The Long Term Investor

I like a lot of the general stuff in this little article.

How to Invest Without Knowing the Future

https://compoundadvisors.com/2021/how-to-invest-without-knowing-the-future

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

"It’s that time of year again.


Endless predictions and price targets about where the markets are headed in 2022:

-The S&P 500 is going to ___.

-The 10-year treasury yield is going to ___.

-Crude Oil is going to ___.

-Bitcoin is going to ___.

There’s a huge audience for this type of content, but is there any value to it?

Only if you believe that pundits can accurately predict the future, and their track record on that front is not particularly good. This year serves as yet another example…

The S&P 500 has hit 65 all-time highs in 2021 and is up over 25% on the year.


At the end of 2020, how many leading pundits predicted these gains?

Exactly none. Among major wall street institutions, the highest price target of 4,400 is 300 points lower than where the S&P 500 is trading today (4,700).


Source: Marketwatch (12/25/20)
Stocks haven’t been the only surprise this year. Oil is above $80 a barrel after going negative last year, Bitcoin has more than doubled after quadrupling last year, and U.S. inflation is at its highest levels in 30 years.


None of these things were widely expected or predicable at the start of the year. And yet here we are today, showing the futility of the prediction business once again.

But if you can’t predict the future, how can you invest? Don’t you need to know what’s going to happen next?

It might seem counterintuitive, but no. In fact, admitting that you don’t know where the markets are going is often the best thing you can do as investor.

Why?

Because it will lead you to diversify your portfolio and prepare it for the many possible outcomes that may arise.

What are some of those potential outcomes that might come as a surprise to market participants? I can think of a few today that stand out…

1) US Equities Underperforming

U.S. equities have been besting their global counterparts for over a decade, and by a wide margin. With endless fiscal stimulus and an ultra-easy Fed, it’s hard to envision a scenario in which this doesn’t continue.


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2) Growth Underperforming Value

Growth has been outperforming Value for over a decade. The largest and most admired companies today are all in the growth category: Apple, Amazon, Google, and Microsoft. It’s hard to envision a scenario in which these stocks don’t continue their domination.


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3) Reaching for Yield is Punished

Junk bond yields fell to all-time lows in 2021, moving below 4% for the first time ever. Defaults are low, the economy is booming, and at the first sign of trouble the Fed is expected to step in save the day as they did in 2020. With 0% rates still in effect, it’s hard to envision a scenario in which reaching for yield isn’t rewarded.


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4) Large Caps Underperform

Large caps trounced smaller companies over the past decade, making it difficult to envision a change in leadership going forward.


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5) Higher Inflation Isn’t Transitory

Over the last 20 years, U.S. core inflation has averaged 2% per year, with little variation from year to year. Both the Federal Reserve and the Federal Government are saying this year’s increase to over 4% is transitory and will come right back down to 2%. We haven’t seen a sustained level of higher inflation in a long time, making it hard to envision a scenario in which that occurs.


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If we knew that the next ten years would look exactly like the last ten, we could safely ignore these possible scenarios and concentrate our portfolios in large cap U.S. growth equities and risky debt with no exposure to asset classes that might benefit from higher inflation. There are undoubtedly many that are doing just that as recency bias is a powerful force.

But for those who are students of market history and the many twists and turns that have occurred, a more grounded approach is warranted. That means holding assets that are currently loathed like emerging markets or value stocks, resisting the urge to reach for yield, and insulating your portfolio from the possibility of sustained higher inflation.

You do these things not because you know that it will serve you well, but on the off chance that it might. This is risk management in its simplest form: having the humility to admit that you don’t know the future and investing accordingly."

MY COMMENT

I DO NOT agree with the soft recommendation of this little article:

"But for those who are students of market history and the many twists and turns that have occurred, a more grounded approach is warranted. That means holding assets that are currently loathed like emerging markets or value stocks, resisting the urge to reach for yield, and insulating your portfolio from the possibility of sustained higher inflation."

BUT......I do agree with the general message of the article......NO ONE can predict the future direction of stocks or any investment. In other words NO ONE can market time. AND....NO ONE can predict what investments will do well over the SHORT to MEDIUM TERM. The KEY for any investor is to pick investments that have the best LONG TERM potential. When you get into the LONG TERM time spans I do believe it is possible to invest with certain.....general....... "PROBABILITIES".

 

HERE is generally what is going on today.....although I think the headline is WRONG.......we are seeing a nice market in the SP500 and NASAQ so far today.

Stock market news live updates: Stocks flat as investors grapple with inflation surge, Disney letdown

https://finance.yahoo.com/news/stock-market-news-live-updates-november-11-2021-231409486.html

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

"Wall Street was mixed Thursday, with investors grappling with the implications of inflation that has soared to its highest in decades, and third-quarter earnings that are starting to show signs of slowing growth.

The S&P 500 was on track to rise after back-to-back sessions of losses. The Nasdaq also outperformed, with some of Wednesday's biggest technology laggards posting a rebound — led by Netflix (NFLX) which overtook Disney in market capitalization.

With no notable economic data due out on Thursday due to the Veterans Day holiday, investors have been left to continue responding to the latest batch of mixed economic data. And meanwhile, a couple of closely watched companies missed quarterly earnings estimates, though most S&P 500 companies have topped expectations throughout third-quarter earnings season to date.

After market close on Wednesday, Dow-component Disney (DIS) reported disappointing sales and profits as Disney+ subscriber growth slowed more than expected. Beyond Meat (BYND) also offered a weak current-quarter revenue forecast, pointing to continued sluggishness in the plant-based meat alternative-maker's sales trends. Affirm (AFRM), however, saw shares soar in the premarket session, with the buy-now-pay-later financial technology platform topping quarterly sales expectations and unveiling an expanded payments partnership with Amazon.

Elsewhere, however, elevated demand for electric-vehicle stocks and for shares of newly public companies showed few signs of slowing down after Rivian Automotive's (RIVN) public debut. The Amazon-backed EV-maker's stock closed higher by 29% from its IPO price of $78 per share on its first day trading on the Nasdaq.

A greater-than-expected jump in the Bureau of Labor Statistics' Consumer Price Index was a particular source of concern for traders on Wednesday, suggesting elevated price pressures were still present across many categories. The print also overshadowed some other upbeat economic data on the labor market's recovery, as initial unemployment claims dipped to reach a fresh pandemic-era low last week.

The broadest measure of consumer price changes rose by a staggering 6.2% in October compared to the prior year, representing the biggest annual rise in 31 years.

"This is certainly telling us, I think, that price pressures are more persistent. They are broader. They are not just narrowly focused on those categories, whether it's autos and the supply-constrained items. And it's going to last longer than expected," Matthew Luzzetti, Deutsche Bank chief U.S. economist, told Yahoo Finance Live.

Importantly, stickiness in inflation also suggests that the Federal Reserve will need to step in sooner than previously anticipated to raise interest rates in order to help bring rising prices in check. Markets are pricing in an initial hike to bring rates up from their current near-zero levels by mid-2022 — but more prints showing elevated inflation could pull those expectations forward, Luzzetti added. And already, consumers' outlooks on inflation have increased considerably, with the New York Federal Reserve reporting this week that consumers' short-term inflation expectations jumped to a record high of 5.7%.

"We do think that the Fed is going to have to raise rates next year. They've signaled that they're going to taper through the middle of the year, and that's our baseline at this point," Luzzetti said. "But if you continue to see price pressures like this over the coming months and more persistent, it may cause them to have to act earlier than expected.""

MY COMMENT

Really nothing going on that was not expected this week or probably for the rest of the year. No doubt stocks will get jerked around......from time to time.......over the short term by various events as we move toward year end.....but....that is NORMAL. I see the rest of the year outlook as being STRONGLY POSITIVE. All the potential issues and news are well known and BAKED INTO the markets at this point.

 

Hey oldmanram....refer that advisor to this site......the more people on here the better.

Well I got a nice but medium/small gain today so in the green. After yesterday it is nice to make a bit of money again. I also got a beat on the SP500 by 0.20%.

We are back on track.......lets end the week nicely tomorrow.

 

This is how we ended the day today.

Stock market news live updates: Stocks mixed as investors grapple with inflation surge, Disney letdown

https://finance.yahoo.com/news/stock-market-news-live-updates-november-11-2021-231409486.html

(BOLD is my opinion OR what I consider important content)
"Wall Street was mixed Thursday, with investors grappling with the implications of inflation that has soared to its highest in decades, and third-quarter earnings that are starting to show signs of slowing growth.

The S&P 500 was rose after back-to-back sessions of losses. The Nasdaq outperformed, with some of Wednesday's biggest technology laggards posting a rebound — led by Netflix (NFLX) which overtook Disney in market capitalization."

...........

MY COMMENT

That's about it. Nothing going on today. At least the markets were UP for the day.

 

My little neighborhood of 4200 homes had a little bump up in the real estate market over the past week. For some time now we have had about 19 active listings. Suddenly a day ago the number dropped down to 12 active listings. A sudden surge in the "pending" numbers. I have no explanation why. Perhaps a number of buyers with nice stock gains over the past month decided to jump into the markets and buy a house. Or perhaps the small downward move in mortgage rates caused some people to buy. Who knows.....but....only 12 homes for sale out of 4200 is a pretty MASSIVE bull market in real estate here locally. I do note that the majority of the listings that went pending were in the high end of the market.

 

Perhaps this is the TRUE state of the economy.

US Shoppers Outspend Chinese to Restore Luxury Market

https://www.newsmax.com/finance/streettalk/italy-global-luxury-sales/2021/11/11/id/1044248/

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

"The personal luxury market of high-end accessories, leather goods and apparel has snapped back to pre-pandemic levels as U.S. shoppers outspent those in China in pursuit of the latest fashion trends, according to a study released Thursday by the Bain consultancy.

Global consumer spending on personal luxury goods, including the latest sneaker trend or design collaboration, is forecast to spike by 29% this year, to 283 billion euros ($325 billion). That's a return to 2019 levels and a turnaround from the gloom of the 2020 pandemic lockdowns that shuttered stores and halted international travel. The recovery is expected to be supported by a strong holiday shopping season, Bain said.

“We are pretty positive, even if the growth rate in particular in China has been slowing down since mid-August. But they are still very strong,’’ said Claudia D’Arpizio, the Bain partner who headed up the study. “There has been a sharp V-shaped recovery for personal goods.”

The larger global luxury market, which extends to high-end travel, dining, fine art and furnishings, continues to lag 2019 levels, Bain said.

Consumers have shifted spending to high-quality furnishings, as many have been spending time at home instead of globe-trotting, while travel restrictions have been especially hard on luxury hotels, fine dining and cruises, all sectors that have yet to fully recover.

Global luxury comprehensively is expected to reach 1.1 trillion euros ($1.26 trillion) this year, which is about 10% below 2019 levels. The hardest-hit sector is luxury cruises, with spending down 80% from pre-pandemic levels and reduced even from 2020. Still, strong bookings for 2022 offer “glimmers of hope,’’ D’Arpizio said.

With international tourism still hampered, consumers have started picking up their new fashion trends at home, instead of fueling duty-free sales abroad.

U.S. consumers have at least temporarily supplanted the Chinese as the biggest spenders, accounting for one-third of all sales this year, compared with about 23% by Chinese shoppers, who were on par with Europeans. That trend is expected to invert by 2025, with nearly half of all spending by Chinese consumers, just over 20% by Americans and 18% by Europeans.

Bain forecasts that tourism will rebound by the end of next year to mid-2023, but D’Arpizio said she expects the pandemic will have established new habits, with luxury shoppers doing a lot of spending at home, not necessarily abroad.

“We expect tourists to come back. We don’t expect them to be as relevant as before,’’ she said.

The pandemic also has accelerated the shift to online shopping and reinforced the predominance of bigger brands in the marketplace, while encouraging the use of collaborations and digital campaigns to grab attention.

“The pandemic is widening the gap. We now see clear winners and losers. Bigger bands have more muscle,’’ D’Arpizio said.

In this way, they have exploited connections within larger conglomerates, like the Gucci and Balenciaga tie-up between the two brands owned by French group Kering."

MY COMMENT

I have noticed and have had a large number of friends notice.......lately......that the amount of money out there now is insane. Younger people are buying expensive homes and goods. I have never in my lifetime seen as many young people spending this much money. Houses, personal items and goods, luxury items, etc, etc, etc.......there is HUGE demand and little supply as consumers buy up all the inventory. I dont think it is a supply issue....it is a BUYER FRENZY issue.

 

American Funds is a pretty good fund company as you probably know from experience oldmanram. Their Growth Fund Of America has an amazing long term record. I would have bought that fund long ago if they were not a LOAD fund.

On the topic I mentioned of all the younger people out there that seem to have lots of money......I am thinking that part of the reason is that the MILLENNIAL generation is now hitting their stride with much of the generation being between 30 to 40 years old. As a result they are entering their peak earning time and those working in the corporate world are making REALLY good money. I am AMAZED at he number of young people with young kids that are able to afford expensive homes in our area. In the earlier part of my life in the various high end neighborhoods that I have lived in it was mostly older people 50-70 years old......or.....people with kids in the high School age range. In one neighborhood we lived in we were the youngest people in the neighborhood at age 40. Now high end neighborhoods seem to be populated by younger people with little kids that are either not in school yet or are in elementary school.

 

I owned Johnson & Johnson for much of my life. It has been a core long term holding of mine off and on for decades. Of course, I dont own it now. I sold my last J&J shares some time within the past 5 years....I cant remember when and am too lazy to look it up.

I DO NOT do drug companies. They are on my list of businesses that I never own. Johnson & Johnson was my one exception because they were a CONSUMER CONGLOMERATE that happened to also have a drug segment. NOW.....that is going to end. They will split into a pure drug company and another company that is consumer. The current TREND/FAD of turning BROAD businesses into shallow specific businesses continues. I think it is a BIG mistake......but......I dont get a vote.

My view is that the old conglomerate model of business created much STRONGER companies. There was POWER and financial safety for a business to have multiple streams of income and business. BUT.......whatever.....the FAD now is to split up all those sorts of companies to try to create......short term and short sighted.....value for the executives and shareholders. I believe it does simplify the job of management to have a more narrow company to run....but.....the inevitable result is erratic business fundamentals since they become a one trick pony.

J&J plans to split into two companies, separating consumer products and pharmaceutical businesses

https://www.cnbc.com/2021/11/12/jj-...th-giant-plans-to-break-up-in-wsj-report.html

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

"Health-care conglomerate Johnson & Johnson announced plans Friday to split its consumer products business from its pharmaceutical and medical device operations, creating two publicly traded companies. The news sent shares higher in premarket trading.

The separation will sheer off its household products unit, maker of Band-Aid bandages, Aveeno and Neutrogena skin care products and Listerine, from its riskier, but faster-growing division that makes and sells prescription drugs and medical devices, including its Covid-19 vaccine.

“Following a comprehensive review, the board and management team believe that the planned separation of the consumer health business is the best way to accelerate our efforts to serve patients, consumers, and healthcare professionals, create opportunities for our talented global team, drive profitable growth, and – most importantly – improve healthcare outcomes for people around the world,” outgoing CEO Alex Gorsky said in a statement.

The company said it hopes to complete the transaction in 18 to 24 months. The pharmaceutical and medical device division, which includes advanced technologies like robotics and AI, would retain the name Johnson & Johnson and keep J&J’s incoming CEO Joaquin Duato at its helm.

Gorsky told CNBC that the company hasn’t determined a name yet for the new, publicly-traded consumer business.

He said the decision to break up the company had been discussed by its board for “some time” as it would bring “tremendous opportunity” to stakeholders.

“It’s in the best long-term interest of all our stakeholders,” he said on “Squawk Box.” “Our goal is really to create two global leaders – a pharmaceutical and medical device business that has great potential today ... and of course, the consumer business that’s got iconic brands.”

Duato is taking over the role in January as previously planned. Those segments are expected to generate roughly $77 billion in revenue while the consumer products division is forecast to sell about $15 billion in products this year, the company said.

Its yet-to-be-named consumer products company will also inherit litigation stemming from lawsuits over claims that its Johnson’s Baby Powder causes cancer, allegations the company has vehemently denied.

Gorsky said the consumer division has four brands alone that generate over $1 billion dollars in annual sales. By separating it, the company can provide “even more agility” and “a better opportunity for capital allocation,” he said.

Shares of J&J were up more than 3% in premarket trading after the announcement.

J&J was already undergoing a major transition with Gorsky’s departure as CEO. He will remain on as executive chairman of the new J&J, the company said.

Additionally, the company said it planned to keep its total dividend “at least at the same level” following the change. J&J currently sports a dividend yield of about 2.6%.

The announcement comes just days after General Electric said it plans to split into three separate companies, spinning out its medical unit from its aviation and energy units."

MY COMMENT

The REAL reason this is happening or at least a big part of the reason is the liability from the baby powder cases. Second reason....I am sure there will be HUGE payouts to the executives from this event. BUT....of course as usual.....they sell it as "creating shareholder value". I had ZERO plans to ever own J&J in the future....but with this change this is a company that I will never consider as a holding since I dont do drug companies.....or.....auto companies, or banks, or insurance companies, or financial companies, etc, etc. Yes....I do own TESLA....but I see them as more of a TECH company that happens to make and sell cars so I give them a pass from my refusal to own auto companies.

 

We are off and running today. We start the day with all the averages in the green. Where we go....nobody knows.

 

I think there is some value in this little blog article. I do agree with the concept of evaluating all the negatives of any potential investment. BUT....when it comes to using VISUALIZATION in my life I prefer to focus on the positive life outcomes.

Investing lessons from the stoics

https://theundercoverfundmanager.com/investing-lessons-from-the-stoics/?

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


“Misfortune weighs most heavily on those who expect nothing but good fortune.”

Seneca

"There is a lot we can learn from the ancient stoics.

A central concept of stoic philosophy is negative visualisation. By regularly reflecting on what could go wrong – losing your job, getting ill, even death – you will be more prepared for bad outcomes.

Negative visualisation is equally powerful in business and investing.

Think of Charlie Munger and Warren Buffett. Their approach is, above all, about avoidance of bad outcomes. They’ve identified all the factors that could prevent them from compounding capital for decades – balance sheet weakness, dishonest management and bureaucracy – to name just three, and gone as far as possible in the other direction.

This means Berkshire’s balance sheet carries not just a few billion of cash, but tens of billions. Management integrity isn’t just nice to have but the most important factor they look for. And bureaucracy is seen as so evil that the whole business structure is designed to minimise it.

The way Buffett invests is negative visualisation on steroids.

When he studies a company he’s looking for all the reasons not to buy it. Does he understand it? Does the company have a moat? Could the product or service become obsolete? Are management honest? Buffett employs endless filters like these to determine whether a company is worthy of investment.

Alice Schroeder, author of ‘The Snowball‘ once said of Buffett:

“Typically, and this is not well understood, his way of thinking is that there are disqualifying features to an investment. So he rifles through and as soon as you hit one of those it’s done. Doesn’t like the CEO, forget it. Too much tail risk, forget it. Low-margin business, forget it. Many people would try to see whether a balance of other factors made up for these things. He doesn’t analyze from A to Z; it’s a time-waster.”

“Well, we do have filters. And sometimes those filters are very irritating to people who check in with us about businesses – because we really can say ‘no’ in 10 seconds or so to 90%+ of all of the things that come along simply because we have these filters.”

Warren Buffett

How I apply negative visualisation to my investments

I start by looking for business leaders who understand the importance of negative visualisation and are prepared for worst case scenarios.

One of the biggest mistakes I see companies make is overleveraging. A cyclical, capital-intensive and/or operationally-geared business must be especially careful to structure their balance sheet sensibly. Leverage of 2x net debt/EBITDA with covenants at 3x is too aggressive for a business like this, in my view. It only takes profits to fall by a third for the covenants to be breached.

Management must also prioritise resilience and protection of the business model ahead of growth. This means looking after existing customers well before taking on new ones, nurturing the culture and ensuring day-to-day business operations are running smoothly.

Like Buffett, I employ strict quality filters to reject investments. I’m looking to own low risk businesses that are, as much as possible, in charge of their own destiny. And I’m prepared to sacrifice higher returns for a greater certainty of outcome (for example, I favour established business models over unproven ones and stronger balance sheets over weaker ones).

I also apply negative visualisation to portfolio management. By imagining worst case scenarios – like unwelcome surprises in the companies I own, or being a forced seller in a market downturn – I can take steps to minimise their impact. This means always having cash for emergencies (and to exploit sell-offs), being mentally prepared for 50% drawdowns in my stocks/portfolio and sticking squarely to my circle of competence.

I try, with my personal investments, to be relatively agnostic to whatever happens.

If markets rise, I benefit. If markets fall I can reinvest at more favourable valuations. In a raging bull market this means my returns will be a bit lower than if I was always fully invested in equities. But that’s fine. My aim is not to stretch for the highest possible near term returns. My aim is to be prepared for any eventuality and earn decent returns over a long period.

“How absurd – and a complete stranger to the world – is the man surprised at any aspect of his experience in life.”

Marcus Aurelius"

MY COMMENT

I prefer to see this sort of analysis as PROBABILITY based investing. EVERY good investor is a master of mentally calculating probability based on a ll the factors that are involved in a business. Of course this sort of investing REQIIRES the ability to see reality,

 

Yep that is how it is over the short term Zukodany. But look at the long term......the time you have been investing from when you started.......and you are doing very nicely......I hope. Racking up those long term gains while minimizing RISK and compounding those gains is the KEY to long term BIG WEALTH. In addition.....show me a long term successful "TRADER" that beats a good solid long term "INVESTOR".....not many.