The Long Term Investor

I have no plans to sell anything or do anything. As a long term....fully invested all the time investor......I will do nothing in response to the current short term events and environment.

AS USUAL.........HERE is my current PORTFOLIO MODEL.

I am once again posting my PORTFOLIO MODEL. My initial criteria to start the process to consider a business are.......BIG CAP, AMERICAN, DIVIDEND PAYING, GREAT MANAGEMENT, ICONIC PRODUCT, WORLD WIDE LEADER IN THEIR FIELD, LONG TERM HORIZON, etc, etc, etc.

PORTFOLIO MODEL

"Here is my "PORTFOLIO MODEL" for all accounts managed which is the basis for MUCH of my discussion in this thread. I am re-posting this since I often talk in this thread about my portfolio model. My custom in the past on this sort of thread was to re-post my portfolio model every once in a while since I will tend to talk about it once in a while. I "manage" six portfolios for various family including a trust. ALL are set up in this fashion. If I was starting this portfolio today, lets say with $200,000. I would put half the money into the stock side of the portfolio, with an equal amount going into each stock. The other half of the money would go into the fund side of the portfolio, with an equal amount going into each fund. As is my long time custom, I would than let the portfolio run as it wished with NO re-balancing, in other words, I would let the winners run. Over the LONG TERM of investing in this style (at least in my actual portfolios), the stock side seems to reach and settle in at about 59% of the total portfolio and the fund side at about 41% of the total portfolio over time. That is a GOOD THING since it tells me that my stock picks are generally beating the funds over the longer term. AND....since the funds in the account generally meet or beat the SP500, that is a VERY good thing.

As mentioned in a post in this thread, I include the funds in the portfolio as a counter-balance to my investing BIAS and stock picking BIAS and to add a top active management fund that often beats the SP500 (Fidelity Contra Fund) and a SP500 Index Fund to get broad exposure to the best 500 companies in AMERICAN business and economy. The funds also give me broad diversification as a counter-balance to my very concentrated 10 stock portfolio. At the same time the funds double and triple up on my individual stock holdings............that I consider the BEST individual businesses in the WORLD.

STOCKS:

Alphabet Inc
Amazon
Apple
Costco
Home Depot
Honeywell
Microsoft
Nike
Nvidia
Tesla

MUTUAL FUNDS:

SP500 Index Fund
Fidelity Contra Fund

CAUTION: This is a moderate aggressive to aggressive portfolio on the stock side with the small concentration of stocks and the mix of stocks that I hold and with the concentration of big name tech stocks. Especially for my age group. (72). So for anyone considering this sort of portfolio, be careful and consider your risk tolerance and where you are in your life and financial needs. I am able to do this sort of portfolio since my stock market account is NOT needed for my retirement income AND I have a fairly HIGH RISK TOLERANCE. In addition I am a fully invested, all the time, LONG TERM investor. (LONG TERM meaning many years, 5, 10, 20, years or more)"

MY COMMENT

This portfolio is HIGHLY CONCENTRATED on the big cap side of things. OBVIOUSLY between the funds and my ten stock holdings there is MUCH doubling and tripling up on the stocks. THAT is INTENTIONAL. I strongly subscribe to the view of Buffett and some others that TOO MUCH diversification kills returns. I do NOT believe in the current diversification FAD that most people seem to now follow.......or think they are following. I DO NOT do bonds and think the current level of bonds held by younger investors.....those under age 50.....is extremely foolish.I DO NOT do market timing or Technical Analysis.

 

This thread is a running commentary of current market events......in the context of LONG TERM INVESTING. Many of the short term day to day events can be very negative if viewed outside the context of long term market history and analysis. Below is one such typical daily article.......that is very relevant to house hunters, and house sellers. It is also relevant from the standpoint of real estate values and where those values may be headed over the short term. Fortunately for most current home owners.....mortgages tend to be for 30 years and are locked in for that entire time.

Mortgage rates surge to the highest point since 2008

https://finance.yahoo.com/news/mortgage-rates-surge-140025821.html

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

"Mortgage rates this week jumped by the largest amount in 35 years, making home-buying significantly more unaffordable in just seven days.

The rate on the 30-year fixed rate mortgage surged to 5.78% from 5.23% last week, according to Freddie Mac, marking the biggest one-week increase since 1987 and hitting the highest level since November 2008. The average rate is more than two and a half points higher since just the start of the year.

Rapidly increasing mortgage rates have become the biggest hurdle homebuyers face in addition low inventory levels and double-digit price gains, pricing many out of the market altogether.

“Climbing mortgage rates continue to put pressure on the housing market, pushing the cost of homeownership ever higher,” Hannah Jones, economic data analyst at Realtor.com, said in a statement. “There has been little relief for American consumers at the grocery store, the pump, and in both the for-sale and rental markets."

The jump in mortgage rates, which track the 10-year Treasury yield, comes after the Federal Reserve on Wednesday increased a benchmark interest rates by three-quarters of a point to help tame inflation, which is at 40-year highs. That increase was the largest since 1994 and the central bank signaled it would raise the rate by another 1.75 percentage points over the rest of the year.

"Any persistent/obvious signs of a wage or inflationary spiral will continue to lead to more aggressive policies," Robert Heck, vice president of mortgage at Morty, told Yahoo Money. "In these extreme scenarios it is very possible, we’ll see mortgage rates head towards 7% or higher, reflective of the inflationary environment of the 1980s.”

Even if rates don't go that high, they are likely going to exceed current levels, making it harder and more expensive to break into homeownership.

For instance, the median list price for a home in the U.S. was $447,000 in May, up 18% since May 2021. That means it's about 65% more expensive to finance 80% of the median priced U.S. home now than a year ago. That translates to paying an extra $820 a month, according to Realtor.com.

“For every 1% rise in mortgage rates, your borrowing power drops about $50,000. A 0.5% rise drops your purchasing power by $25,000 approximately,” Scott Sheldon, branch manager at New American Funding, told Yahoo Money. “In other words, the more rates rise the more your purchasing power diminishes, forcing you into a lower purchase priced home.”"

MY COMMENT

SORRY......but with the current plans for many FED increases over the next year or so......I see mortgage rates going up much higher than they are right now. I believe that over the next year mortgage rates will get into the 7.5% to 9.5% range.

We are currently in the perfect storm.....for stocks, funds, mortgage rates, small business survival,etc, etc.

All I can say is.......I continue to be fully invested for the long term as usual......COURAGE.

 

Good Bitcoin discussion......guys.

 

Here is another article that....."might".....give someone some strength in this little drop that we are in middle of.

A ten-point plan for the bear market

https://www.evidenceinvestor.com/a-ten-point-plan-for-the-bear-market/

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

"After a long period of financial markets being treated largely as background noise by the media, news of their daily swings have been promoted back to the front pages of newspapers and the top of TV news bulletins. Naturally, ordinary investors are suddenly sitting up and taking notice. What’s causing all the volatility? More importantly, what if anything can you do about it?

As in 2008/09 and the first quarter of 2020, the ups and downs – mostly the downs in this case – of financial markets are newsworthy again. Global share markets are more than 20% below their recent peaks, which as the media constantly reminds us, meets the textbook definition of a “bear market”.

The image of a grizzly bear rampaging through markets and terrorising everyday investors is a potent one for the media, particularly given the demonstrated power of fear in generating and monetising the attention of mass audiences.

The obvious questions that come to mind for all of us at these times include:

How worried should we be about the future?

What is causing all the volatility?

How safe are our investments?

Is there anything we can do about it?

The answer to the first question is that, obviously, this is a worrying time. There is no downplaying the emotional impact of seeing one’s portfolio balance significantly lower than it was a few months ago. You naturally feel poorer and more anxious because you feel you have no control over the outcomes. So the initial response is to acknowledge how you feel.

The answer to the second question — what’s causing all the volatility — is pretty evident. Everything is suddenly getting more expensive and central banks are jamming on the monetary brakes after years of having the pedal to the metal.

The upsurge in inflation is due to a combination of factors. Global supply chains were disrupted by the pandemic at the same time as central banks and governments were pumping up demand through monetary and fiscal stimulus. Disruption to supply alongside the supercharging of demand was a sure-fire recipe for inflation.

But on top of inflationary consequences of the pandemic and the policy response was Russia’s invasion of Ukraine, which like the oil shock of the early 1970s, has put a rocket under the markets for commodities —particularly oil, gas and food.

Central banks, who a year ago were downplaying the inflationary shock as transitory, are now expressing concerns this could become baked into the system and are reversing course on interest rates and bond buying programs at speed.

All this is happening as the world starts the highly difficult and decades-long process of seeking to transition away from fossil fuels in a bid to rein in the worsening effects of human-made climate change.

The result of this confluence of factors is a major adjustment in both stock and bond markets. Bond yields, which just a couple of years ago, were in negative territory even out to longer-dated maturities, have been ratcheting higher. Concerned that central banks will overdo the reversal of stimulus and push the major economies into a deep recession, share markets have been adjusting lower.

Expect more volatility

With all that in mind, we come to the really difficult question. What does this mean for your investment portfolio? Certainly, the historical evidence shows that the sort of upheaval we have been seeing can be a precursor of future volatility.

The danger for individual investors, however, is in trying to time the market, getting out in the hope of missing the storm and then getting back in when the coast is clear. Evidence and experience suggests this behaviour only risks making a bad situation worse. Inevitably all you achieve by selling into a down market is turning a paper loss into a real one and putting at risk the opportunity to enjoy the bounce when it comes.

The most recent example of the virtue of discipline was in early 2020 when major benchmarks fell by between 30 and 40% in the space of a few weeks, only to bounce back and reach record highs within a few months.

Ten points to keep in mind

Now, this bear market is unlikely to be as benign or as short-lived as the one we saw two years ago. But it’s worth asking yourself, even at moments of extreme uncertainty as we are seeing at the moment, what — if anything — has fundamentally changed about investment principles.

1. Stocks remain the best long-term investment. They have generated annual returns of 10% or more over the past century, a period that has included a Great Depression, two world wars, commodity shocks, pandemics and other crises. But we also know stocks don’t go up in a straight line and there will be negative periods. That volatility is the price we pay for the long-term returns available from owning stocks.

2. We also know the virtue of holding tight in difficult times. In periods ranging from the 1987 crash to the US savings and loans crisis of the late ‘80s, to Asian currency crisis of the late ‘90s to the dot-com crash and the GFC, a diversified portfolio of stocks and bonds has returned to positive territory three to five years afterwards, at the most.

3. Markets are forward looking. A lot of bad news is in the price. If news on inflation, interest rates, the Ukraine and whatever else the future has in store is unexpectedly worse than what is already reflected in prices, then, yes, markets could head further south. But, equally, if the news is not as bad as expected, risky assets could reverse course.

4. Risk does not go only in one direction. What moves markets is the unexpected. Imagine what would happen to stock markets if Russia and Ukraine came to a negotiated settlement or supply chains out of China came unstuck. That’s not a prediction, by the way, but neither is it out of the bounds of possibility.

5. Even when stocks are falling, somebody is buying. By definition, there cannot be more sellers than buyers if trades are being done. Markets work by bringing buyers together at prices satisfactory to both. Those buying at these lower prices are receiving a higher expected return than they were a few months ago.

6. For the past few years, income investors have complained about rock bottom yields in bond markets. That is now no longer the case. The correction in global bond markets means you have the opportunity of earning a significantly higher return than you did a year ago.

7. There are things you can control. These include how you allocate your portfolio between stocks, bonds, commodities, property, cash and other assets. Difficult markets like this can be an opportunity to rebalance towards lower priced assets. You can diversify your holdings across sectors and countries and currencies. If you really cannot bear the volatility, you can change your allocation but in a disciplined and structured way that allows you to sleep at night. Talk to your adviser and see what is possible.

8. Keep in mind that nothing lasts forever. Good markets don’t stay that way. But neither do bad ones. And the turning point will often come before the economic news turns for the better. What matters is your investment horizon, not the media’s daily news cycle. Your emotional barometer is attuned to the short term. Your financial wellbeing barometer should be attuned to the long term.

9. Understand that even during a period of great uncertainty and volatility, companies are still innovating and creating wealth. The energy transition, for instance, is not just a challenge but an opportunity. As a long-term investor you have a chance to share in that wealth created.

10. Lastly, stick to your plan. A good financial plan is one that is built according to your needs and risk appetite. It makes allowances for times like these when all the news seems bad. It provides a cushion of cash and uses disciplined rebalancing to keep your on target for your goals. That is the value of having an adviser who knows you and what your circumstances are.

Bearing up to a bear market isn’t easy, it’s true. But the challenge is ultimately doable with a structured plan, a long-term focus, and an understanding that nothing lasts forever."

MY COMMENT

The usual good rules that many long term investors go by. Unfortunately many people throw the rules out the window when something bad happens in the markets. Having convictions and the strength to stick to your convictions is important as an investor. Assuming that your investing strategy and picks are reasonable to begin with.

 

One comment on the above and much of this thread.

There is nothing wrong with going to all cash or some cash if that is what you feel that you need to do. There is no reason to torture yourself if you just can not emotionally or mentally stand the losses that you are taking. Investing is ALL individual and personal. it is all about what is best for you and your family.

There is no loss of face or respect if someone needs to sell out of part or all of their investments. Everyone is different and has different needs.

The single most important thing as an investor is to.....IGNORE.....everyone else and do the right thing for yourself.

 

Every....all ten....positions significantly in the red today. The market rout continues. I also got beat by the SP500 by 0.38% today.

Last day of the week tomorrow. We are significantly oversold even in the current negative environment. Will we see a bounce tomorrow? Perhaps....that is about the best I can say.

 

For smart long term investors think about:

1. All those dividends and capital gains being reinvested at bargain prices as long as we are going down.

2. All the companies that you own that are doing stock buy-backs and getting bargain prices on those formerly pricey shares.

3. All those 401K and other monthly contributions and investment funds that are buying into the markets at bargain prices.

4. All the AMAZING compounding you are going to see over the next 5-10 years on the shares above.

I am sure there are many other current positives to the lows of the year that we are seeing right now that are NOT popping into my brain at the moment.

 

YES......the markets are an educational experience.

Generation Z Is Getting a Harsh Lesson in Stock Risk
A whole new crop of investors is learning that bear markets are a fact of life and should adjust accordingly.

https://www.bloomberg.com/opinion/a...etting-a-harsh-lesson-in-stock-risk#xj4y7vzkg

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

"The wealth destruction over the last few weeks has been brutal. Markets are down more than 20% from the start of the year; we are officially in a bear market. One estimate (from last week) said household net worth fell 0.4%.

A bear market is never good, but this time it's especially worrying because in the last few years stock investing has become trendy, with TikTok stars becoming the new investment gurus. Now many of these new investors are learning TikTok is not the best place to get investment advice.


There are many culprits to blame for the falling stock market, including policy errors that contributed to inflation, overexuberance, or just the very human tendency to forget that sometimes risky markets fall. But even in a perfect world, bear markets are a fact of life. Stocks don’t offer any guarantees of a return, and they do fall from time to time. "Risk" is the operative word in the risk premium on stocks; that's why they usually return more than bonds. But what is concerning is that after years of a bull market and a few rounds of government cash payments, some households may be overexposed to risk, holding more stock than before and in riskier portfolios.

More Americans than ever own stock. The biggest reason is the increased popularity of workplace retirement accounts such as 401(k)s. According to data from the Federal Reserve Survey of Consumer Finances, in 2019 53% of households had some equity in their portfolio, up from 50% in 2010, and 32% in 1989. Survey data suggest stock ownership increased some during the pandemic, but not as much as the meme stock phenomena seemed to imply. The share of Americans owning stock only went up a few percentage points. A survey from Charles Schwab reveals their newest investors tend to be younger and make less money than their pre-2020 customers . They also tend to be more optimistic when it comes to risky assets.

What may be more concerning is that even among more experienced investors, portfolios got riskier. There has been a lot of speculation that time at home, checks from the government and social media encouraged more people to day trade. According to a Fed survey, 34% of Americans own individual stocks and 19% of individual stock owners started trading in the last three years. The survey also finds 12% of households have some amount of cryptocurrency.

While risk has increased, most households haven’t bet the farm on the market. According to the Survey of Consumer Finances, which was last taken in 2019, stock market exposure has remained fairly stable since the financial crisis, at about 40% of financial assets. But among older Americans who are closest to retirement, stock exposure has increased. Equity makes up about 40% of financial assets among 60- and 70-year-olds, compared with 35% in 2010.

Even if the increase in stock exposure is relatively small on aggregate, it's still concerning for a few reasons. Falling markets will put many people’s retirement plans on hold or out of reach altogether. And new investors, especially those in lower-income brackets who don’t have much wealth to spare, are losing money right now. In the case of crypto or single-stock owners, they may be losing a lot. This will reverse some of the gains in household balance sheets and could make a recession worse, if we have one.

The stock losses still won’t be as financially devastating as the housing crash. Back in the mid-2000s, when housing averaged 62% of Americans’ net worth, the 2008 crash in real estate was calamitous. Real estate values may begin to fall now as the market softens, but households are less levered and less vulnerable.

Today’s bear market is a harsh reminder to new enthusiasts that stocks are risky — and that brings its own risk. Some stock exposure is an important part of wealth creation and a more inclusive economy. But there is evidence that investing and losing money can sour people on the stock market. Some new investors may be less likely to invest in the future, and they’ll lose out on future gains, which will worsen inequality.

With a plummeting stock market, rising prices and interest rates that are still too low to curb inflation, it’s hard to tell investors where to turn. No one can afford to sit out risk. That some people are finding themselves in a bear market saddled with overly risky portfolios suggests we need better financial literacy to explain the role of risk in investing — not classes where celebrities promote Bitcoin. According to the 2021 Fed survey, only 43% of respondents believed that owning mutual funds was less risky than owning single stocks."

The increased interest in stock ownership during the pandemic was a potential opportunity for a broader segment of Americans to benefit from rising values, but now that the market is falling, it could mean we end up in a worse place. Moving forward, perhaps this experience will inspire new enthusiasts to take a more realistic approach to the risks in their stock portfolios, instead of quenching their zeal entirely."

MY COMMENT

EVERY generation goes through various financial and economic situations in their lifetimes. It is definitely a learning experience. Maturity is important in investing and comes with time and experience. Every time there is a big economic event that impacts stocks.....we always see some percentage of investors that become risk adverse and very hesitant to ever invest again.

It is all about having a rational investing plan, quality investments, and being realistic with what you invest in and how you invest. It is also a process of understanding and evaluating investing and personal risk and risk tolerance.

 

The above article mentions......in passing...... the real estate collapse of 2008. I have been INTENTIONALLY avoiding discussing the possibility of a real estate price collapse due to the rising interest rates, mortgage rates, collapsing demand, etc, etc. There is enough negative information out there right now without getting into this topic.

I believe that one reason people seem to be handling this current market drop is the fact that they feel more comfortable because of the increase in their house value and the resulting increase to their net worth.

I see a real danger to the real estate markets over the short to medium term if demand collapses......which I believe is a distinct possibility in many local areas. Of course real estate is totally variable depending on each local market. I dont think we have home owners with the amount of speculative, unrealistic, CRAZY risk that we had back in 2008.....and.....any drop in the property markets will have more of a psychological impact than financial for most people.

So.....I will continue to......mostly.....avoid this topic, for now.

 

I have been ignoring the markets today so they can settle in a bit to start the day. We are now UP in all the averages so far.

Although in the time it took me to type the first sentence the DOW went slightly negative.