be the same. YEAH.....right. With over HALF the country.....just....re-opening now.....how can ANYONE say this with a straight face.

Here is a typical article.......or at least the scary headline......ACTUALLY.....if you read the article there is NOTHING in the article about the topic of......"never be the same".

Key indicators show that the US economy is recovering, but it will never be the same

https://www.cnn.com/2021/06/19/business/business-americans-recovery-pandemic/index.html

MY COMMENT

STAY steady investors. Dont let this "stuff" run you around. I dont know who is pushing this stuff.......but there has been a significant INCREASE in this sort of distortion lately in the financial press.

 

My......simple....investing plan for when we end up in a BEAR MARKET.........the same as always. Why would I......NOT......want to own the cream of the crop of American business in a BEAR MARKET? When stocks and markets are struggling......I want to own the finest BIG CAP GROWTH companies in the world. I want to own the most DOMINANT companies in the world. I want to own the companies that have a proven EARNINGS, PROFIT, and REVENUE record....when things are down in the economy.

Of course......we might differ in our definition of the cream of the crop of American business.......and.....if so, that is ok. EACH....of us has to do the right thing for ourselves with OUR money.