The Long Term Investor

I like this little article......although.....there is much here that I do not agree with.

Microsoft's dominant 21st century offers a key lesson for stock market investors: Morning Brief

https://finance.yahoo.com/news/micr...market-investors-morning-brief-100009433.html

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

"When the economic cycle actually turns, the biggest drivers of the stock market will change.

An obvious statement, perhaps. But the current market rebound is being led by the same handful of Big Tech winners that have dominated both returns and the market conversation since 2023.

And until these terms and conditions change, this remains the AI moment.

In a note to clients on Monday, strategists at Bank of America led by Michael Hartnett looked at the 10 largest companies in the world at four distinct points this century — March 2000, November 2007, March 2009, and November 2021 — plus the end of July of this year.

These dates represent, respectively: the top of the market before the tech bust, the top before the financial crisis, the bottom of the financial crisis, and the market's highs reached after the pandemic. And today, global stocks are trading at basically record levels.

In this exercise, BofA teases out two key features of any market always worth keeping in mind for investors — composition and concentration.

On the first, investors need to remember that the names we view as market leaders are always changing. And when the cycle really does change, so too will the market's leaders.

Microsoft (MSFT), for instance, is the only company to rank among the world's largest 10 companies at each of these checkpoints over the last nearly 25 years. In fact, Microsoft is the only company currently in the top 10 to rank on any of the three dates before 2021.

In reading this note, we were reminded of the exercise Warren Buffett did at the top of Berkshire Hathaway's annual meeting back in 2021, when he looked at how the world's 20 biggest companies had changed over the prior 30 years.

"It is a reminder of what extraordinary things can happen," Buffett said back in 2021. "The world can change, and [in] very, very dramatic ways."

Since 2009, there's been 90% turnover among the world's 10 biggest companies. Fifteen years ago, there were four companies from China in the top 10. Today, there are none.

Apple (AAPL), currently the world's largest company, didn't appear on BofA's rankings until its 2021 edition. (In 2014, Apple was the world's largest company; by 2018, it had become the first US company to see its market value cross $1 trillion.)

Of course, had BofA chosen to select an intermediate date between 2009 and 2021 — say, the stock market's high in the summer of 2015 that wouldn't be overtaken for a year — the list wouldn't be quite as dramatically different: Apple, Microsoft, and Alphabet (GOOG, GOOGL) would all feature in the rankings. But still, those would be the only three holdovers from nine years ago.

Concentration in the stock market has also changed dramatically over time. In 2009, the top 10 companies in the world accounted for about 10% of global market cap; today, that ratio is closer to 25%.

Looking at 2000, 2007, and 2021, however, we see concentration looks more similar — though still less extreme — than today. The world's 10 biggest companies accounted for 17%, 11.6%, and 21.2% of global market in each of those years, respectively.

So not only has the market become significantly more tech-forward and US-centric, but also more concentrated.

Whether an investor sees these past and present states of play as good, bad, or indifferent is what makes a market. The numbers simply tell us what is.

But that only Microsoft has maintained its place among the global elite over the last quarter century tells us what is most likely to happen over the next 25 years."

MY COMMENT

I like this article as a perfect example of how to cherry pick data.

BUT.....some of the generalities in the article are correct. Companies come and go as market leaders. BUT.....MSFT, GOOGL, AAPL,......these have been household names for decades. Legitimate and dominant companies DO NOT jump in and out of the top 100 company list in the SP500.

YES.....there is an ebb and flow of business.....but truly dominant companies do not change every few years. In addition as I said above.....I invest on business fundamentals.....NOT.....the sort of data used above. I dont care if some company that I own is in this or that top ten. I care about long term staying power. Look at Costco and their results over their entire company life.....look at HD and how they have achieved massive success in their business over the long term. Same with big tech since the 1990's.

 

Over the weekend I was playing with a little stock calculator. What it showed me is relevant to the above post.

I was looking at my 1000 shares of MSFT that I bought some time in 1990 for $80,000. I put in my 1000 shares and the date May 1990 as a guess when I might have purchased. I used the end date as August of 2024. I designated to reinvest all dividends and hit calculate.

I WAS SHOCKED by the result........current value with splits and reinvestment.......over $SIXTY MILLION dollars.

That is what my 1000 initial shares would be worth now......34 years later......if I had just held onto them and done nothing. From $80,000 to over $60,000,000.

I had never done this exercise before with those shares and I was AMAZED by the result. I knew it would be millions but had no clue it would be this high.

I made a lot of money on that position but I sold out all shares of MSFT in about 2002. BUT.....I have to admit I was sorry that I did not simply sit on those shares......DUH.

Playing with hindsight data is fun......but.......not very realistic.

 

The markets today remind me of yesterday.

I have six stocks green and three red......same as yesterday morning. BUT.......the positions have flipped compared to yesterday. Today it is COST, HD, and CMG that are red. Yesterday it was big tech. Same nice green result in my portfolio both days.....but different stocks in each category.

The POWER of investing in a "portfolio" of companies....versus single stock focused investing. For the long term portfolio performance and portfolio make-up is very important.

A long term investor should be giving a lot of critical thought to their entire portfolio make-up versus single stock holdings.

 

Some housing news.....somewhat good.....but the struggle continues for first time buyers.

US existing home sales rise more than expected in July

https://finance.yahoo.com/news/us-existing-home-sales-rise-140334750.html

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

"(Reuters) - U.S. existing home sales rose more than expected in July, reversing four consecutive monthly declines, as improving supply and declining mortgage rates offered hope that activity could rebound in the months ahead.

Home sales rose 1.3% last month to a seasonally adjusted annual rate of 3.95 million units, the National Association of Realtors said on Thursday. Economists polled by Reuters had forecast home resales would edge up to a rate of 3.93 million units.

Home resales, which account for a large portion of U.S. housing sales, declined 2.5% on a year-on-year basis in July. The median existing home price jumped 4.2% from a year earlier to $422,600. Home prices increased in all four U.S. regions.

Home resales are counted at the close of a contract. Sales in July likely reflected contracts signed in the prior two months, when the average rate on the popular 30-year fixed-rate mortgage was hovering around 7.0%.

The average rate on a 30-year fixed-rate mortgage was 6.49% last week, near a 15-month low and more than half a percentage point lower than the same time last year, data from mortgage finance agency Freddie Mac showed. It has eased from a six-month high of 7.22% in early May amid signals from the Federal Reserve that it will deliver a long-awaited interest rate cut in September.

"Despite the modest gain, home sales are still sluggish," said Lawrence Yun, the NAR's chief economist. "But consumers are definitely seeing more choices, and affordability is improving due to lower interest rates."

Sales rose 1.1% in the densely-populated South. They were unchanged in the Midwest, which is considered the most affordable region. Sales advanced 4.3% in the Northeast and increased 1.4% in the West.

INVENTORY RISES AGAIN

Housing inventory increased 0.8% to 1.33 million units last month. Supply jumped 19.8% from one year ago.

A surge in insurance premiums across the country as weather-related claims rise is forcing some homeowners to put their properties on the market.

Nonetheless, entry-level homes remain in short supply and there is not enough new construction. The government reported last week that single-family homebuilding dropped to a 16-month low in July, likely weighed down by Hurricane Beryl and an oversupply of new houses, while permits for future construction also edged down. Many homeowners have mortgage rates under 5%.

At July's sales pace, it would take 4.0 months to exhaust the current inventory of existing homes. That was up from 3.3 months a year ago. A four-to-seven-month supply is viewed as a healthy balance between supply and demand.

Properties typically stayed on the market for 24 days in July compared to 20 days a year ago. First-time buyers accounted for 29% of sales versus 30% a year ago.

That share remains below the 40% that economists and realtors say is needed for a robust housing market.

All-cash sales made up 27% of transactions, up from 26% a year ago. Distressed sales, including foreclosures, represented 1.0% of transactions, virtually unchanged from a year ago."

MY COMMENT

A bit of hope for first time lookers. BUT still a challenging market. i expect that rate cuts will cause mortgage rates to come down to somewhere in the 5.2% to lower 6.2% range. That will spur a lot of activity....but.....if there is a rush to buy it will also spur prices to jump.

In the end as we have now seen with MILLENNIALS....young people will buy a house in about the same percentages as the historic data shows us. It is a process that takes time. The first home is the most difficult......but....most people that want to buy a home will be able to do so at some point before age 35. They might have to adjust their expectations....but that is part of the process.

 

WELL.....LOL....the early gains are shrinking. The DOW is now red and the SP500 is hanging on by fingernails. The NASDAQ is also slightly red. Probably meaningless early action in the markets.

In reality.....nothing really means much in the markets till next WEDNESDAY....AUGUST 28.....NVDA earnings day.

 

That is a big gain in your house TireSmoke in only two years. Location, location, location......and....buy as soon as you can in good areas, it is unlikely that prices will drop if the schools are great and the location is good.

 

I left at 10:30 and got back about 4:30 from renewing my drivers license. I drove to a small town about 90 miles away in order to get a renewal appointment. Here in Austin it is impossible. There are only 5 DL offices in a city of over a million people. I had to renew by mid November and there were ZERO appointments available. I also checked in at about 8-10 small towns within 25 to 60 miles.

 

Just as well that I totally missed out on the markets today.

It was obviously a RIDICULOUS market freak out today. The media is blaming the Powell talk tomorrow and a slight jump in the Ten Year treasury. BUT....I say it is the short term AI Trading Platforms doing their usual speed trading on headlines and self-perpetuated news.

Stocks close lower, Nasdaq slides 1% as Treasury yields rise and Powell speech looms

https://www.cnbc.com/2024/08/21/stock-market-today-live-updates.html

Brother......"Powells Speech Looms"....you have got to be kidding. it is obvious from the /recent FED meeting release and the economic data that there is about a 99.99999999999999999999999% chance of a rate cut in September. There is absolutely NOTHING he can say that will be new news.

Here is another headline:

Wall Street braces for Powell speech.

 

I was nine for nine in the RED today. A nice hefty loss for me. Also a nice loss to the SP500 by 1.41%.

Oh the drama......."SIGH".

 

This used to be a lauded portfolio strategy for a decade or so. It is one way to invest for the long term. It is not for me.....way too much in bonds. It is probably not right for anyone under about age 40.....way too much in bonds. BUT.....to each their own. The main thing is no matter how you invest....focus on the long term.

The 60/40 Portfolio Win Rate

https://awealthofcommonsense.com/2024/08/the-60-40-portfolio-win-rate/

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

"A reader asks:

There is a lot of data on the probability of positive returns for different time periods (S&P 500). Does anyone have similar data for different portfolio allocations? 60/40 stocks/treasuries, etc.

This one is right in my wheelhouse.

As a staunch advocate for long-term investing, I love the charts that show the win rates for the stock market over various time frames:




This is one of my all-time favorite stock market charts.

The historical win rates for international stocks are similar.

But I’ve never done this exercise for a diversified portfolio.

Let’s get to the data!

I looked at a diversified portfolio using 60% in the S&P 500 and 40% in 5 year Treasuries going all the way back to 1926:




That’s pretty, pretty good.

The monthly numbers are the same as the stock market while the 1 year, 3 year, 5 year and 10 year win rates were slightly better for a 60/40 portfolio.

In the history of this data, there has never been a negative 10 year return for a diversified mix of U.S. stocks and bonds. That’s a phenomenal track record.

The biggest pushback I typically receive when producing these kinds of charts is the lack of an inflation adjustment.1

For all of the real return people, here are the inflation-adjusted win rates over the same holding period for the same 60/40 portfolio:



That knocks things down a little bit but it’s in the same section of the ballpark.

The data is pretty clear — the longer your time horizon, the more likely you will experience positive results.

Of course, the level of returns are promised to no one and end up all over the map. These are the historical rolling 10 year total returns:



Some 10 year returns have been better than others but the results have been impressive nonetheless.

Long-term investing continues to give the vast majority of investors the best odds of success."

MY COMMENT

My view....trading, market timing, technical analysis based investing, speculation, etc, etc, etc.....are a losing game. They lead to high taxes, higher fees and lower returns.

It really is this simple.....invest for the long term.....pick rational and realistic holdings to make up a cohesive portfolio.....avoid trading, emotion, fear, and panic.....respect your risk tolerance and if necessary simply invest in the SP500.

YOU really dont have to do much research to "FIND" good stocks........the big name dominant companies are right in front of you.....and obvious..... every day. All you really have to do is pick the best of the market......and let time and compounding do the rest.

 

OK.....it is a rally at the open. The Ten year treasury is down a bit and stocks are up.

 

The market today......so far.

Stocks Climb With Powell Stepping Into Spotlight: Markets Wrap

https://finance.yahoo.com/news/stocks-bonds-fall-traders-rethink-223141775.html

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

"(Bloomberg) -- Stocks rebounded as the bond market stabilized, with wall Street traders seeking clues from Jerome Powell on how fast and how far the Federal Reserve will cut interest rates.

Equities rose in early New York trading, following a slide fueled by a tech selloff and speculation that Powell would throw some cold water on market expectations for aggressive policy easing. The swap market has cemented wagers the Fed will ease policy by about one percentage point this year.

With the central bank approaching a crucial pivot point, it’s difficult to overstate how much attention financial markets will be paying to Powell’s speech scheduled for 10 a.m. New York time. Ahead of that, Fed Bank of Atlanta President Raphael Bostic told CNBC it’s possible that more than one rate cut may now be needed by year-end.

A survey conducted by 22V Research shows 60% of people surveyed think Powell will signal a 25 basis-point cut during his speech. Moreover, 42% of the investors surveyed believe that the market reaction will be “neutral,” 35% think “risk-on” and 24% “risk-off.”

S&P 500 futures rose 0.6%. Treasury 10-year yields declined two basis points to 3.83%. The dollar fell.

What Will Powell Say?

If Powell’s comments about the economy are a bit more alarming than expected — and it sends yields back down to new lows for the year — it’s going to be very bullish for bonds.

However, sentiment surrounding the bond market has been quite bullish lately and the positioning is heavily looking for a further rally (drop in yields) over the near-term as well. Therefore, it’s not out of the question that we could get a “sell the news” reaction to today’s speech at least over the near-term.

So, investors will want to stay nimble today in all asset classes.

• Ian Lyngen and Vail Hartman at BMO Capital Markets:
  

We remain skeptical that the Chair will offer anything beyond guidance that the target Fed funds rate will be lowered next month and there will be further cuts to follow as the Committee shifts back toward a neutral stance. Moreover, the questions regarding the size of the initial cut and the pace of future moves will remain unanswered.

This isn’t to suggest the event isn’t without risk. After all, Powell could decide that more direct guidance is warranted at this stage in the cycle or to push back on the market’s current pricing. He could, but we doubt it, as this would be a departure from the Fed’s recent communications strategy.

• Peter Boockvar at The Boock Report:
  

I try to put myself in Powell’s shoes and I don’t expect anything special today from him. It could be a non-event in terms of market moves.

He’ll reaffirm market expectations of a September rate cut by again highlighting their shift in focus to the labor market but with more data to absorb before then, he’ll have no interest in leaning to what extent they will cut. As for market expectations past that of a full 100 bps by year and and 200 bps by next year’s Jackson Hole confab, why would he pre-commit to anything today? ‘Play it by year’ from here, I believe is his thought process.

This all said, if he talks down the odds of 50 basis points next month by reinforcing his confidence in the economy, regardless of the CPI and payroll data he’ll see soon, we’ll get a selloff in the short end and likely in stocks.

• Tom Essaye at The Sevens Report:
  

The large amount of Fed communications this week have likely mostly telegraphed Fed Chair Powell’s speech today, so as long as it meets current market expectations (September rate cut and cuts continuing after that) the market reaction shouldn’t be significant. But there’s always the possibility for a surprise.

• Will Compernolle at FHN Financial:
  

While we certainly expect the Fed to start cutting rates next month, we are less certain that Powell will feel compelled to underscore the likelihood of lower fed funds in September. Markets are confident in lower rates next month while not pricing in wildly unrealistic expectations for a 50 basis-point cut. What would Powell have to gain by confirming what is already expected?

• Win Thin and Elias Haddad at Brown Brothers Harriman & Co.:
  

Judging by recent Fed official comments as well as the FOMC minutes, Powell is likely to set the table for a rate cut in September. However, we expect Powell to stress the data-dependent nature of the Fed’s monetary policy decisions. As such, we believe the risks are tilted towards him pushing back against an aggressive easing path rather than him validating market pricing.

• Marc Chandler at Bannockburn Global Forex:
  

He is unlikely to go much beyond confirming what the market already thinks it knows: namely, that the first rate cut will be delivered next month. By acknowledging that the economy has evolved broadly along the lines the central bank expected, it would be a gently push against speculation of a 50 basis-point move. In the current context, a rate cut will not usher in easy policy, but simply make the current stance less restrictive.

• Thierry Wizman at Macquarie:
  

The market has set a very high bar for Powell today, making it difficult for him to “out-dove” the current outlook for policy rates. Powell is likely to affirm that the likelihood of a cut in September is high, and that there is a strong likelihood that the Fed is embarking on a rate-cutting cycle, thus aligning with the direction of the OIS market’s forward curve, which is downward sloping.

He is likely to explain too that the impact of earlier tightening came with a lag, but is finally being seen more convincingly in the price and employment data.

MY COMMENT

Actually a meaningless event that is being pumped up by the media for clicks. There is little that Powell can say that is new or interesting.

In the end....just more FED blather.

 

We will be going to Jackson Hole in the near future. Thank God we are not there this week.

 

Absolutely NOTHING in the news or going on today of any merit. Just hype, hype, hype. The AI speed traders will love it.

BUT....for us regular investors.....just another joke of a day to sit through. Yesterday was the same.....an absolute overreaction to nothing. Mostly.......day trading by micro second computer traders......pushing and pulling the news headlines.

That is simply reality for the long term investor. Most days are irrelevant.

 

The very earliest first commentary I am hearing about the FED speech is that it is very upbeat. The closest to saying mission accomplished. Long term inflation is at 2% and.....as we make cuts...it will stay at 2%. "The time has come for policy to adjust. The direction of travel is clear and the timing and pace of rate cuts will depend on incoming data, he evolving risk, and the balance of risks."

There are hints that inflation is under control and that rate cuts will happen.

This is from a Varney reporter that has seen the text of the entire speech. he says it is very upbeat.

 

HERE is the initial media take:

Fed Chair Powell indicates interest rate cuts ahead: ‘The time has come for policy to adjust’

https://www.cnbc.com/2024/08/23/fed...d-the-time-has-come-for-policy-to-adjust.html

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

"Key Points

• Fed Chair Jerome Powell laid the groundwork Friday for interest rate cuts ahead, though he declined to provide exact indications on timing or extent.
• “The time has come for policy to adjust,” the central bank leader said in his much-awaited keynote address at the Fed’s annual retreat in Jackson Hole, Wyoming.
• In addition to assessing the current state of play, Powell took considerable time in the speech to evaluate what led to the surge in inflation.

Federal Reserve Chair Jerome Powell laid the groundwork Friday for interest rate cuts ahead, though he declined to provide exact indications on timing or extent.

“The time has come for policy to adjust,” the central bank leader said in his much-awaited keynote address at the Fed’s annual retreat in Jackson Hole, Wyoming. “The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks.”

With markets awaiting direction on where monetary policy is headed, Powell focused as much on a look back at what caused the inflation that led to an aggressive series of 13 rate hikes from March 2022 through July 2023.

However, he did note the progress on inflation and said the Fed can now turn its focus equally to other side of its dual mandate, namely to make sure the economy stays around full employment.

“Inflation has declined significantly. The labor market is no longer overheated, and conditions are now less tight than those that prevailed before the pandemic,” Powell said. “Supply constraints have normalized. And the balance of the risks to our two mandates has changed.”

The speech comes with the inflation rate consistently drifting back to the Fed’s 2% target though still not there yet. A gauge the Fed prefers to measure inflation most recently showed the rate at 2.5%, down from 3.2% a year ago and well off its peak above 7% in June 2022.

At the same time, the unemployment rate has slowly but consistently climbed higher, most recently at 4.3% and in an area that otherwise would trigger a time-tested indicator of a recession. However, Powell attributed the rise in unemployment to more individuals entering the workforce and a slower pace of hiring, rather than a rise in layoffs or a general deterioration in the labor market.

“Our objective has been to restore price stability while maintaining a strong labor market, avoiding the sharp increases in unemployment that characterized earlier disinflationary episodes when inflation expectations were less well anchored,” he said. “While the task is not complete, we have made a good deal of progress toward that outcome.”

Markets are expecting the Fed to start cutting in September, though Powell made no mention of when he thinks policy easing will begin. Minutes from the July open market committee meeting, released Wednesday, noted that a “vast majority” of officials believe a September cut will be appropriate so long as there are no data surprises.

In addition to assessing the current state of play, Powell took considerable time in the speech to evaluate what led to the surge in inflation — hitting its highest level in more than 40 years — as well as the Fed’s policy response and why price pressures have eased without a recession.

When inflation first began to rise in early 2021, he and his colleagues — as well as many Wall Street economists — dismissed it as “transitory” and caused by Covid-related factors that would abate.

“The good ship Transitory was a crowded one,” Powell quipped, “with most mainstream analysts and advanced-economy central bankers on board.”

When it became clear that inflation was spreading from goods to services, the Fed pivoted and began hiking, ultimately adding 5.25 percentage points to its benchmark overnight rate that had been around zero following emergency cuts in the early pandemic days.

The rise in inflation, Powell said, was “a global phenomenon,” the result of “rapid increases in the demand for goods, strained supply chains, tight labor markets, and sharp hikes in commodity prices.”

He attributed confidence in the Fed and well-anchored expectations that inflation ultimately would ease to the economy avoiding a sharp downturn during the hiking cycle.

“The FOMC did not flinch from carrying out our responsibilities, and our actions forcefully demonstrated our commitment to restoring price stability,” he said. “An important takeaway from recent experience is that anchored inflation expectations, reinforced by vigorous central bank actions, can facilitate disinflation without the need for slack.”

Powell added that there is still “much to be learned” from the experience.

“That is my assessment of events. Your mileage may vary,” he said."

MY COMMENT

Probably about as good as could be expected. This should satisfy the short term FED watchers. The Ten Year Treasury is going down and the markets are going up. A typical FED FRIDAY......it is either boom or bust....depending on the media take.

 

EVERY one of my stocks up nicely at this moment. Now the question is do we push higher to the close.....or.....do we stop and linger some as the day progresses. However the day goes minute to minute....I see the STRONG PROBABILITY as.......we end the day and the week with good gains.

I will not be watching for long......I am going to quit watching the markets at 9:30 and go work on songs for tonight. it is going to be a HOT SHOW tonight.......literally.....probably about 100 to 105 degrees for most of the evening. Of course we will be playing outside. Last night was stiffening heat.....even as late as 9:00 and 10:00.

 

Ok......just whipped through 27 songs. I am all set for tonight and the BIG SHOW.

My portfolio is also doing a BIG SHOW today. At the moment I have gained back all that I lost yesterday. I have a single stock down at the moment....COST. ALL we have to do is hang in there for the next four hours to the Friday close.

BUMMER that we had to go through the RIDICULOUS freak out yesterday.....that is limiting my current gain to just getting back to even.

BUT.....as we approach the end of August we have now reversed the little mini-correction that we had to endure for 3-4 weeks recently. A good learning experience for those that have never had the pleasure to go through a little portfolio drop. The more you go through market gyrations....the better your ability to just ignore it all and sit doing nothing.

 

This headline pretty much says it all.

Fed's Powell says 'time has come' to begin cutting interest rates

https://finance.yahoo.com/news/feds...o-begin-cutting-interest-rates-140020314.html