The Long Term Investor

ONE LAST EXAMPLE....with some explanation:

The Magic of Compound Interest (for Those Who Hate Math)

https://www.smartdollar.com/blog/the-magic-of-compound-interest

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

"How are you feeling about your retirement prospects these days? Maybe you’re already investing in a 401(k) or IRA and feeling hopeful about the day working will become optional for you. Congrats if you’re on that road!

But if the subject of retirement gets you anxious, you’re not alone. Fifty-six percent of Americans lose sleep thinking about retirement. (1) When planning for retirement, people stress about different things: running out of time to save, making their dream retirement possible, or understanding intimidating numbers and interest rates.

No matter the reason for the dread, there’s something everyone needs to know. You have access to a powerful mathematical tool that can make all the difference in allowing you to retire with dignity: compound interest. Let’s explore what you need to know about this critical factor in almost every successful retirement.

What Is Compound Interest?
Compound interest is a marvelous force behind many of the world’s great fortunes. Do you know someone who came from humble beginnings financially, who used a combination of hard work, patience and wise investment to become wealthy today? Chances are they took advantage of compound interest to get there!

The key to understanding how compound interest works is to realize the role of time. The earlier you push the compound interest button, the more impressive the long-term results.

How Does Compound Interest Work?
The easiest way to see the wonder of compound interest at work is to imagine two friends of the same age who have different approaches to retirement.

Jen and Amber grew up as next-door neighbors and the closest of friends. As our story begins, these two young women are starting their careers at the age of 24. Each is fortunate enough to be offered a 401(k) employee benefit. And they both know retirement investing matters. Despite all they have in common, Jen and Amber never get around to discussing what the other is doing about retirement. Watch what happens next.

• Jen looks into the 401(k) benefit and immediately realizes it’s worth her while to invest in. Right away she starts putting in $3,000 a year toward his retirement. Then on her 35th birthday, she sees how much her account has grown and decides she’s never putting in another dime. At that point she’s invested $33,000 of her own earnings in 11 years.
  
• 
  Amber doesn’t feel as comfortable investing that early in her career. But when she turns 35, she’s a married homeowner and the idea of starting to invest is making more sense to her. She figures she can afford to send about $3,000 a year of her salary to the company 401(k). And she’s so dedicated that she keeps it up for 31 years, all the way to age 65.

Now the two lifelong friends are 65 and ready to enjoy their golden years. The good news is, after all their years of hard work and investing, they’re both in pretty good shape financially. But who do you think wound up with a bigger nest egg? Let’s run the numbers at 10%.



It might sound incredible, but despite Amber investing about triple the money that Jen did, Amber ended up retiring with only about half what her friend was able to save. How in the world can we explain the massive difference? Compound interest.

In both cases, Jen and Amber were investing in growth stock mutual funds and enjoyed the market average growth over the course of their investing lives. But Jen took advantage of an extra ingredient—time! Because of the compounding effect of interest on her account over time, her money eventually took on a life of its own.

Why It’s Never Too Late (or Too Early) to Begin
As anyone can see from the story of Jen and Amber, compound interest is a force you want on your side in the quest to retire well. If the numbers above don’t convince you of the need to let time work for you, we don’t know what will.

But here’s some encouragement in case you’re where Amber was when she started investing. Maybe you’re in your 30s, 40s or even 50s and you haven’t begun saving yet. That’s no reason to throw your hands up and declare retirement an impossible dream. The truth is, you can also leverage the power of heavy-duty savings starting today.

How likely is a hefty savings rate to have a sizable impact on your retirement? Let’s look at another example. If you’re 40 years old today with no savings, finishing up a millionaire is still within your reach. Depending on how your account grows, the math shows you’d need to put in somewhere between $600–800 a month to make it happen."

MY COMMENT

Yes...most of us are very familiar with these sorts of examples. We take our knowledge for granted. BUT....for those just starting out or for those that are now in a position for the first time in their life to save for the future. These examples show the value of being able to invest for the long term. One example above assumes a total return of 7% one assumes a total return of 10%. Over the long term a simple SP500 Index Fund will achieve somewhere in this range....7-10%. My opinion is over time you would probably average about 10%.

 

Chris.....yes, risk tolerance is important.....ESPECIALLY when we get into a correction or a BEAR MARKET where stocks just seem to go nowhere and drop for 1-2 years. It is important to hold through those times and if possible add to an account.

My personal opinion is that for the VAST MAJORITY of people a single investment vehicle......... a SP500 Index Fund......is ALL they need to do during their lifetime. GREAT long term total return 10-11% per year. A very nice dividend yield...just under 2% per year. AND....exposure to the BEST and GREATEST 500 companies in the world.

 

HERE is my actual portfolio. If I talk about my Portfolio Model or my accounts this is what I am talking about. I post this every so often for transparency and context. As the hypothetical......"they" say............."money is the mothers milk of politics"......and.....the companies I invest in have DOMINANT political power (money, lobbyists, donations, mega-rich elite owners and management, etc, etc) in addition to business power. As the ones that CRAVE power and money the politicians BOW DOWN to these companies. SO......over the long term.....to me......politics is IRRELEVANT.

"HERE is a repeat of the portfolio model.......as usual:

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 55% of the total portfolio and the fund side at about 45% 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 12 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
Nike
Microsoft
Proctor & Gamble
Tesla
Nvidia
Snow (100 shares, a rare, long term, speculative holding)

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. (71). 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 twelve 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."

 

Sounds like you have a plan. GOOD. If you are inclined keep us posted.

 

Some good comments above...........roadtonowhere08.

ACTUALLY.....what I mean when I talk about over diversification......is not aimed at investing in a nice index like the SP500. I am mainly talking about people that BLINDLY FOLLOW all the garbage you see put out there about a portfolio NEEDING to include:

International stocks and funds
Emerging Markets stocks and funds
Big cap, Mid cap, Small cap, Micro cap
Bonds at every age
etc, etc, etc.

In the end the person that thinks they are diversified ends up just being SCATTERED among every asset type there is and achieves a very BLAND return. They are NOT investing in companies or businesses....they are investing in CATEGORIES.

I PREFER to invest like ALL the GREATS......Buffett, Peter Lynch, etc, etc. These types of investors BEAT the averages by having a concentrated portfolio in select stocks and funds. That does NOT mean taking a FLYER on speculative, risky stocks. OR.......shooting for the moon....or.....the BIG score.

To me it means concentrating my investing in the BIG DOMINANT WORLD LEADING companies. The cream of the GROWTH CROP. It ALSO means investing in a couple of GREAT funds one of which is the SP500. It ALSO means being fully invested all the time and NOT trading OR re-balancing........in other words let the WINNERS RUN.

It DRIVES ME CRAZY to see all the people under age 50 that own bonds.........because some writer or some article says everyone should have some percentage of bonds based on a percentage of their age.......BALONEY. In "MY WORLD"......anyone under age 50 or 55 should have 100% of their investment money in stocks or stock Indexes.

BUT.......I recognize the REALITY of risk tolerance for other people. The main thing is for EVERYONE to have whatever exposure to stocks and funds that they can tolerate.....without being driven out of the markets in FEAR&PANIC every time there is a correction or bear market. Jumping in and out or trying to time the markets is simply the quick path to very poor returns.

I STRONGLY agree with Buffett's estate plan and advice for his heirs......just put it all in a SP500 Index Fund and let it ride........for the VAST MAJORITY of investors. This Index is going to BEAT over 90% of the professional managers ALL THE TIME. It is going to be POSITIVE about 75% of years......year in and year out. It is going to return 10-11% average total return over the long term. It is going to DOUBLE your money every......approximately......SIX YEARS. It will SEVERELY BEAT......the investment results of ALL your friends and relatives.......over the long term.

I track the above EVERY TIME I look at my portfolio. I know that I started each of my portfolios with 50% of the money allocated to the funds and 50% allocated to the stocks. I dont have to run any data or numbers. I simply see.....every time I go to Schwab.....the percentage of each account dollar total that is in the funds and the percentage of the account dollar total that is in the stocks. This gives me a simple measure of which side of the portfolio is outperforming the other. I have seen over many decades that......for me......the stock side over time ALWAYS grows to represent a higher percentage of the portfolio total money value. SO......it is OUTPERFORMING the funds.

BUT.....I still keep the funds as part of the portfolio.......to measure performance and because sooner of later the movement WILL be the other direction.......due to aging and other factors. AND.........I do believe that the funds DO provide some protection in DOWN MARKETS. The funds.....ALSO.....protect me from MYSELF and my personal inherent investing bias. When the time comes that the funds including the SP500 Index are regularly outperforming the individual stocks.....it will be time to simply put everything into the SP500 Index for the long term.

FOR ME......the KEY investing principle that I follow is SIMPLICITY. Doing ANYTHING ......simple.....is just about impossible for HUMANS. Athletes, musicians, etc, etc, practice the SAME simple behaviors and processes over, and over, and over, and over. To me.....investing is the same process.

 

THIS COMING WEEK......the rally continues. We are TWO WEEKS into the rally that will end up being a Santa Rally to year end and into January. The ONLY event.......and it is a big one.......that can DERAIL things will be the Senate run-off in January. That event has the POTENTIAL to spook the markets.....big time. It also has the POTENTIAL to solidify the rally well into the new year and beyond. This is one of those.......non market events......that WILL establish market and economic and political direction for a LONG TIME going forward. It will be a flip of a coin......50/50.

The NICE THING.....for now.....most people are not thinking about it....especially in terms of investments. It will capture attention from Christmas on....but for now......I believe the rally IS ON.

 

A wall of money is ready for the post-pandemic economy

https://www.cnn.com/2020/11/15/investing/stocks-week-ahead/index.html

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

"There's at least one thing the pandemic hasn't changed: Private equity firms entered the Covid-19 crisis flush with cash, and they're due to leave it with full pockets, too.

What's happening: When the coronavirus shut businesses and sent the global economy spiraling, there were concerns that private equity — which has boomed following the 2008 financial crisis — could pose problems. To enhance profits, these firms often engineer deals that saddle takeover targets with large amounts of debt. Should the value of those companies plunge as a result of weaker sales, their private equity owners could be in trouble.

According to Bain & Company, more than 75% of US private equity deals last year were "highly leveraged," meaning companies took on debt at least six times operational earnings.

Some private equity-backed companies ran into serious issues and had to seek out government assistance. But thanks to unprecedented central bank help, debt financing has remained cheap.

Private equity emerged from the spring and summer with its reputation intact. Now, fundraising is once again on the rise.
"Private equity is absolutely awash with liquidity," Viswas Raghavan, JPMorgan Chase's chief of the Europe, Middle East and Africa region, told me.

At the end of last year, dry powder — industry speak for cash still to be invested — reached a record $2.5 trillion, according to Bain. Manoj Mahenthiran, US private equity leader at PwC, told me that he thinks money on hand remains at that level, or is even higher.

Over the past decade, as interest rates remained low, institutional investors like pension funds increasingly turned to private equity as a source of higher returns. With central banks pledging to keep interest rates near rock bottom for the foreseeable future, that pipeline of support is only poised to expand.

The big question is where these firms intend to park all their money. High-growth assets like technology and health care firms remain private equity favorites. But many have become extremely expensive, making it harder to find a good deal.
Some funds are eyeing assets in the hospitality or retail sectors, which have struggled this year. Scott Kleinman, co-president of Apollo Global Management, said at a conference last month that Apollo had invested roughly $5 billion in the airline and aerospace sector during the previous six months. Mahenthiran, however, said there's no evidence that private equity funds are rushing toward distressed segments of the economy.

Big picture: What's clear is that the pandemic has not disrupted private equity's growing clout.
"The economy is definitely trending toward more private equity ownership," Mahenthiran said. Millions of people are employed by PE-owned businesses.

Ludovic Phalippou, a professor of financial economics at the University of Oxford, said academics are still analyzing the consequences of more private capital in the system. Private companies don't face the same rigorous disclosure requirements as public firms, he noted.

Private equity ownership also leads to an intense focus on extracting profits, per Phalippou — a different model than the increasingly popular "stakeholder capitalism" that encourages executives to focus on employee well being and societal impact, as well as shareholder returns.

"This is a very different world that is shaping up," he told me.""

MY COMMENT

YES...private equity leads to intense focus on extracting profits. AND......."stakeholder capitalism"....leads to MORE of the same.....an intense focus on extracting profits....just as we have seen over the past few years when........"creating shareholder value".....has been the mantra. There has been NO focus on "employee well being or societal impact". The article is simply WRONG....the focus has been on doing anything and everything....usually selling off business units or cutting employees and costs....to produce shareholder value.

In my opinion .....yes there is massive private money siting on the sidelines.....AND......there is massive investment funds in the hands of retail investors for public companies.....also.....sitting on the sidelines waiting to come back into the markets. BOTH.....will drive the markets and BOTH will result in more......a lot more.....of the same focus on creating shareholder value. That value will continue to come from selling business assets.....often to private equity......as well as continued CUTS to employment in the white collar world. Add in even more outsourcing and more foreign workers to this mix.....another way to cut costs and increase productivity. Add in more......much more.....movement of manufacturing to foreign third world countries....to increase productivity. Many companies will use the OPPORTUNITY of the next four years to ESCAPE manufacturing in the USA. The end result......GLORY YEARS.....for private and public investors. For employees and workers......not so much. PRODUCTIVITY gains driven by outsourcing, employee cuts, and business unit sales are going to be the name of the game.

As a long term investor.........I am ANTICIPATING very good times.....once we clear that 50/50 coin flip in January.

 

I agree. ALSO....dont forget the vaccines.....COVID will ONLY be a short term factor. It will effectively be gone in 6 months.

Of course......this "stuff" that we are discussing is SIMPLY guesswork and opinion. No ONE.....myself included......has a crystal ball. For me...it is short term discussion...by a long term investor. SO....who knows.

As to interest rates and QE.....the ten year treasury yield is now at .89%. It took a little jump UP after the election. I have no idea if it will continue to rise or settle back into the range of the past few years. I believe we will continue in the deflationary depression environment.....world wide....that we have seen for the past 10-11 years. However if rates start to rise.....who knows what the FED will do if they start to get nervous about inflation.

Anyway......not predicting anything....just random thoughts. Off to bed....have a good evening...roadtonowhere08.....and.....LETS MAKE SOME MONEY TOMORROW.

 

WELL.....a good open to the day and the week. Staying power......who knows. Individual stocks are NOT reflecting the strength of the averages......but....are doing ok for the open today.

At the moment......the DOW is above....well above....the all time high.

The vaccine news is of course driving things. It is the "little investors" that I believe are the reason for this BUMP UP. WHY? BECAUSE....the professionals and many, many, people like myself have known for months that the vaccines were going to be over 90% effective.....that they would be releasing results this month.....and that there would be multiple companies with very effective vaccines.....and that they would be gaining approval and releasing the first doses in December.

ALL of this information has been released by the vaccine companies over the past month or two and if you READ and SEE the actual science....it was OBVIOUS. SO......I assume that the BIG BOY investors have already discounted much of this stuff in their projections of the markets.

 

YES.....operation WARP SPEED.....to date....has been a historic success. It will KILL OFF the virus and get things back to normal. Now that the election is over.....everyone is going to be positive....what a surprize. HERE is....of course....the story of the day:

Moderna's coronavirus vaccine is 94.5% effective, according to company data

https://www.cnn.com/2020/11/16/health/moderna-vaccine-results-coronavirus/index.html

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

"The Moderna vaccine is 94.5% effective against coronavirus, according to early data released Monday by the company, making it the second vaccine in the United States to have a stunningly high success rate.

"These are obviously very exciting results," said Dr. Anthony Fauci, the nation's top infectious disease doctor. "It's just as good as it gets -- 94.5% is truly outstanding."

Moderna heard its results on a call Sunday afternoon with members of the Data Safety and Monitoring Board, an independent panel analyzing Moderna's clinical trial data.

"It was one of the greatest moments in my life and my career. It is absolutely amazing to be able to develop this vaccine and see the ability to prevent symptomatic disease with such high efficacy," said Dr. Tal Zacks, Moderna's chief medical officer.

Vaccinations could begin in the second half of December, Fauci said. Vaccinations are expected to begin with high-risk groups and to be available for the rest of the population next spring.

Unexpectedly high efficacy rates

Last week, Pfizer announced that early data show its vaccine is more than 90% effective against the disease.

In Moderna's trial, 15,000 study participants were given a placebo, which is a shot of saline that has no effect. Over several months, 90 of them developed Covid-19, with 11 developing severe forms of the disease.

Another 15,000 participants were given the vaccine, and only five of them developed Covid-19. None of the five became severely ill.

The company says its vaccine did not have any serious side effects. A small percentage of those who received it experienced symptoms such as body aches and headaches.

Moderna plans to apply to the US Food and Drug Administration for authorization of its vaccine soon after it accumulates more safety data later this month.

Fauci says he expects the first Covid-19 vaccinations to begin "towards the latter part of December, rather than the early part of December."

Initially, there won't be enough vaccine for everyone. The highest priority groups, which include health care workers, the elderly, and people with underlying medical conditions, will get the vaccine first.

"I think that everybody else will start to get vaccinated towards the end of April," Fauci said. "And that will go into May, June, July. It will take a couple of months to do."

A new vaccine technology

Pfizer's and Moderna's vaccines have similar results because they use the same technique to activate the body's immune system.

The vaccines deliver messenger RNA, or mRNA, which is a genetic recipe for making the spikes that sit atop the coronavirus. Once injected, the body's immune system makes antibodies to the spikes. If a vaccinated person is later exposed to the coronavirus, those antibodies should stand at the ready to attack the virus.

No vaccine currently on the market uses mRNA.

"There has always been skepticism about mRNA -- it's brand new and would it work?" Fauci said. "What we saw in the trials is there was no real safety concern, and the efficacy is quite impressive. We saw nearly identical results [with Pfizer and Moderna] and it almost really validates the mRNA platform."

Research on mRNA began many years before the current pandemic. Fauci's agency, the National Institute of Allergy and Infectious Diseases, has collaborated with Moderna on the development of its vaccine.

Both vaccines are given in two doses several weeks apart.

Practical advantages of Moderna's vaccine

While the two vaccines appear to have very similar safety and efficacy profiles, Moderna's vaccine has a significant practical advantage over Pfizer's.

Pfizer's vaccine has to be kept at minus 75 degrees Celsius. No other vaccine in the US needs to be kept that cold, and doctors' offices and pharmacies do not have freezers that go that low.

Moderna's vaccine can be kept at minus 20 degrees Celsius. Other vaccines, such as the one against chickenpox, need to be kept at that temperature.

That means Moderna's vaccine can be kept in "a readily available freezer that is available in most doctors' offices and pharmacies," Zacks said. "We leverage infrastructure that already exists for other marketed vaccines."

Another advantage of Moderna's vaccine is that it can be kept for 30 days in the refrigerator, the company announced Monday. Pfizer's vaccine can last only five days in the refrigerator."

MY COMMENT

GEE.....DR DOOM.....is now suddenly Dr BUBBLY CHEERLEADER. AND....NO the article is flat out wrong when it says:

"Unexpectedly high efficacy rates".

TOTAL BS. ALL the actual data and reports that I have seen over the last couple of months and all the preliminary data that I had seen months ago pointed to a efficacy rate of 90% or higher. No one wants to give credit where credit is due. This warp speed vaccine program is one of the greatest government mobilization efforts in history. The BUREAUCRATS had to be DRAGGED along kicking and screaming all the way.

BUT....as I said.....if a "regular person" like me was seeing this stuff for months now....the professional investors that deal in REAL DATA obviously were expecting the result we are seeing. This shows a BIG difference between the......so called...professionals and the "little investor". The "professionals" often UNDER-PERFORM....but at least they usually operate on REAL DATA......not the fantasy "stuff" put out there for clicks by the MEDIA daily. This is why the "little guy" investor gets JERKED AROUND......they get all caught up in drama, panic, fear, sensationalism, political posturing, etc, etc, etc.

This is one BIG REASON for my advocacy of LONG TERM INVESTING. By following a long term investing philosophy and being invested all in all the time....."I"....HOPEFULLY....avoid all the short term DRAMA that the media pushes and the SOAP OPERA mentality that infects many many investors.

 

Just.......RIDE THE WAVE. One of those times that fully invested all the time.....LONG TERM.....investors clean up. You just ride the wave for as long as it goes......than....back to normal......and you continue on.

Liking the day.....so far.