The Long Term Investor

Well the poor CRYPTO prices are following the stock markets. Bitcoin is now down by about 50% since November. Lets see....stocks are down about 10-11% since their November highs. Bitcoin is down about 50% since where it was in November.

Bitcoin and Crypto were supposed to be a safe haven or a hedge against stock issues. People can obviously invest in Crypto if they wish. Personally I do NOT even consider it investing. I consider it gambling. BUT.....either way......it is personal choice and preference.

 

I saw somewhere that about 20% of the S&P 500 and nearly 50% of the Dow Jones Industrial will report earnings next week. Earnings SHOULD be the focus of the week. BUT....there is a big difference between What should be and what is.

Included in the above are:

Tuesday - 3M.....American Express....GE.....Microsoft.....Johnson and Johnson.

Wednesday - Boeing.....Tesla.

Thursday - Apple.....Altria.....Visa.

Friday - Chevron.....Colgate.

PLUS.....many, many, other big names. I dont see anything new in the news.....same old same old.....the FED, Inflation, supply chain, the Ten Year yield. Earnings are the REAL story of the week next week. Are the short term markets rational....no. Do I care....no.

 

I REALLY like this little article. Of course there is a reason for that.....since....everything it says has been posted in this thread many, many, times. BUT....this is good stuff in the current short term environment.
Investing involves coping with two conflicting realities — especially amid pullbacks

https://finance.yahoo.com/news/coping-with-two-conflicting-realities-154432351.html

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

"Investing in the stock market is a challenging mental exercise.

Among other things, investors have to cope with two seemingly conflicting realities: In the long-run, things almost always work out for the better; but in the short-run, anything and everything can go very badly.

In an environment where news headlines seem overwhelmingly alarming, I think it’s helpful for investors to see what history says about the market implications of comparable events. And as you’ll read on TKer, there’s nothing that the stock market couldn’t overcome given enough time.

HOWEVER, it can’t be reiterated enough that 5% pullbacks and 10% corrections happen more often than not in any given year. Bear markets, where stocks fall by more than 20% from their highs, are less frequent, but they are something that long-term investors are likely to confront during their investment time horizons.¹

Unfortunately, it is incredibly difficult to predict when stocks will fall. And exiting stocks in an attempt to avoid short-term losses can prove incredibly costly to long term returns.

So, whether or not you can comprehensively identify and balance all of the potential bullish and bearish market catalysts, it’s probably a good idea to just always be prepared for stocks to experience some big dips on their long upward journey.

Pop quiz

The S&P 500 is down 8.3% from its January 3 closing record closing high of 4,796. I’d bet if you were asked, you could quickly come up with a few good reasons to explain what’s behind this drawdown in prices. The Fed, inflation, supply chains, valuations, Omicron, Russia, China… those would all be good reasons.

Here’s a harder question: What was the story behind the 10% drawdowns in 2018, the 14% drawdown in 2016, the 12% drawdown in 2015, the 10% drawdown in 2012, the 19% drawdown in 2011, and the 16% drawdown in 2010?


If you’re like me, then you probably struggled to recall exactly what had the stock market so troubled during each of those periods.

The point of this exercise isn’t to suggest that the risks facing investors and the markets at those times weren’t serious.

Rather, the point is to show that pullbacks, corrections, and even bear markets happen frequently. And more often than not, they’re so short-lived that the once-unsettling risks thought to be driving those drawdowns prove to be inconsequential and quickly fade from memory.

The bottom line

Anything could go wrong at any moment, driving the stock market lower. Covid infections could get worse, supply chain disruptions could persist, tighter monetary policy may not be well received, inflation might not cool down any time soon, geopolitical turmoil could erupt, and so on. The stock market could also fall for no obvious reason.

If you’re not able to stomach short-term volatility or if your portfolio can’t handle short-term unrealized losses, then investing in the stock market might not be for you.

These short-term challenges are the price investors pay for long-term riches."

MY COMMENT

Long Term Investing.......the above is the REALITY of short term events that happen along the way to long term investing results. It takes,mental toughness and experience to sit and ignore the short term mania and paranoia. Even if what is happening over the short term is......reality.....it is still short term stuff and has to simply be ignored.

Unfortunately the short term stuff is AMPLIFIED by the financial media. They live for the daily article type stuff that becomes irrelevant over time. Short term events are ALWAYS over-reported and over-analyzed. That is just the nature of the media. Very few events rise to the level of something that we will even remember a year or two later....no matter how important it seems when it is happening.

Doing NOTHING.......when everyone around you is "doing something".....is incredibly difficult. BUT....that is the right move for investing success. It is very difficult for most people to sit through the PEER PRESSURE to do something and do NOTHING. Basically.....you have to be willing to be a NONCONFORMIST to be a decent investor.

I LOVE the chart above with all the corrections and bear markets. Each one with a RED DOT is a downturn of 5% or more. If I counted correctly from 2009 to now there were 22 such events. In other words....they happen all the time.

You would be CONSTANTLY jumping in and out of stocks if you were trying to anticipate and time all of these events. Your returns......as a result....would be in the toilet. It is simply IMPOSSIBLE to anticipate these common events and get in and out at the perfect time. SO......smart investors....dont even try. They simply sit and wait it out.

 

Here is a very TRUE little chart.



It is amazing that these things happen all the time. Especially the losses of 15% happening every 2.5 years on average and the losses of -20% every four years on average. In other words.......just deal with it.....it is NORMAL.

 

I may have posted this article before.....I dont know....but it is worth posting again with the recent market losses. It came out in February 2021.

A Short History of U.S. Stock Market Corrections & Bear Markets

https://awealthofcommonsense.com/20...of-u-s-stock-market-corrections-bear-markets/

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

"Since bottoming last March following the Corona Crash, the S&P 500 is up nearly 80%.

And other than a brief downturn in September, the rise has gone on more or less unabated in terms of corrections:


Since 1950, the S&P 500 has experienced 36 double-digit drawdowns. That works out to one every other year or so on average.

So maybe we’re closing in on being due for a breather but these things don’t occur on a set schedule.

The stock market has been highly volatile since the turn of the century, experiencing crashes of 50%, 57% and 34%. It’s possible this level of heightened volatility is going to remain for the foreseeable future with an assist from the internet.

But markets can go through extremely long runs in-between sell-offs.

The longest the stock market has gone without a double-digit correction since 1950 is 7 years from 1990-1997.

Then from 2002-2007 there was a four-and-half-year drought with no corrections.

This may surprise some people, but the third-longest streak of no market corrections over the past 70 years or so was the four years from late 2011 through late-2015.

Here’s the full list since 1950 (corrections in blue and bear markets in red):


While double-digit corrections occur quite frequently, bear markets are more infrequent.

There have been 10 bear markets since 1950, meaning they have hit once every seven years, on average.

The longest time from bear market to bear market in modern market history was the 12 years and 4 months between the 1987 crash and the onset of the dot-com crash in 2000.1

Then there were the 11 years from the bottom in 2009 through the start of the Corona Crash last February.2

So you could be right about a coming market crash but have to wait a loooooong time for it to come.


And if you plan on waiting for a correction it’s not only time you could be missing out on but massive returns. These are the biggest gains on the S&P 500 that occurred between double-digit corrections:


1990-1997: +302%


1984-1987: +147%


2003-2007: +112%


2011-2015: +109%

This is why market timing can be such a destructive exercise. There can be a massive opportunity cost if you’re wrong.

Maybe markets are moving faster than they did in the past. Maybe we’ll have more corrections and bear markets because technology is speeding things up.

But don’t underestimate the market’s ability to continue rising. This is what makes predicting the stock market so difficult.

You always have to be prepared for a downturn but there are also times where markets scream higher without much resistance.

1To be fair there were two 19%+ corrections in this time so maybe I’m splitting hairs here but they don’t technically fit the 20% definition of a bear market. I don’t make the rules.

2Again there were two 19% and change corrections in this time.

MY COMMENT

Look at that blue and red list of all the corrections and bear markets since 1950. From October of 1997 to February of 2020 there were 12 corrections and/or bear markets. That puts this little dip we are in right now in context.

 

As we continue talking about corrections and bear markets here are another couple of nice charts.





What is nice about these two charts of BEAR MARKETS is they show that regardless of the big drop....the vast majority of times......you recover your money within less than a year. AND.....even when it takes longer.....as long as you sit tight it WILL happen.

 

YEP....JaysonW.

You guys in Round Rock are part of the general Austin Metro area. The markets in the entire area are HOT, HOT, HOT. Those of us that had the good fortune to own a home over the past three years have seen some really big gains. As a homeowner since 1974.......with 10 homes owned over that time span....I can say I have NEVER seen this sort of price increases in my lifetime. Truly a once in a lifetime event.

 

WELL.....good news for me. I now have more......indirect.....indication that I have won my appeal of my Social Security extra premiums for year 2022.

On Friday I looked at my bank account and I have now been refunded the $51.70 extra drug premium for my account and my wife's account. In addition there was also a refund of the $272 extra medicare premium for my wife's Medicare.

I have STILL not received anything from Social Security in the mail. I expect that some time over the next week I will also see the $272 extra Medicare premium taken out of my Social Security...........refunded back into my account.

The end result.......WE.......will have another $7704 coming in this year at the rate of about $642 per month.

One good thing about the current inflation.....if it lasts till the Fall......everyone on Social Security will get another BIG raise in their benefit.

 

I would not UNDERESTIMATE this little market drop. Until something changes.......the short term market direction is down. The conditions causing it.......inflation, the FED, the Ukraine situation and media fear mongering around it, the government incompetence and resulting lack of confidence........are all going to be around for a while.

There is ONLY one potential positive event happening that could put a floor under the markets......EARNINGS. My view is that it probably will not happen. I believe earnings will be very good......but......with all the current negative focus on events that will happen over the next 1-3 months......earnings will simply be discounted by the media and others.

There is a reason that I and many others define LONG TERM INVESTING as being a minimum of FIVE YEAR or more. A nasty correction can last more than a year. A bear market can last for years.

Unfortunately......since 2009......we probably have about half of all investors that are either new or have NEVER invested in a normal market with long term correction or bear market potential. This time period of rising markets along with the trading mentality pushed by everyone.......has created many investors that dont realize that long term SHOULD mean more than a year or two.

SO......the question for any investor that thinks they are a long term investor is.......how long is your horizon? Are you seeing long term as 5-7 years minimum? Is your investing horizon long enough that you are giving yourself the necessary time to recover losses in a real downturn? Is your money that you are going to need for some use over the next one to three years at UNNECESSARY RISK?

 

I like this little article that deals with historic market data.

Historical Returns For Stocks, Bonds & Cash Back to 1928

https://awealthofcommonsense.com/2022/01/historical-returns-for-stocks-bonds-cash-back-to-1928/

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

"NYU professor Aswath Damodaran offers an impressive array of investment tools available for anyone to use for free:


Most of this data is fairly targeted and probably only useful for fundamental investors doing deep dives on the market.

I’m not afraid to get my hands dirty but I tend to use the simple stuff more often when it comes to historical market data.

My favorite dataset from Damodaran is his annual update of the historical returns on stocks, bonds and cash. He shows total return data for the S&P 500, 10 year treasuries and 3-month t-bills each year going back to 1928.1

Let’s look at some of the charts and tables we can create from this data:

This scatterplot of the calendar year returns shows how widely stock market performance can vary from year to year:


This variation becomes even clearer when you compare the best, worst and average returns of the stock market to bonds and cash:


The wide range of returns is one of the biggest reasons the average return of stocks is so much higher than bonds and cash.

Bonds don’t have nearly the same amount of variance in returns as stocks because of the way fixed income is structured. Bond returns are much easier to predict over the long-term than stocks.

All you have to do is use the starting yield and that gives you a fairly reliable expected return number over the ensuing 5-10 years.

But there can be some short-term volatility in bond returns when rates move up.

This is a list of the 10 worst calendar year returns for 10 year treasuries since 1928:


That’s just one double-digit down year compared to 11 down years of 10% or worse for the stock market in the same time.

It’s interesting to note 3 of the worst 10 years over the past 94 years have come since 2009. I would expect this to continue in the years ahead as bonds are more volatile with interest rates so low.

Here are those 11 double-digit losses in the stock market compared to the returns of bonds in those same years:


The average loss in stocks over these years was -23%. In those same years, bonds were up an average of 5.5%, an outperformance of 28%.

There were two years on this list when bonds fell at the same time as stocks but those “bad” years in fixed income were a bad afternoon in the stock market.

You can also break up these returns into different cycles to show why the historical returns for bonds and cash were much higher in the past than they are likely to be in the future:


Interest rates got so high in the early-1980s that bond and cash returns over the ensuing decades were lights out.

Never say never but it’s highly unlikely we will ever see returns this high for this long on safe assets again.

And finally a reminder to keep a long-term perspective as we go through yet another market correction.


Damodaran also publishes the growth of $100 invested in stocks, bonds and cash starting in 1928. This period includes the Great Depression, multiple wars, 15 recessions, and a handful of 50%+ market crashes.


Yet in that time $100 invested in the stock market in 1928 grew to more than $760,000 by the end of 2021.

Not bad."

MY COMMENT

It is never a bad thing to take a look back at the reality of stock and fund investing. The annual numbers are all over the place. BUT......the long term average.....about 10%. I suspect that many people that read this thread think that my long term investing goal of averaging 10% over the long term is SILLY......way too low.

WELL.....my view is that it reflects long term REALITY. It certainly reflects the historic average of the SP500 and the markets in general. AND......since very few people can meet or beat the SP500 over the longer term....I consider that goal very reasonable.

Expectations and greed......both get out of whack during extended market runs. I have NOT changed my 10% long term investing goal EVER......over the past 45 years. Even though I am significantly above that goal over my lifetime........I know that.......past performance is no guarantee of future performance.......especially short term past performance.

 

YES....fear of missing out......in NOT a valid investing thesis.

The End of FOMO (Fear of Missing Out)

https://howardlindzon.com/the-end-of-fomo-fear-of-missing-out/

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

"My friend and partner Charlie sums it up here in this chart and tweet:



I hate the terms bull and bear market, overbought, oversold, cheap, expensive and price targets.


Investing is about money management and all of us have different risk profiles.

If you own gold, oil and defense stocks (here comes war) you think the world is looking up.

I have a pretty good view of greed and fear from my seat at Stocktwits and as a long time investor in startups as a first check writer.

The last twelve to 18 months was a FOMO era.

They will say that inflation and interest rates killed this great market run, but as someone watching and writing about investing every day here I knew it was going to be supply. Supply is a bitch.

I have been pretty conservative but it still has been a brutal six months for anything I own or like in software.

Now the media will hop on how bad it is because the ‘bear market meme’ is just getting started.

As a stock investor it is easy…stop buying.


As a seed investor the last 12 months have been a lot of work to sit on my hands as I say no to high prices.

As a seed investor with 85 percent of our fund 4 to invest in software startups, I say hell yes…hit me up (but have a look at stock prices first before you mention your valuation).

This is a GREAT time to have cash and be investing or an entrepreneur

In 2006 VC’s had too much power.

In Facebook era…founders had too much power

In most recent era…too much liquidity created an environment of sloppy founders and investors.


This reset was due and if the FOMO era is indeed over, I am thrilled."

MY COMMENT

I agree......and....thank goodness.

 

Here is where we are in earnings at this moment. Although the data is NOT very accurate at the moment since it is so minimal.

Stock market sees disturbing start to earnings season: Goldman Sachs

https://finance.yahoo.com/news/stoc...-earnings-season-goldman-sachs-141612797.html

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

"Earnings season has started with a whimper, at best.

Of the 64 S&P 500 companies that have reported fourth quarter earnings so far, a slightly below average 52% have beaten analyst consensus earnings estimates, points out David Kostin, Goldman Sachs chief U.S. equity strategist.

But it's guidance — or lack thereof — that has been the biggest red flag as companies battle through unpredictable inflation and varying COVID-19 issues.

Kostin notes that only six companies in the S&P 500 have provided formal guidance for the first quarter. Five of the six companies have guided below consensus earnings estimates, including three companies that beat on fourth quarter estimates.

Only chip giant Micron has beaten on quarterly earnings and raised guidance for the current quarter. Meanwhile, Netflix's lackluster first quarter outlook "stunned investors," Kostin said.

"Investors are most interested in forward-looking guidance from managements, and recent information on that front has been concerning," Kostin added.

The market actions suggests growing angst on trading desks about the next few weeks of earnings season, among other worries such as looming interest rates hikes from the Federal Reserve.

Last Wednesday, the Nasdaq Composite fell into correction territory — marked as a 10% decline from a recent high. Research from Morgan Stanley chief markets strategist Mike Wilson's shows 40% of the Nasdaq has corrected by 50% or more.

As it stands, the Nasdaq is down 12% so far in 2022, followed by an 8.2% drop for the S&P 500 and a 5.7% decline for the Dow Jones Industrial Average.

"While the average stock has seen quite a bit of downside, the major averages still have a good 10% down from here," said Wilson on Yahoo Finance Live.

The risk-off tone has spread to bitcoin prices, too.

Bitcoin is trading at $33,482, down nearly 30% year-to-date. The benchmark crypto has shed 51% from its Nov. 10 high of around $68,000."

MY COMMENT

YES.......what the short term markets are going to look at in earnings is the forward guidance. The very good earnings numbers will for the most part be IGNORED. In other words.....earnings are going to ......once again.....be NIT-PICKED.

 

Time for me to go and work on some charts.......music, not stocks.......while I have the morning business show on in the background. Nothing I can do about the markets........not that I really care. The downturn will be over when it is over. No reason to try to anticipate when that will be.......since I dont try to time the markets. I am NOT concerned with how the market is doing recently........and:

I continue to be fully invested for the long term as usual. GOOD INVESTING TO ALL.