The Long Term Investor

Lets get the economic news out of the way right up front. PCE Index up by 2.6% over 12 months. Same as last month. In spite of the headline which focuses on "core" figure.....NOTHING has changed at all.

It is RIDICULOUS how we slice and diced inflation with these "core" figures which omit food and energy. It just distorts the data and reality. I think most people did consume some food and energy last month......and the economy did include food and energy.

Bottom line without all the BS distortion of the data.....we are UNCHANGED at 2.6%. Disregarding the MADE UP 2% FED target......we are probably at the lower end of historic inflation during a good economy.

US reports solid July consumer spending; core inflation firmer

https://finance.yahoo.com/news/us-r...NjkhKeeD921JNsfT7Iwaj_I5aN1VhcSltGk41SkL6KN6I

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

"WASHINGTON (Reuters) -U.S. consumer spending increased solidly in July while underlying inflation picked up as tariffs on imports raised prices of some goods, but that data will probably not prevent the Federal Reserve from cutting interest rates next month against the backdrop of softening labor market conditions.

Consumer spending, which accounts for more than two-thirds of economic activity, rose 0.5% last month after an upwardly revised 0.4% gain in June, the Commerce Department's Bureau of Economic Analysis said on Friday. Economists polled by Reuters had forecast spending would rise 0.5% after a previously reported 0.3% advance in June.

Consumption is being supported by low layoffs that are underpinning solid wage growth. But President Donald Trump's sweeping tariffs on imports are raising costs for businesses, adding another layer of caution that has resulted in employers being reluctant to increase headcount.

Employment gains have averaged 35,000 jobs per month over the last three months through July compared to 123,000 during the same period in 2024, the government reported this month.

A survey from the Conference Board on Tuesday showed the share of consumers viewing jobs as "hard to get" jumped to a 4-1/2-year high in August. Fed Chair Jerome Powell last week signaled a possible rate cut at the U.S. central bank's September 16-17 policy meeting, in a nod to increasing labor market risks, but also added that inflation remained a threat.

The Fed has kept its benchmark overnight interest rate in the 4.25%-4.50% range since December. High prices from import duties have been slow to feed through to inflation as businesses are still selling stocks accumulated before the tariffs kicked in. Businesses have also been absorbing some of the costs.

Economists expect that situation will soon change. There was an inventory drawdown in the second quarter. Companies from retailers to motor vehicle manufacturers have warned that tariffs were raising their costs, which economists expect would eventually be passed on to consumers.

The Personal Consumption Expenditures (PCE) Price Index increased 0.2% last month after an unrevised 0.3% rise in June, the BEA said. In the 12 months through July, the PCE Price Index rose 2.6%, matching the gain in June.

Excluding the volatile food and energy components, the PCE Price Index increased 0.3% last month, matching the rise in June. In the 12 months through July, the so-called core inflation figure advanced 2.9% after increasing 2.8% in June.

The Fed tracks the PCE price measures for its 2% inflation target."

MY COMMENT

FIRST....there is absolutely NOTHING in this data to support the gratuitous opinion in this article that tariffs have contributed to anything at all. If anything this data.....since it is UNCHANGED.....shows the LACK of impact of tariffs.

We are also seeing solid wage growth.....which can be inflationary.

In reality there is NOTHING changed in this report from last month. AND.....all these numbers are exactly as expected.

 

I see the media fear-mongering the above like crazy today.......especially in the headlines. What a JOKE.....but this sort of "stuff" does have a short term impact on the markets.

 

Other than the above there is NOTHING going on today. It will simply be a market Friday before a three day weekend and the last market day of August.

Some mild SNARKING about NVDA today in the media....but nothing of substance.

We are in for a typical meaningless short term day.

 

Markets are......too DUMB for me today. So I have skipped the whole day.

Some are saying it is......OMG.....inflation.

Unfortunately for those spouting this BS......it was unchanged from last month. (I do NOT recognize the "core" figures which were basically also unchanged and in line with expectations) ( the "core figure omits energy and food....how does that make any sense?)

AND....I heard a talker on TV earlier pointing out that inflation was right in line with the long term historic norm of.......YES.....3%.

If you think the FED 2% target represents reality.......I DARE YOU.....to do some research on where that figure comes from.

 

OK....a nice FAt loss for me today. Only two stocks up....WMT and GOOGL. I also lost out to the SP500 today by.....1.00%.

 

The week that was.

DOW year to date +7.44%
DOW five days (-0.13%)

SP500 year to date +10.08%
SP500 five days +0.04%

NASDAQ 100 year to date +11.79%
NASDAQ 100 five days 0.00%

NASDAQ year to date +11.28%
NASDAQ five days (-0.05%)

RUSSELL year to date +6.04%
RUSSELL five days +0.38%

As for me I ended the week with my entire portfolio at year to date.....+17.85%. Last week it was at....+18.72%.

MOVING ON to September.

 

HAVE A GREAT THREE DAY WEEKEND EVERYONE.

 

Nice to see you back....ROAD. We missed you.

 

PROBABILITY is a word that I use here a lot.

The Probability Machine

https://ritholtz.com/2025/08/probability-machine/

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

"It’s late August, before a holiday weekend. You don’t need yet another analysis of POTUS’ attempt to fire Lisa Cook – there have been plenty already.

Instead, let’s get philosophical. I want to consider a different question: Why Aren’t Markets Freaking Out? Paul Krugman raised that question today, and while I don’t disagree with his view, my framing is very different.

Let’s start with Benjamin Graham’s famous aphorism that “In the short run, the market is a voting machine, but in the long run, it is a weighing machine.” I would annotate1 Graham’s aphorism as follows:

Markets are probability machines.

Sure, people “vote” with their dollars, but that’s a tautology, a definition that lacks any useful context for understanding the market right now.

Here is a more useful framework:

1. The future is inherently unknown (aka “Nobody knows anything”)
2. Investors express their expectations via their capital
3. Collectively, this forms a market consensus.

Let’s flesh this out a little more:

Nobody knows anything means that none of us know, with any degree of certainty, how any of the current issues will eventually resolve. Cook’s (alleged) firing, tariffs2, inflation, corporate earnings, whatever. We can analyze, estimate, extrapolate, and hypothesize, but we simply don’t know precisely what the outcome will be – yet.

But we can (and do) express our individual views by allocating our capital. We form a perspective, imagine a possible future outcome, perhaps identify relative asymmetries. We make a risk/reward analysis and then put our cash to work. The short-term votes Graham was referring to were those dollar investments. Collectively,this is how a market consensus is formed. Sometimes, the highest probability outcome turns out to be right – all-time highs keep going higher! And other times, the highest probability outcome is wrong – Lower yields! Recession! Fed cuts!

Before we know the market outcome of any issue, we have only an array of probabilities, collectively determined, as to what might happen.

Consider an excerpt from James Surowiecki’s “The Wisdom of Crowds.” It discusses the January 28, 1986, Challenger space shuttle disaster. Here is the part I am most intrigued by:

“Within minutes, investors started dumping the stocks of the four major contractors who had participated in the Challenger launch: Rockwell International, which built the shuttle and its main engines; Lockheed, which managed ground support; Martin Marietta, which manufactured the ship’s external fuel tank; and Morton Thiokol, which built the solid-fuel booster rocket.”

At the end of that day (1/28/86), the first three stocks were off only 3%, but Morton Thiokol’s stock closed down 12%. People have interpreted this as a “Wisdom of Crowds” phenomenon; some claim this as proof that traders had somehow deduced that the catastrophe was Morton Thiokol’s fault; or that markets figured out that their booster rocket O-rings were ultimately to blame for the explosion.

I beg to differ.

The market did not and could not “know” that.

Rather, investors made a probabilistic assessment as to what would occur to any of those four companies’ profits and stock prices if any (or some combination) were the one(s) at fault. This was a probabilistic assessment of the impact on each company.

Rockwell ($8B market cap) had US aerospace, automotive, and industrial technology businesses; Lockheed ($2.5B) was an enormous defense contractor; Martin Marietta ($3B) held aerospace, defense, electronics, technology, aluminum, construction materials, and chemicals businesses. (Lockheed and Martin Marietta merged in 1995 to form the world’s largest defense contractor).

The smallest and least diversified entity was Morton Thiokol ($1.7B). It held Morton Salt, other chemical makers, and built rockets. They had the greatest exposure to the aerospace industry. NASA contracts as a percentage of Thiokol’s sales were over 18%; Rockwell was less than 12%; Martin Marietta was less than 11%; Lockheed was 8.5%. If any of these four companies had been found to be at fault, it would have been most impactful to Morton Thiokol. They were, as the New York Times reported, the company with “the most to lose in terms of profits” due to the disaster.

That probability is what the markets had determined — not which company was at fault.

Why are markets not freaking out? Because the highest probability case (for now) is that profits and revenues remain high, the economy stays robust, a Fed cut is forthcoming, and all of this noisy political stuff will ultimately work out in the end.

You can criticize market probabilities as a mash-up of wishful thinking and intelligent analysis. There are times, with the benefit of hindsight, when what looked like market madness was actually rational – if only we knew then what we know now. Hence, the probability machine is laying out various possible outcomes, along with prices that more or less reflect those outcomes accordingly.

The dispersion of outcomes includes a full range of possibilities. Sometimes, these are very different, even opposite, contradictory outcomes. There are times when markets appear to be failing to recognize specific risks. No doubt, there have been times when that was true. But we also need to accept that at other times, markets simply do not know.

Making probabilistic bets on very specific occasions involving people, policy, and politics is “squishy.” There is also a huge difference between assessing the likelihood of a White House takeover of the Fed, and understanding what its impact on prices will be in the future. We simply do not know…"

MY COMMENT

The above is mostly focused on PROBABILITY in terms of news or other events impacting the markets or a company. To me this is short term or trading or speculative.....probability. Basically mostly opinion driven....not....fact driven. So is it really probability?

My use of the term PROBABILITY....is in the context of market history, investing hindsight, academic investing research, and company fundamentals.

Things like the research showing that the SP500 will be positive about 70% of all years.....that the SP500 will produce a total return of about 10% per year....that traders WILL lose out to long term investors.....that the cream of the crop of the big cap company world.....the top 10-25 companies in the SP500....WILL.....usually outperform over the long term.

 

As I was considering the above I wondered if there was an ETF that invested in only the TOP 25 companies in the SP500. I could not find one....... but I did find an ETF that invests in the top 50 companies in the SP500 and does it by market weight. That ETF is....XLG. It is an INVESCO product.

I dont make recommendations....but this ETF might be a good way for an investor to hold the top 50 companies in the world....all the big cap tech that matters.....plus Berkshire.....plus a number of non-tech monster market cap world leaders in banking and just about every business niche.

Pretty good returns too:

YTD +10.26%
One year +21%
Five year +104%

More concentrated than the whole SP500 but still BROAD diversification and protection.

 

As to the above....I was thinking that it might be a pretty good investment strategy to own the TOP 25 stocks by market cap in the SP500.......and to own them in percentages based on market cap. BUT.....I would have to see at least five to ten years of data on returns before I would consider this.

Good diversification and also very concentrated in the big cap tech companies. If I was doing this outside an ETF I would re-balance once per year to match the top 25 stocks in the SP500. I would make sure that my re-balancing date was set each year to make all the gains LONG TERM capital gains....on any stocks that had a drastic change in market cap and/or dropped out of the top 25 names and were being dropped.

My quick search did not turn up any ETF's doing this....but there might be one somewhere that i am not seeing.

Under this you would own:

# Company Symbol Weight Price Chg % Chg

1 Nvidia NVDA 7.31% 174.18 -5.99 (-3.32%)
2 Microsoft MSFT 6.50% 506.69 -2.95 (-0.58%)
3 Apple Inc. AAPL 5.94% 232.14 -0.42 (-0.18%)
4 Amazon AMZN 4.21% 229.00 -2.60 (-1.12%)
5 Meta Platforms META 3.20% 738.70 -12.41 (-1.65%)
6 Broadcom AVGO 2.41% 297.39 -11.26 (-3.65%)
7 Alphabet Inc. (Class A) GOOGL 2.30% 212.91 1.27 (0.60%)
8 Alphabet Inc. (Class C) GOOG 2.15% 213.53 1.16 (0.55%)
9 Berkshire Hathaway BRK.B 1.87% 502.98 3.12 (0.62%)
10 Tesla, Inc. TSLA 1.86% 333.87 -12.11 (-3.50%)
11 JPMorgan Chase JPM 1.43% 301.42 0.35 (0.12%)
12 Walmart WMT 1.33% 96.98 0.87 (0.91%)
13 Visa Inc. V 1.18% 351.78 1.92 (0.55%)
14 Lilly (Eli) LLY 1.13% 732.58 0.62 (0.08%)
15 Oracle Corporation ORCL 1.10% 226.13 -14.19 (-5.90%)
16 Mastercard MA 0.93% 595.29 4.81 (0.81%)
17 Netflix NFLX 0.89% 1,208.25 -23.20 (-1.88%)
18 ExxonMobil XOM 0.84% 114.29 0.94 (0.83%)
19 Johnson & Johnson JNJ 0.74% 177.17 1.72 (0.98%)
20 Costco COST 0.72% 943.32 -1.64 (-0.17%)
21 Home Depot (The) HD 0.70% 406.77 -0.68 (-0.17%)
22 Bank of America BAC 0.65% 50.74 0.25 (0.50%)
23 Palantir Technologies PLTR 0.64% 156.71 -1.41 (-0.89%)
24 AbbVie ABBV 0.64% 210.40 2.48 (1.19%)
25 Procter & Gamble PG 0.63% 157.04 1.39 (0.89%)

 

Close but not quite. Looks like TOPT has been around for less than a year. Since October of 2024. Their YTD return....+11.32%.