The Long Term Investor

I FEEL YOUR PAIN.....TomB.

I dont share much financial info in REAL LIFE. I dont even discuss any of the stuff on here other than with family and those that I manage their money and taxes. (family) I AM willing to share info on here and in the past on another site where I posted for about 23 years. NO ONE on here knows me and if I am careful no one on here will ever identify me. I believe it is important to share portfolio data, investment moves, and other information about life history, work, etc, etc, so others might learn from my mistakes and my successes. If nothing else, it might give someone HOPE that they can do the same. Or, it might give others the ability to see the LONG TERM. I had this sort of help all my life from parents and extended family in the form of education, financial and investing education and mentoring, and the fact that in MY family all the generations pull together to get the new generation off to a good start, education, home ownership, etc, etc.

This has been going on in my family going back to my great grandfather......so as of now for SIX GENERATIONS, counting my children and grandchildren. My great grandfather grew up in severe poverty and abuse. He left home at age 14 as a result. He literally PULLED HIMSELF UP by his bootstraps, educated himself, became a lawyer and community leader and in the 1910 to 1930 time period put all 7 of his children through college including three girls which was very rare back than. He paid for his children to attend college with the stipulation that in return they HAD to repay the debt by puting their own children through college. In my branch of the family this OLD BARGAIN has held now for my Grandfathers, my dads, my generation, and my kids generation. I have the same deal with my kids, I paid for their college and they are in return to pay for their kids college. Hopefully toward the end of my life I will be able to establish a DYNASTY trust to pay for college and education of at least 5-10 generations going forward. At least that is my plan at the moment. If the plan works out, my sister, my wife and I will fund the trust. It will probably take about 3% of our combined estates, so there will be plenty that will be handed down directly to my children. (about 97% of assets)

 

THANKS..........AND............here is a GREAT ARTICLE. As I was reading this I was mentally yelling.....YES...YES. This article reflects my views on LONG TERM investing. My portfolio was ALL the BIG CAP, ICONIC, AMERICAN, EIVIDEND PAYING companies, all the big names PG, KO, GIS, MO, etc, etc. But about four or five years ago it became apparent that the millenial generation was starting to create a change in society, product perference, digital life, etc, etc. So I have modernized my portfolio into the current model that is previously in this thread.

BUT....this is a GREAT ARTICLE, the writing and the investing story and philosophy. So....I am posting the whole thing:

"An Evolve-or-Die Moment for the World's Great Investors
The dominance of tech stocks has forced some of the best investing minds—including Warren Buffett himself—to reexamine their thinking. Who will adapt and survive?"

http://www.fortune.com/longform/value-investing-warren-buffett-tech-stocks/

"At this year’s annual Berkshire Hathaway meeting in Omaha, Warren Buffett, the high priest of value investing, uttered words that would have been grounds for excommunication if they had come from anyone but him.

Buffett began his career nearly 70 years ago by investing in drab, beaten-up companies trading for less than the liquidation value of their assets—that’s how he came to own Berkshire Hathaway, a rundown New England textile mill that became the platform for his investment empire. Buffett later shifted his focus to branded companies that could earn good returns and also to insurance companies, which were boring but generated lots of cash he could reinvest. Consumer products giants like Coca-Cola, insurers like Geico—reliable, knowable, and familiar—that’s what Buffett has favored for decades, and that’s what for decades his followers have too.

Now, in front of roughly 40,000 shareholders and fans, he was intimating that we should become familiar with a new reality: The world was changing, and the tech companies that value investors used to haughtily dismiss were here to stay—and were immensely valuable.

“The four largest companies today by market value do not need any net tangible assets,” he said. “They are not like AT&T, GM, or Exxon Mobil, requiring lots of capital to produce earnings. We have become an asset-light economy.” Buffett went on to say that Berkshire had erred by not buying Alphabet, parent of Google. He also discussed his position in Apple, which he began buying in early 2016. At roughly $50 billion, that Apple stake represents Buffett’s single largest holding—by a factor of two.

At the cocktail parties afterward, however, all the talk I heard was about insurance companies—traditional value plays, and the very kind of mature, capital-intensive businesses that Buffett had just said were receding in the rearview mirror. As a professional money manager and a Berkshire shareholder myself, it struck me: Had anyone heard their guru suggesting that they look forward rather than behind?

There is a deep and important debate going on in the investment community, one with profound repercussions for both professional money managers and their clients. Some believe that Buffett is right—that we have become an asset-light economy and that value investors need to adapt to accommodate such changes. Noted value managers like Tom Gayner of Markel Corp. and Bill Nygren of Oakmark Funds, for instance, count companies like Amazon and Alphabet among their top holdings. The fact that these stocks often trade at above-market valuations—a factor that once scared away orthodox value investors—hasn’t deterred them, because the companies’ futures are so bright that they’re worth it.

Other value managers like David Einhorn at Greenlight Capital and Bruce Berkowitz at Fairholme are betting on the very same old-economy companies that Buffett long favored. Berkowitz, Morningstar’s domestic equities Manager of the Decade from 2000–10, has seen his performance suffer this decade, thanks to positions in AT&T and, most notably, Sears Holdings, which declared bankruptcy earlier this fall. Einhorn’s performance has also suffered; his largest position is GM, and he says he has been short what he calls a “bubble basket” that includes Tesla, Netflix, and Amazon.

All value investors continue to agree that price is an important component of value—that’s why we’re called value investors. What’s happening now is a debate about what the drivers of value are—of what constitutes value in the 21st-century economy—and what will drive both the economy and the market forward over the next generation.

Value investors are just that—we hunt for value, and our focus on price in relation to a business’s value makes us easily distinguishable from other investors. Momentum investors, for example, care about price only insofar as they can sell whatever they’ve bought to someone else at a higher one—the so-called greater-fool approach. Then there’s growth investing, in which price takes a distant second place to a business’s prospects for rapid expansion. Because weighing price vs. value is paramount in value investing, those in this school have a reputation of being long-term-oriented, self-denying cheapskates.

The father of value investing was Ben Graham, who gave birth to it roughly 100 years ago, when 100% of the components of the Dow Jones industrial average were just that—industrials. Hard assets were what drove companies like Anaconda Copper and National Lead. Consumer marketing was in its infancy; in 1915, the closest thing the Dow had to a consumer products company was General Motors (or maybe American Beet Sugar).

The year before, Graham had graduated second in his class from Columbia University with such a gifted intellect that he was offered teaching positions in three departments: philosophy, mathematics, and English. Acquainted with poverty at an early age, however, Graham chose a career in finance. The market of his day was dominated by tipsters, schemers, and speculators; stock operators trying to corner the market in United Copper had caused the Panic of 1907, which wiped out Graham’s widowed mother’s savings. Graham loathed such speculations, but he was attracted to the upside of equities. He saw them for what they were: a fractional ownership of a company’s business.

Driven by both his academic temperament and practical necessity, Graham set about trying to figure out a predictable, systematic way to make money in stocks. For an answer, he turned to corporate financial statements and the tangible assets represented therein. Graham saw that while equities went up and down in the short run according to the whims of the market, a company’s tangible assets—its forges and its foundries and the inventory they produced—had a solid, knowable value. Graham began to calculate that value in a precise, mathematical way. He asked himself: What would a company be worth if it were to liquidate its assets and pay off its liabilities? Sometimes the liquidation would actually occur; other times it would be a theoretical exercise that gave Graham what he termed a “margin of safety” when buying a security.

By quantifying value and then juxtaposing it with price, Graham found he could make sense of markets. Thus was born security analysis and, with it, value investing.

From the beginning, value investing focused on the quantitative and tangible aspects of a business. Graham was an intellectual who lived in abstractions; he didn’t want to know about the products the companies made. Irving Kahn, one of Graham’s assistants, told Buffett biographer Roger Lowenstein that if someone began to describe to Graham what a company actually did, he would get bored and look out the window. With his focus on liquidation value, Graham tended to buy boring, beaten-down businesses—cigar butts, they came to be known, good for only a few extra puffs. Walter Schloss, a Graham analyst who later became a legendary value investor in his own right, once pitched Graham on Haloid, which owned the rights to a promising technology that would one day become the Xerox machine. While there is no record as to whether Graham looked out the window, he nevertheless said no.

“Walter,” he said, “it’s just not cheap enough.”

One of Graham’s acolytes was a young man from Omaha who was born into the Depression but came of age during America’s large, optimistic postwar expansion. As a teenager, Warren Buffett tried to understand the stock market by studying charts and other technical indicators; when he came upon Graham’s writings, he said that he felt “like Paul on the road to Damascus.” Buffett came East for business school to study under Graham, who by then was teaching at Columbia, and he briefly worked for Graham after graduation. The classic middle-American boy, however, Buffett soon quit New York for his beloved hometown.

Surveying the economy of the mid-1950s with his own partnership, Buffett saw that it was vastly different from the one Graham had encountered as a young man. While the Dow Jones industrial average was still dominated by industrials, it also contained Procter & Gamble, Sears Roebuck, and General Foods. These companies were fundamentally different from an industrial company: The primary driver of their business value had little to do with hard assets. Rather, the value had to do with the company’s brands—with the loyalty and familiarity that customers felt for Ivory Soap and Jell-O gelatin. These emotional ties, encouraged and cemented by mass marketing, allowed businesses to charge high prices for relatively mundane goods.

The great enabler of such businesses was the rise of national television, which both emanated from and reinforced a culture of homogeneity. Market-leading brands used scale in a very different but no less effective way than manufacturing companies. A beer, shampoo, or cola brand with dominant share could flood the three major TV networks with more advertising than their competition, yet still spend less than the competition as a percentage of absolute sales dollars. This set up a virtuous circle for dominant brands and a vicious circle for those less fortunate. Brands like Budweiser went from strength to strength; strong regional brands like Narragansett beer, once the No. 1 seller in New England, slowly but surely withered away.

Value 3.0 Rules of the Road
Even in an economy transformed by technology, many of Warren Buffett’s principles of value investing apply. Here, some dos and dont’s.

Dos
■ Always look for a business with a clear-cut competitive advantage. If you can’t explain to your spouse what makes a company special as a long-term moneymaker, it probably isn’t. Amazon has a stranglehold on e-commerce; Google owns search; Sherwin-Williams, in which my fund owns a stake, dominates brick-and-mortar paint stores. What makes a company able to earn outsize profits over the next generation?

■ Try to find companies with a small market share, a huge addressable market, and a large competitive advantage. This was Warren Buffett’s recipe for success with Geico, a once-tiny auto insurer that sold directly to consumers rather than pay agents’ commissions. These traits may be present in GrubHub (pictured above), the first mover in the food-delivery market, which my fund also owns. It has an industry-leading market share yet still has less than a 1% share of all American restaurant meals consumed each year. Still TBD: whether consumers will continue to migrate away from in-restaurant dining, and whether Uber and Amazon will try to eat GrubHub’s lunch.

Don’ts
■ As Buffett has said, never confuse a growing industry with a profitable one. One cautionary tale from the 2000s: Vonage, a pioneer in routing phone calls over the Internet. Business exploded over the past decade, but so did competition. Profits for everyone imploded, and the big winner (as is so often the case) has been the consumer. Vonage’s stock has never gotten back to its $17/share IPO price.

■ Avoid businesses whose best days are behind them. This is true even if you’re paying a cheap price relative to current earnings or book value because, in the long run, underlying business quality trumps price. Exhibit A: Sears Holdings looked cheap all the way down until it declared bankruptcy earlier this fall. You can still buy a fractional interest in Sears’s future today for a very cheap price, by the way—36¢ a share, as of this writing.



With the help of his partner Charlie Munger, Buffett studied and came to deeply understand this ecosystem—for that’s what it was, an ecosystem, even though there was no such term at the time. Over the next several decades, he and Munger engaged in a series of lucrative investments in branded companies and the television networks and advertising agencies that enabled them. While Graham’s cigar-butt investing remained a staple of his trade, Buffett understood that the big money lay elsewhere. As he wrote in 1967, “Although I consider myself to be primarily in the quantitative school, the really sensational ideas I have had over the years have been heavily weighted toward the qualitative side, where I have had a ‘high-probability insight.’ This is what causes the cash register to really sing.”

Thus was born what Chris Begg, CEO of Essex, Mass., money manager East Coast Asset Management, calls Value 2.0: finding a superior business and paying a reasonable price for it. The margin of safety lies not in the tangible assets but rather in the sustainability of the business itself. Key to this was the “high-probability insight”—that the company was so dominant, its future so stable, that the multiple one paid in terms of current earnings would not only hold but perhaps also expand. Revolutionary though the insight was at the time, to Buffett this was just math: The more assured the profits in the future, the higher the price you could pay today.

This explains why for decades Buffett avoided technology stocks. There was growth in tech, for sure, but there was little certainty. Things changed too quickly; every boom was accompanied by a bust. In the midst of such flux, who could find a high-probability insight? “I know as much about semiconductors or integrated circuits as I do of the mating habits of the chrzaszcz,” Buffett wrote in 1967, referring to an obscure Polish beetle. Thirty years later, writing to a friend who recommended that he look at Microsoft, Buffett said that while it appeared the company had a long runway of protected growth, “to calibrate whether my certainty is 80% or 55% … for a 20-year run would be folly.”

Now, however, Apple is Buffett’s largest investment. Indeed, it’s more than double the value of his No. 2 holding, old-economy stalwart Bank of America.

Why? Not because Buffett has changed. The world has.

And quite suddenly: Ten years ago, the top four companies in the world by market capitalization were Exxon Mobil, PetroChina, General Electric, and Gazprom—three energy companies and an industrial conglomerate. Now they are all “tech”—Apple, Amazon, Microsoft, and Alphabet—but not in the same way that semiconductors and integrated circuits are tech. These businesses, in fact, have much more in common with the durable, dominant consumer franchises of the postwar period. Their products and services are woven into the everyday fabric of the lives of billions of people. Thanks to daily usage and good, old-fashioned human habit, this interweaving will only deepen with the passage of time.

Explaining his Apple investment to CNBC, Buffett recalled making such a connection while taking his great-grandchildren and their friends to Dairy Queen; they were so immersed in their iPhones that it was difficult to find out what kind of ice cream they wanted.

“I didn’t go into Apple because it was a tech stock in the least,” Buffett said at this year’s annual meeting. “I went into Apple because … of the value of their ecosystem and how permanent that ecosystem could be.”

If the postwar era was about consumer brands operating at scale, the early 21st century is about what we might call digital platforms. Like the branded enterprises before them, they have the permanence and probability that make for a good long-term value investment. Innovation scholar Carlota Perez has written about how at least five times in Western civilization, new technologies have erupted, gone through a speculative frenzy, and then busted, only to settle down after a shakeout into a long, protracted period of stability. We’ve had the high-tech eruption, we’ve had the frenzy of the dotcom boom, and we’ve had the bust. Now we are in what Jonathan Haskel and Stian Westlake, authors of Capitalism Without Capital, call the “bedding-in” phase.

Unlike branded companies, digital businesses often benefit from network effects: the tendency of consumers to standardize on a single platform, which reinforces both consumer preference and the platform’s value. Because of this, the market shares of these platform companies dwarf those of the consumer products giants; software businesses like these are often characterized by a “winner take all” or “winner take most” dynamic. Combine this with the fact that they require little to no capital to grow, and you have Value 3.0—business models that are both radically new and enormously valuable.

“In the past you would’ve needed a tremendous amount of capital to achieve global scale,” says Oakmark’s Nygren, whose top position in his Oakmark Fund is Alphabet, “but these companies have done it just by writing code and pressing ‘send.’ ”

Like their branded predecessors, the platform companies are wisely reinvesting their vast profit streams into not only their core business but entirely new platforms as well. Take Alphabet, which my fund also owns: It began with search, a classic two-sided market in which consumers looking for goods and services are paired with advertisers who want to reach them. Google gained an early edge thanks to a superior search algorithm; with the word “google” now routinely used as a verb, it commands 95% of all mobile search. Google tweaks its algorithm twice a day to maintain its search superiority; meanwhile, the cash flow from this asset-less platform is so abundant that the parent can afford to spend $20 billion a year on research and development. That’s more than the annual earnings of Coca-Cola and American Express combined. It’s going into not only the core franchise but also nascent platforms like YouTube (user-generated video content), Android (smartphone operating systems), and Waymo (driverless cars). None of these businesses earns much now, but they may soon do so, and they are funded entirely by Google’s search platform. Little wonder that Amazon founder Jeff Bezos once told a colleague, “Treat Google like a mountain. You can climb the mountain, but you can’t move it.”

Meanwhile, Bezos has built a mountain or two of his own. As the first big mover in e-commerce, he created a network of warehouses and logistics capabilities that now allows him to deliver packages to more than 100 million Prime customers in two days or less. He too has chosen to reinvest Amazon’s profits back into the business in various forms: lower prices for customers, ancillary services like Prime Video, and entirely new industries like Amazon Web Services, which provides outsourced, essential computational “plumbing” for the next generation of digital startups. In its core retail business, Amazon still has only a roughly 5% share of U.S. retail commerce despite being at it for more than 20 years. Amazon’s stock may be overvalued today—but with its dual moats of immense customer loyalty and low-cost provider status, there is no argument that it is very valuable.

As these platform companies create billions in value, they are simultaneously undermining the postwar ecosystem that Buffett has understood and profited from. Entire swaths of the economy are now at risk, and investors would do well not only to consider Value 3.0 prospectively but also to give some thought to what might be vulnerable in their Value 2.0 portfolios.

Some of these risks, such as those facing retail, are obvious (RIP, Sears). More important, what might be called the Media-Consumer Products Industrial Complex is slowly but surely withering away. As recently as 20 years ago, big brands could use network television to reach millions of Americans who tuned in simultaneously to watch shows like Friends and Home Improvement. Then came specialized cable networks, which turned broadcasting into narrowcasting. Now Google and Facebook can target advertising to a single individual, which means that in a little more than a generation we have gone from broadcasting to narrowcasting to mono-casting.

As a result, the network effects of the TV ecosystem are largely defunct. This has dangerous implications not only for legacy media companies but also for all the brands that thrived in it. Millennials, now the largest demographic in the U.S., are tuning out both ad-based television and megabrands. Johnson & Johnson’s baby products, for example, including its iconic No More Tears shampoo, have lost more than 10 points of market share in the last five years—an astonishingly sharp shift in a once terrarium-like category. Meanwhile, Amazon and other Internet retailers have introduced price transparency and frictionless choice. Americans are also becoming more health conscious and more locally oriented, trends that favor niche brands. Even Narragansett beer is making a comeback. With volume growth, pricing power, and, above all, the hold these brands once had on us all in doubt, it’s appropriate to ask: What’s the fair price for a consumer “franchise”?

To be sure, some of the digital-disruption rhetoric is overdone. Cryptocurrency replacing the bank system? Not likely. David Einhorn’s bearish calls on Tesla and Netflix may well be right, not because the stocks are expensive but because they face rising competition. And for all the hype about autonomous vehicles, they’re not anywhere close to being here—yet. But a lot can change in half a generation. If you google “Easter Day Parade, New York City 1900” and then “Easter Day Parade, New York City 1913” and look at the pictures that appear, you will see that the former has nearly 100% horse-drawn carriages while the latter has nearly 100% horseless carriages—i.e., automobiles. And when driverless cars do arrive, what happens to the auto industry? What happens to the auto-insurance industry—that cuddly, capital-intensive commodity business that value investors love to talk about at cocktail parties?

Long-term investors need to be thinking about such shifts, and they need to position their portfolios in accordance with them rather than against them. Darwin is often misunderstood, says Markel’s Gayner, who counts both Amazon and Alphabet among his holdings. “It’s not survival of the fittest, but those who are most adaptable to change, that make it through.”

Industries to Look at … and Avoid
Some industries are particularly well positioned to benefit both from the drivers of “Value 3.0” (network effects, growth that isn’t capital intensive) and more traditional advantages (wide competitive moats). Here are some industries to watch right now and a couple to be wary of.

ATTRACTIVE
Platform tech It’s difficult to see how Alphabet’s Google subsidiary will lose its 95% market share in mobile search. Advertising on the Internet represents only 30% of total worldwide marketing spending, so Google has room to grow. Likewise, Amazon has only a 5% share of U.S. retail spending; thanks to its network of warehouses and its frictionless customer interface, it possesses powerful competitive advantages.

Aerospace While it’s tempting to be swept away by the might of digital platforms, it’s also true that most business continues to be done in the real world, not the ether. Consider the aerospace industry: It has grown 5% per annum over the past 50 years, well ahead of global GDP, yet 80% of the world’s population still has not yet set foot on an airplane. Add to this the fact that aerospace companies tend to be duopolies or oligopolies, and you have a recipe for powerful economic compounders. Not surprisingly, industrial conglomerates Honeywell and United Technologies (maker of the space suit pictured above) are both taking steps to become more aerospace-focused.

NOT SO MUCH
Autos A cyclical, capital-intensive business that makes commoditized products is a troubled industry to begin with. If driverless cars become a reality, then car sharing is not far behind. Once that occurs, it’s virtually certain we’ll need fewer automobiles. Falling production on a fixed-cost base—look out below.

Insurance Another cyclical, commoditized business with no barriers to entry except capital—which is to say, no barriers at all. Returns on equity in insurance have been in structural decline for 30 years, with personal lines most at risk. Warren Buffett, whose Berkshire Hathaway conglomerate is invested in insurance, has acknowledged that self-driving cars could significantly decrease auto-insurance premiums. Such coverage may join the buggy whip in terms of utility within the next generation."

MY COMMENT

I have no comment on the last two paragraphs and the last two paragraphs are NOT my investing opinion or recomendation, since I dont make recomendations or give investment advice.

 

GOOD DISCUSSION ABOVE. I will start at the beginning of this discussion.

NO, Onepoint, no condescension intended.

Actually on a factual level I do believe that if someone is going to market time and buy a particular stock "at the bottom" the BIG question is actually how are they going to call the bottom. If you look at the VAST MAJORITY of academic research on investor returns and the issue of whether or not market timing works, the research is clear. One of the primary reasons for investors failing to come close to the returns of the un-managed indexes is "attempted" market timing.

As to my belief that we could "perhaps" see another 5-10% drop in stocks like GOOGL, that was simply my "personal belief" and NOT investment advice to anyone. With the drop we have seen to date and taking into account the fundamentals I dont, personally, believe there will be more down side than that. BUT.....this is just short term market talk on a message board. I have no more ability to call the short term than anyone else.

As to current prices being attractive....YES...I do believe they are attractive, on a LONG TERM basis. For me LONG TERM is a minimum of five years and ten is better. BUT, this is in the context of "me" being a long term fundamental investor and not a market timer, trader, technician, etc, etc.

I DO TOTALLY deny any importance of market timing. Again I refer you to the academic research on market timing and whether it works.

As to remarks about traders or investing philosophy, ALL are in the context of what I believe and what I do and LONG TERM INVESTING. Nothing in this thread is aimed at others on this board. If you are good and successful at what you do than be confident in yourself and continue to do it. That is why I ALWAYS say.......if it works for you, do it.......AND.....all investing is personal.

YOU are correct in calling this thread a "blog". It is simply my personal opinion on various investing articles, news items, market conditions, etc, etc, often the short term. Nothing more nothing less. AND it is definately NOT intended as investment advice. Even though I am not a short term oriented investor, short term events and markets interest me and I will often post opinion and comments on short term topics. Just discussion, nothing more or less.

I will mention that with human communication via message board post all context of personal communication is lost. Combine that with my very CLINICAL way of thinking and posting and you have potential for people to read more negativity or "condescension" into a post. None is EVER intended

 

Too much in the above to comment on everything and not necessary in any event since we all have our personal opinions and that is a good thing. It is not up to me to try to convince anyone else that they should do what I do or to try to convince anyone that my point of view is better than theirs. BUT...of course there is always a BUT....here are a few tidbits, out of context, that I definately DO NOT agree with:

"Trading stock is wealth redistribution."

"Companies are in the stock business and the widgets they produce are just an inconvenient but necessary front;"

"With experience successful traders have another valuable skill, and that is the good sense to know when they are wrong."

"The biggest casino the world has ever seen."

"best way I know to ascertain their position (big capitalists) is by an intelligent reading of the charts.

So for reference going forward as to my BIAS.....I do not believe market timing works, I do not believe there is any validity to Technical Analysis (chart reading), I do not see the markets as a casino, and I believe the vast majority of traders and short term investors will significantly LAG the un-managed indexes over the long term (five years or more).

If you read the article above on VALUE/FUNDAMENTAL INVESTING (post 103), to date I would say that article comes closest to my investing philosophy.

And.......NO.....I am not interested in debating these age old questions on this thread, but it is fine for others to do so. As I said a few times on here, anyone is free to post any discussion they wish on this thread whether it is in agreement with me or not

 

HERE is what I was intending to post today when I got sucked into a little bit of the discussion, not that that is a bad thing. I guess this first little article compliments some of the above discussion of market timing and investor behavior:

Investors Said to Pull $10 Billion From Hedge Funds

https://www.newsmax.com/finance/inv...ors-hedge-funds-billion/2018/11/25/id/891904/

"Jittery investors reportedly have yanked more than $10 billion from hedge funds so far this year, with the bloodshed expected to continue.

And the experts expect more redemptions this quarter due to the mix of poor returns and December usually being a month of “elevated” outflows, even during the boom times, according to an eVestment report cited by the New York Post.


Although new money was added to the $3.2 trillion industry in the first half of 2018, continued volatility and weak returns have investors headed for the door, the Post explained.

There have been only three other years that money left the industry since 2004, eVestment noted, referring to 2008, 2009 and 2016.

“It’s clearly a difficult time,” said Peter Laurelli, global head of research at eVestment.

To be sure, the most popular long positions at 823 hedge funds have lagged the S&P 500 by 7 percentage points since mid-June, according to Goldman Sachs.

"Hedge fund returns, portfolio leverage, and the performance of popular stocks have entered a vicious downward cycle," wrote Goldman's David Kostin, CNBC reported.


The average equity hedge fund is down 4 percent this year, according to Goldman. Funds saw their worst monthly performance in three years in October, down 2.35 percent on average, according to financial data company Preqin."

AND

Investors’ overseas woes are good news for US stock markets

https://www.usatoday.com/story/money/columnist/2018/11/25/stock-markets-whats-next/2054124002/

"What should you make of stocks’ ugly October – and what to do about it? The answer lies outside America. Fathom global markets, and you’ll fathom why good times lie ahead.

Whenever volatility hits, ask: Is this a correction or bear market? Corrections are short, ugly drops of about 10 percent to 20 percent. They begin and end for any or no reason, fueled by false fears and scary stories – but not real trouble. Some years there are none. Others there are one or two – yet they can still be great years for stocks. Trying to avoid corrections is nearly impossible as an investor.

Bear markets are deeper, characterized by 12 to 24 months of painful grinding, stocks falling 20 percent to 50 percent or so, and deep, ugly recessions. Avoiding bears is worthwhile.

What U.S. stocks experienced earlier this year was a wintertime mini-correction. Then they reached new highs. Since October, we’ve almost had another correction.

World stocks, though, had a full-scale correction, driven by emerging markets and Europe, which look like corrective train wrecks.

Overseas investors are fretting over endless phantoms, like Brexit. How will it work, they ask? Will it be a hard break, with trade dislocations? We’ll know by March, but investors hate uncertainty.

They also imagine Italy’s populist government will cause a disastrous debt crisis, destroying the euro. They can’t measure correctly that Italy’s finances are at their healthiest in a generation. Many wrongly fear the European Central Bank’s December plan to end quantitative easing (QE) will cripple Europe’s growth. They can’t understand why ending it is very good. Many also fear EU politics will explode without Angela Merkel heading Germany. Her political swan dive, driven by immigration fears, shook European politicos. Immigration rattles folks there – actually much, much more than our American version does here.

Meanwhile, Asia investors are worried about China, tariff jitters, Australia’s bank investigations and unstable governments. Many fear that a strong dollar renders financing impossible for emerging markets businesses. Deflation dread and weak GDP stalk Japan.

All are basically false fears, yet ones that feed off each other in the foreign investor psyche.

Put it all together, and what do you get? Foreign stocks, using the MSCI EAFE (Europe, Australasia, Far East), were down 16.7 percent at their low in October. Emerging markets were down 25 percent at their worst point last month. But the best gauge is MSCI’s All Country World Index (ACWI) – all emerging and developed markets, including America. It was down 12.6 percent in October, a moderate global correction.

Some countries did better, some worse. China, Germany, Spain and some others breached a 20 percent – technically bear markets. So did the materials sector, as did many individual hard-luck stocks. But dwelling on bear markets in small categories and extrapolating them is a mistake. Even in super-great times, some narrow categories and stocks are down big. If you’re diversified, it doesn’t matter – the totality of global markets is really the right guide.

What really matters? Having had a correction, the MSCI ACWI is primed and ready to bounce. Correction recoveries are usually V-shaped – fast and high.

There is also the “87 Percent Miracle” of post-midterm returns discussed in my June 3 column.

Not only are the midterm-year fourth quarter and following two quarters each positive 87 percent of the time, the whole nine-month stretch is positive 91 percent of the time.

A yucky October doesn’t change this. Eight other times, a midterm-year October was negative. Yet the full nine-month stretch was positive seven of those. With midterms rendering more gridlock, autumn swings should be short-lived. Also good: Major global leading economic indexes are high and rising – almost everywhere. European QE ending is, in fact, a positive bonus.

A negative October is all the more reason to get going with positiveness. Don’t let fear sidetrack you. Own stocks and hang on.

MY COMMENT:

I find it amazing that the HEDGE FUND industry seems to be in the tank ever since the MADOFF disaster. I dont think this is a coincidence. It was amazing to me at the time how many hedge funds were piggy backing off Madoff. The second article reflects my view that we are in a correction and not a bear market and some of the reasons. BUT, things are always clear in hindsight and that is the only way to actually call a bear market or a correction. So, time will tell where we are right now and how much impact the media and others fear mongering and talking down the economy for political and other gains will have on market direction over the short term (1 month to a year or more). I dont personally doubt at all that our capitalist system in general and markets in particular are fragile like all human institutions and there is absolutely NO GUARANTEE that either will be the norm going forward 10 or 20 or 50 or 100 years.

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

 

Got to go......fell free to continue the discussion guys.