The Long Term Investor

WOW.....a really good day today for the markets. I got beat by the SP500 by 0.16%......but.....I ended the day with a total green portfolio and a nice gain.

We need to carry this strong momentum into Thursday and Friday and end the week in style.

 

Here is a good suggestion for investors.

What Do I Do NOW?!

https://mebfaber.com/2022/02/28/what-do-i-do-now/

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

"The coronavirus has been wrecking economies and overloading health care systems around the globe for the past few years and just when it felt like we might be emerging from the pandemic….

Invasions. War. The threat of nuclear strikes.

Will there be a peaceful outcome? Or something worse?

I don’t know. No one really knows. It’s heartbreaking on so many levels.

But with such massively different future possibilities, many investors are wondering what to do…and the answer for most of us is…


Nothing. Or, as the late Bogle stated:

“My rule — and it’s good only about 99% of the time, so I have to be careful here — when these crises come along, the best rule you can possible follow is not “Don’t stand there, do something,” but “Don’t do something, stand there!”

We tried to drive this point home in our letter to shareholders during the pandemic titled “Time to Panic“? It’s worth a read, but here’s an excerpt:

“Global markets are experiencing large moves up and down today and many investors are freaking out.

US stocks declined enough at the market open, 7%, to trigger circuit breakers that paused trading.

Investors all over social media are panicking. Because they don’t have a plan.

But you do.

You put in the work over the past decade. You’ve read our blog posts and books, you’ve listened to the podcast, and eventually, you built a plan. And take note, they’re not all the same plan. But at least you have one so that when it hits the fan, like it is now, you’re prepared.”

Our investors have read our old pieces for the past 15+ years that prepared them for something like this. There was the piece on how really big daily stock market moves of 5 to 10% are pretty normal and tend to cluster together, particularly in down trends (“Where the Black Swans Hide“).

We also published a piece that demonstrated what assets helped to hedge these big down periods in stocks (“Worried About the Market?“). And it turns out, the assets that hedged historically (tail risk, bonds, cash, gold, trend) helped in the pandemic too.

You mentally prepared for the fallow periods, because you read the piece that demonstrated many assets can go long periods experiencing measly returns but still be worth investing in (“How Long Can You Handle Underperforming“). You learned to think in terms of decades rather than years by taking the long view after reading “The Get Rich Portfolio” and “The Stay Rich Portfolio“.

Let’s say you’ve read all of these pieces, you’ve listened to the podcast, and you’ve put your plan into place. Congrats! Now you get to sit back, and do nothing. And that’s what I plan to do with my allocation. (Which, you’ve also read about in “The Trinity Portfolio” and in “How I Invest My Money“. Now, to be fair, it’s easy to “do nothing” when you own private assets where you couldn’t do anything even if you wanted to! Here’s a picture of me trying to figure out if farmland went up or down …(actually from a few years ago)).

On the public side it’s easier said than done, and it’s harder to resist the temptation to check your brokerage balance every day. But this market, to me, illustrates the beauty of the Trinity Portfolios. Half the allocation is in a global buy and hold allocation across stocks, bonds, and real assets with tilts to value and momentum. So, if markets rip right back up, I’m covered. The portfolio will also rebalance and keep tilting more and more to the cheap stuff as it gets cheaper (and cheaper).

The other half of the allocation is in various trend strategies, and if markets continue their free-fall down, I’m also protected. Most momentum and trend strategies are heavily allocated to real assets currently.

So, I like to go halfsies in buy and hold and trend, or what I call buy and trend. Frankly, I never want to be “all in” in any outcome, because after all, the future is uncertain. Plus, it’s all automated so I don’t have to think about it.

So, I mainly plan to “just stand there”. I’ve talked a lot about the four quadrants of stock markets, and how when an expensive market flips from an uptrend to a downtrend like now things can get nasty (“Keeping it Simple“). So I’m adding more tail risk exposure too. You can read about this in our recent piece “Red Light”.

But the thing about big market dislocations is that they create massive stress. Emotional, financial, marital, and probably 10 other kinds. And these stresses lead people to act bananas-crazy with their money.


So, let that be your opportunity, and not your downfall.

I hope this helps. And as always, we’re here for our nearly 100,000 investors if you want to talk. But likely you don’t need to, because you prepared for this.

Stay safe and healthy everyone!"

MY COMMENT

I am not recommending any investment plans or strategies in this article. I am simply using it to reinforce the winning strategy for long term investors of......doing nothing. ALL of the long time academic research backs this up. So.....JUST DO IT......"IT" being nothing.

 

SO.......here we go......the rate hike will be EXACTLY what was expected.....before all the media fear mongering of the past month or so. Well......DUH.

Stock market news live updates: Stocks rise, oil prices soar as investors eye Russia's war, Powell's testimony

https://finance.yahoo.com/news/stock-market-news-live-updates-march-2-2022-231352427.html

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

"Stocks rose on Wednesday to recover some steep losses from earlier this week, with jitters over Russia's war in Ukraine and its implications for the global economy weighing on risk assets. Investors also monitored fresh remarks from Federal Reserve Chair Jerome Powell, who said the central bank remained on track to raise interest rates later this month as the economy remained firm despite ongoing geopolitical tensions.

The S&P 500 advanced by more than 2% at session highs. On Tuesday, the blue-chip index slid 1.6%, extending Monday's losses to kick off March trading on shaky footing. The Dow and Nasdaq each also rebounded after falling sharply earlier this week, with risk assets reeling as investors contemplated the potential for more widespread supply chain and financial market disruptions as Russia deepened its attacks in Ukraine, and Western sanctions progressed.

Amid the ongoing geopolitical concerns, energy prices climbed, and West Texas intermediate crude oil prices rocketed further above $100 per barrel to top $112 and reach the highest level since 2011. OPEC+ said Wednesday that it would continue to increase output in April by 400,000 barrels per day compared to March, keeping this rate of production increases in-line with recent months' rises despite strained oil supplies.

The latest move higher in energy markets also came even after the International Energy Agency agreed Tuesday to release 60 million barrels from global stockpiles to help ease some pressure in the tight energy market.

"The problem is that that would not be enough to offset a potential supply shock coming from Russia, which is really what the market is grappling with right now," Ahmed Riesgo, Insigneo chief investment officer, told Yahoo Finance Live.

"The key question that all investors have to ask themselves right now is, are Russian exports going to stop? And if the answer to that is yes, then we need to de-risk further," he added about the broader markets. "And if the answer is no, then this could potentially be near a bottom."

The West's sweeping sanctions against Russia have so far formally included restrictions on Russia's central bank, access to the SWIFT global payments system, and freezes on a variety of key Russian institutions' and officials' assets, among some other measures.

Many major companies have also added further pressure to Russia, including Apple (AAPL), which said Tuesday it would pause all product sales to the country, and Disney (DIS), which said it will stop releasing films in Russia. Still, with many S&P 500 components seeing relatively little exposure to Russia and Ukraine from a revenue standpoint, many strategists suggested the direct fallout to U.S. corporate profits and broader economy will likely be relatively contained.

"Concerns are growing that the ramped-up sanctions on Russia and its leaders, now including restrictions on the important SWIFT banking system, as well as the Russian central bank and Putin himself, will have repercussions on global commerce that are hard to predict," Louis Navellier, chairman and founder of Navellier & Associates, wrote in a note. "This is on top of the disruption of all the products that Ukraine itself delivers to the world markets. It is generally believed that the majority of the damage will hit Europe, with China already seen stepping up to provide alternate markets for Russian exports, making the U.S. even more of a safe haven than it was already considered."

Still, the uncertainty generated by the war and the potential for higher global energy prices have left investors betting the Federal Reserve will eschew an ultra-hawkish tilt after its March monetary policy meeting. Fed Chair Jerome Powell is set to testify before Congress on Wednesday starting at 10 a.m. ET as part of his semi-annual appearance before lawmakers, offering the Fed leader's first public remarks on how the geopolitical situation has informed the central bank's thinking on interest rate hikes and monetary policy tightening for the rest of the year. And to that end, Powell said in prepared remarks that he still expects "it will be appropriate to raise the target range for the federal funds rate at our meeting later this month," though the geopolitical tensions will require the Fed to be "nimble."

"We think it likely that the next forecasts, due three weeks from now, would have shown five or even six [interest rate] increases this year, before the invasion of Ukraine," Ian Shepherdson, chief economist for Pantheon Macroeconomics, wrote in a note Tuesday. "Now, we'd be very surprised to see six tightenings, and some of the wilder market forecasts now look adrift. We never expected a 50bp [basis point] move in March, and it looks even less likely now."

12:13 p.m. ET: Powell says Fed is 'monitoring the situation closely' between Russia and Ukraine

Federal Reserve Chair Jerome Powell's testimony on Wednesday helped fuel a risk-on rally across U.S. equity markets, with the Fed chief offering more near-term clarity on the path forward for monetary policy despite ongoing geopolitical concerns.

“The bottom line is we will proceed but we will proceed carefully as we learn more about the implications of the Ukraine war,” Powell told the House Financial Services Committee.

Powell said he supported an interest rate hike of 25 basis points after the Fed's March meeting, affirming market expectations that the central bank would steer away from a more aggressive 50 basis point rate hike given the uncertain geopolitical backdrop.

10:50 a.m. ET: Weekly mortgage applications drop for fourth straight week as interest rates rise

U.S. mortgage applications declined for a fourth consecutive week last week, with applications for both refinances and purchases sliding compared to the same period last year amid rising benchmark rates.

The Mortgage Banker Association (MBA) said Wednesday that weekly mortgage application volume declined by 0.7% during the week ended Feb. 25. This followed a 13.1% plunge during the prior week.

An index tracking refinances rose by 1% compared to the previous week, but still held 56% lower compared to the same period last year. And while purchases also rose slightly on a seasonally unadjusted basis, purchases were also still down by 9% over last year.

“Mortgage rates last week reached multi-year highs, putting a damper on applications activity. The 30-year fixed rate reached its highest level since 2019 at 4.15%, and the refinance share of applications dipped below 50%. Although there was an increase in government refinance applications, higher rates continue to push potential refinance borrowers out of the market,” Joel Kan, MBA’s associate vice president of economic and industry forecasting, said in a press statement.

“Purchase activity remained weak, but the average loan size increased again, which indicates that home-price growth remains strong, and a greater share of the activity is occurring at the higher end of the market,” Kan added."

MY COMMENT

With the mid March rate increase locked in......perhaps.....we will be able to have an extended time of about 3-5 weeks without the constant FED fear mongering in the media. As investors we certainly know what to expect.

The markets have shown that they can live with the invasion........baring some catastrophic event. NOW....the markets should be able to live with the certainty of what the FED is going to do. SO......lets see some gains for investors over the next month.

 

You can see where my mind is at the moment.....no not down in the gutter. Actually......I am thinking about 7 months from now and what might be another BIG increase in Social Security due to inflation and the cost of living raise. I am counting off the months till the beginning of October and watching the inflation rate.

I am not really concerned about inflation at the moment. That might change if I think that we are ACTUALLY heading into a period of STAGFLATION.....but I am not there yet. So...if we have to have this little round of inflation.....I want those of us on Social Security to see some benefit from what is happening again this year.

Just like stocks and funds.....those annual Social Security raises compound over time into REAL MONEY.

 

Another nice open today. But I dont feel much conviction in the markets today......so.....I believe there is a good shot at the markets flipping to the RED as the day goes on.

Of course....the above is just my...."feeling".....not something that I act on by any means as an investor in addition to the FACT that I dont do short term market speculation.

 

Here is the economic news of the day....which no one will care about.

Jobless claims: Another 215,000 Americans filed new claims last week

https://finance.yahoo.com/news/weekly-jobless-claims-week-ended-feb-26-2022-195934416.html

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

"Initial jobless claims improved more than expected in the latest weekly data to reach a two-month low, as the U.S. labor market recovery pressed ahead while Omicron-related disruptions retreated.

The Labor Department released its latest weekly jobless claims report Thursday at 8:30 a.m. ET. Here were the main metrics from the print, compared to consensus estimates compiled by Bloomberg:

• Initial jobless claims, week ended Feb. 26: 215,000 vs. 225,000 expected and an upwardly revised 233,000 during prior week
  
• Continuing claims, week ended Feb. 19: 1.476 million vs. 1.420 million expected and a downwardly revised 1.474 million during prior week
  

At 215,000, the number of new jobless claims marked a back-to-back week of declines. It was also the lowest level since the week ended Dec. 31, when jobless claims totaled 207,000.

Jobless claims rose to nearly 300,000 in mid-January, reflecting some momentary backsliding in the labor market's improvements as Omicron virus cases surged to a record and seasonal adjustments in data became choppy due to the pandemic over the past two years. Still, claims have fallen precipitously compared to this time last year, with new claims coming in around 750,000 in late February 2021.
The overwhelming majority of labor market data and anecdotal remarks from companies have underscored a job market that remains incredibly tight. Demand for workers has far outpaced supply, and job openings have held near record levels. This has created a situation in which employees maintain a significant amount of leverage — and have seen considerable wage increases — while the labor supply-side constraints have contributed to economy-wide inflationary pressures.

"The labor market is extremely tight," Federal Reserve Chair Jerome Powell said in testimony before the House Financial Services Committee on Wednesday.

"Labor demand is very strong, and while labor force participation has ticked up, labor supply remains subdued," Powell said. "As a result, employers are having difficulties filling job openings, an unprecedented number of workers are quitting to take new jobs, and wages are rising at their fastest pace in many years."

And given the backdrop of rising prices and a tight labor market, Powell also signaled the Federal Reserve remained on track to begin raising interest rates from current near-zero levels following the central bank's March meeting.

Encouragingly, other labor market data have shown an increase in job growth across some of the industries hardest hit by the pandemic. ADP's private payrolls report released Wednesday showed a much better-than-expected 475,000 jobs returned in February, following a gain of more than half a million in January. And 170,000 jobs returned in leisure and hospitality industries, comprises more than one-third of the overall payroll gain.

The official February jobs report from the Labor Department on Friday is expected to also reaffirm these trends. Consensus economists are looking for another 403,000 non-farm payrolls to have returned last month, building on January's 467,000. The unemployment rate is anticipated to fall to 3.9% — matching December's for the lowest since February 2020 before the pandemic.

The Labor Department's monthly jobs report is slated for release Friday at 8:30 a.m. ET."

MY COMMENT

A couple of things are sure......the labor markets are totally screwed up.......and.....this data, especially weekly data, is totally distorted. The labor and employment situation is a big mess. It is hard to tell from weekly data.....but hopefully when we look back in a year or so we will see that there was steady progress. Time will tell.

 

You know......I have no concern at the moment with inflation. BUT......there are a number of POTENTIAL factors that could lead to big issues some time over the next 6-12 months. I said......."potential".....factors so this little post is not a prediction of anything.

My view is that inflation at the moment is NOT a long term issue. It will resolve as the supply chain comes back to normal. BUT.....if we get into a situation of STAGFLATION .......that is a different story. There are a number of factors that are starting to come together similar to what we saw in the late 1070's early 1980's. Those factors are.....the "potential" for a world wide oil crisis........the "potential" for continued escalating price increases.......and the "potential" for wages to escalate. In other words a WAGE/PRICE SPIRAL. This is what created the STAGFLATION of the old days and if this sort of environment happens now and we end up in a WAGE/PRICE SPIRAL.....we have potential for out of control inflation now.

I dont believe this is going t happen now because the underlying condition in EVERYTHING going on right now is the disruption and distortion of the short term economy by the Covid programs that were put in place and pushed by government. How.....or IF.....the economy responds over the next 6-12 months is going to be important.

I still dont believe this is going to happen....but.....the various required factors are "potentially" there.

Here is what would result in BAD inflation and a stagnant economy.

Wage-Price Spiral

https://www.investopedia.com/terms/w/wage-price-spiral.asp

"What Is the Wage-price Spiral?

The wage-price spiral is a macroeconomic theory used to explain the cause-and-effect relationship between rising wages and rising prices, or inflation. The wage-price spiral suggests that rising wages increase disposable income raising the demand for goods and causing prices to rise. Rising prices increase demand for higher wages, which leads to higher production costs and further upward pressure on prices creating a conceptual spiral.


The Wage-price Spiral and Inflation

The wage-price spiral is an economic term that describes the phenomenon of price increases as a result of higher wages. When workers receive a wage hike, they demand more goods and services and this, in turn, causes prices to rise. The wage increase effectively increases general business expenses that are passed on to the consumer in the form of higher prices. It is essentially a perpetual loop or cycle of consistent price increases. The wage-price spiral reflects the causes and consequences of inflation, and it is, therefore, characteristic of Keynesian economic theory. It is also known as the "cost-push" origin of inflation. Another cause of inflation is known as "demand-pull" inflation, which monetary theorists believe originates with the money supply.


Key Takeaways

• The Wage-price spiral describes a perpetual cycle whereby rising wages create rising prices and vice versa.
• Central banks use monetary policy, the interest rate, reserve requirements, or open market operations, to curb the wage-price spiral.
• Inflation targeting is a type of monetary policy that aims to achieve and sustain a set interest rate over a period.

How a Wage-price Spiral Begins

A wage-price spiral is caused by the effect of supply and demand on aggregate prices. People who earn more than the cost of living select an allocation mix between savings and consumer spending. As wages increase, so too does a consumer's propensity to both save and consume.

If the minimum wage of an economy increased, for example, it would cause consumers within the economy to purchase more product, which would increase demand. The rise in aggregate demand and the increased wage burden causes businesses to increase the prices of products and services. Although wages are higher the increase in prices causes workers to demand even higher salaries. If higher wages are granted, a spiral where prices subsequently increase may occur repeating the cycle until wage levels can no longer be supported.


Stopping a Wage-price Spiral

Governments and economies favor stable inflation—or price increases. A wage-price spiral often makes inflation higher than is ideal. Governments have the option of stopping this inflationary environment through the actions of the Federal Reserve or central bank. A country's central bank can use monetary policy, the interest rate, reserve requirements, or open market operations, to curb the wage-price spiral.


Real World Example

The United States has used monetary policy in the past to curb inflation, but the result was a recession. The 1970s was a time of oil price increases by OPEC that resulted in increased domestic inflation. The Federal Reserve responded by raising interest rates to control inflation, stopping the spiral in the short term but acting as the catalyst for a recession in the early 1980s.

Many countries use inflation targeting as a way to control inflation. Inflation targeting is a strategy for a monetary policy whereby the central bank sets a target inflation rate over a period and makes adjustments to achieve and maintain that rate. However, a book published in 2018 by Ben S. Bernanke, Thomas Laubach, Frederic S. Mishkin, and Adam S. Posen entitled, Inflation Targeting: Lessons from the International Experience delve into the past advantages and disadvantages of inflation targeting to discern whether there is a net positive in its use as a monetary policy rule. The authors conclude that there is no absolute rule for monetary policy and that governments should use their discretion based on the circumstances when deciding to use inflation targeting as a tool to control the economy."

MY COMMENT

The key to everything over the next 6-12 months will be the actions of the FED. Will they push the economy into a recession on top of continuing inflation? Or will they rationally and reasonably raise rates in a moderate fashion? If they go slow and observe what is happening in the real world....versus economic theory.....it should all be ok.

 

At this.....moment....I am down by (-11%) for the year to date. The SP500 is at basically (-8%) year to date.

One thing is SURE.....the year is young and we STILL have 10 months to go before anything is locked in for 2022. It will be an interesting year to live through and watch for long term investors. BUT....over the longer term...it will just be another little BLIP up or down on a long term market chart.

SO......I continue to be fully invested for the long term as usual.

 

The one UNFORTUNATE thing for us as investors this year.......we are going to have to sit through DAILY and WEEKLY comments from the FED on inflation. They just simply can NOT shut up. I can easily sit through any sort of market condition. BUT.....the short term markets being WHIPSAWED by the constant BLATHER from the FED about inflation every week......is just UNNECESSARY.

They should just SHUT UP and do their job. We dont need a weekly report to congress, or weekly commentary from individual FED members. It is NOT helping anything......especially the general markets. It is simply a constant distraction.

 

It took Buffett a very long time to recognize the power of the......BIG CAP, BIG TECH, GROWTH COMPANIES. He finally took the plunge on Apple and it has paid off very nicely. Apple....which I obviously hold.....is one of those PREMIUM, ICONIC, business names.

For Warren Buffett, Apple is his new Cola-Cola as the investing icon reaps $100 billion in six years

https://www.cnbc.com/2022/03/03/for...ting-icon-reaps-100-billion-in-six-years.html

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

"Warren Buffett’s recent success from his massive Apple bet is spurring comparisons with the legend’s greatest investment of all time — Coca-Cola.

Berkshire Hathaway began buying Apple’s stock in 2016 and amassed a 5% ownership of the iPhone maker by mid-2018 with a cost $36 billion. As the tech giant’s share price skyrocketed, the value of Buffett’s bet has ballooned to more than $160 billion, bringing his return well over $100 billion on paper in just six years.

The highly lucrative investment reminded some Buffett watchers of Coca-Cola, the Oracle of Omaha’s oldest and longest stock position. The consumer juggernaut’s stock has soared over 2,000% since Buffett started buying in 1988, and it’s still Berkshire’s fourth largest equity position with 400 million shares.

“Buffett is having his Coca Cola moment on Apple,” said Bill Smead, chief investment officer at Smead Capital Management and a Berkshire shareholder. “They both went way up the first five to seven years he’s owned them.”


Investing in high-flyers like Apple seemingly defies Buffett’s well-known value investing principles, but the out-of-character move turned out to be his best investment over the last decade. Apple’s stake also played a crucial role in helping Berkshire weather the coronavirus pandemic as other pillars of its business, including insurance and energy, took a huge hit.

The 91-year-old investor has become such a big fan of Apple that he now considers the tech giant as one of the “four giants” driving his conglomerate of mostly old-economy businesses he’s assembled over the last five decades.

Apple “has been a homerun for Berkshire, no doubt,” said James Shanahan, Berkshire analyst at Edward Jones. “Buffett acquired most of the position at an average cost of about one fourth of the current market price.”


Apple’s stock repurchase strategy also allows the conglomerate’s ownership to increase with each dollar of the iPhone maker’s earnings. Berkshire has trimmed the position, but its ownership still crept up from 5.27% at the end of 2020 to 5.43% at the end of last year.

The conglomerate has also enjoyed regular dividends from the tech giant over the years, averaging about $775 million annually.

If one were to take cues from what Buffett said when he first purchased Coca-Cola shares, it wouldn’t be a far-off guess that the investor is in Apple for the long haul.

“In 1988 we made major purchases of Federal Home Loan Mortgage and Coca Cola. We expect to hold these securities for a long time,” Buffett wrote in his 1988 annual letter. “In fact, when we own portions of outstanding businesses with outstanding managements, out favorite holding period is forever. We are just the opposite of those who hurry to sell and book profits when companies perform well...”"

MY COMMENT

He bought this company.....APPLE....for the first time in 2016. This buy and the HUGE GAIN he has over just six years is the perfect example of the fact that you do NOT have to get in on a company like this when it is a new-born baby company. You can make TON'S of money simply recognizing a great company during middle age. At the same time you can lessen the risk of investing too early in a company that ends up not living up to the HYPE.

 

I happened to get a new Summary Prospectus for my Fidelity Contra Fund today in the mail today. I was looking at their performance numbers. Over the past TEN years they have an average annual return of +17.96%.......versus....the SP500 at +16.55%. For FIVE years they have an average annual return of +22.63%.....versus the SP500 at +18.47%. For ONE year they are at +24.36%.....versus....the SP 500 at +28.71%.

That is some pretty nice long term performance and some nice beats on the SP500. For a managed fund this fund has a great......long term.....record of beating the SP500 over many time periods.

I started with this fund in about 1990. I was looking for a replacement fund for Fidelity Magellan due to Peter Lynch leaving. I was attracted to the new manager of Contra Fund, William Danhoff since he trained under peter Lynch. He has NOT disappointed me. This fund has been a great one for me over that time. I have owned many funds over my investing lifetime...this one is probably the longest continuous one.

 

I gave up on the markets today way earlier this morning. The best I am hoping for is a beat on the SP500 and a good earnings report from Costco after the bell. Thank you FED.....for taking the markets down today.

 

Well....I got NOTHIN......today. I ended the day in the RED.....with only two stocks up for the day.....Honeywell and Costco. I also got beat by the SP500 by 0.46%. I ended up giving back a chunk of the gains that I made yesterday.

Onward and upward to Friday tomorrow......at the least is will be the end of yet another week for year 2022......and....one step forward to better markets.