The Long Term Investor

ANOTHER......BLAH day for the markets. EVERYONE is WAITING for stimulus here in the USA and Brexit in the EU. Add in quadruple witching day and Tesla trading day, negative articles, Christmas, investor exhaustion, media jaw flapping, etc, etc, etc.....and I just sit and do nothing as usual.

ACTUALLY...trading volume in TSLA at the moment is below the average......at least according to Yahoo finance. I dont know this....but with all the various Index Funds and other investment vehicles that now have to add TSLA.......I assume they are having to sell other holdings to get the cash for TSLA. SO....is that why we are seeing a generally down day today at least in the sort of stocks that I own......and....tend to be among the top 10-20 SP500 holdings? I am......guessing......YES...but I dont know. I see that......according to sources..... all the trading action happens at the close on Friday (today)

When I looked at my account a few minutes ago everything was in the red EXCEPT for TSLA and SNOW.

Traders brace for wild action and historic volume ahead of Tesla’s entry into the S&P 500

https://www.cnbc.com/2020/12/18/tra...me-ahead-of-teslas-entry-into-the-sp-500.html

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

"Electric vehicle maker Tesla is poised to enter the S&P 500 in what will be the largest rebalancing in the history of that index.

The new index with Tesla in it begins trading on Monday, but all the trading action happens at the close on Friday.

The trading volume will be so heavy, some are concerned it could result in fireworks at the close.

S&P estimates that approximately 129.9 million shares of Tesla will need to be purchased to add to the S&P 500. At the current market price of $655, indexers would need to buy $85.2 billion in Tesla stock at the close on Friday. However, there are billions more that will need to be bought by “closet indexers” that do not officially pay S&P, but nonetheless track the index. No one knows how much these “closet indexers” will buy, but it could be 50%-100% above the “official” $85.2 billion estimate.

Even at the lower estimate, that means that more than $85 billion in the rest of the S&P 500 will need to be sold. This will be by far the largest rebalancing in the history of the S&P. The prior record of $50.8 billion was in September 2018.

“This will be one of the largest trading days in a long time,” said Harry Whitton of market maker Old Mission, noting that the large dollar amount involved could make it the largest trading day in history.

How Tesla will change the S&P 500
The sheer size of Tesla will have a significant impact on the S&P 500, which is weighted by the free-float market capitalization of each company.

Here’s how Tesla will change the S&P 500:

Like all mega-cap stocks, it will not take much of a move in Tesla’s price to move the S&P 500: For every $11.11 Tesla moves, the S&P 500 will move 1 point.

Index rebalancings: Big affairs now
Index rebalancing has become important because so much money is now tied to these indexes through “passive” investing, which merely seeks to mimic the behavior of the indexes.

Rebalancings usually involve changes in the weighting of the companies listed in the indexes, but they can also involve additions or deletions to the indexes, which is the case with Tesla. Mutual funds, ETFs, and others that seek to mimic the behavior of the index must then buy or sell the stocks in proportion to their weightings in the indexes.

What could go wrong?
The addition of Tesla into the S&P would itself be an enormous trading event, but it is also happening when the S&P itself is rebalancing all of the existing constituents.

It’s also occurring on what is known as a quadruple witching, the quarterly expiration of index futures and options, and individual stock futures and options.

“Two unprecedented phenomena will be converging,” Steve Sosnick, chief options strategist at Interactive Brokers, wrote in a recent note. “The index has never added such an immensely large stock at the same time that options volumes and open interest are at record highs.”

Sosnick is concerned that the combination of the Tesla addition, the quadruple witching, and the rebalancing in the rest of the S&P 500 could result in very high imbalances in demand for stock that could cause price dislocations. “There is a potential for massive market on close imbalances because this is the biggest stock entry ever. There is an awful lot of money that will be sloshing around at that time,” he said.

“Because this is such an event, we could be in for a much more volatile market on close than people are used to, particularly with so many retail traders involved in stock options that could swing in or out of the money,” Sosnick added.

Others are concerned that the sheer volume of trading could cause glitches, especially since most of it will be concentrated in the few minutes toward the close.

The Nasdaq, which is the exchange where Tesla is listed, recently put out a statement saying it was ready: “As Nasdaq and the securities industry prepare for the upcoming quadruple witching and S&P 500 rebalance, Nasdaq is highly confident that its systems will provide the reliability and capacity required to ensure a smooth, successful rebalance.”

S&P 500 owners: Buying Tesla high
The addition of Tesla to the S&P highlights a major problem for passive investors: They often buy stocks at high prices, and in the case of Tesla, which is up 600% this year, at stupendously high prices.

Indexers often claim that the addition or deletion of stocks to indexes do not change prices. While prices do not usually change drastically between the price at 3:59 p.m. ET on the day of an addition or deletion and the 4 p.m. final price, prices can and do change significantly in the runup to index changes.

On Nov. 16, S&P Dow Jones Indices announced that Tesla would join the S&P 500 Index on Dec. 21. However, the stock had been running up for months. Some of this was likely due to Tesla’s strong fundamentals, some due to retail traders infatuated with Tesla.

But much of the runup was also likely due to speculation Tesla would soon be added to the S&P, as Rob Arnott, Vitali Kalesnik and Lillian Wu from Research Affiliates noted in a recent report:

“From the beginning of 2020 to the announcement date, Tesla’s share price rose 400% from $83.67 to $408.09. Most of that runup occurred after the media began speculating in March about Tesla’s likely addition to the index. From the announcement date through December 7, Tesla’s share price rose another 49% to $608.32.”

“That decision to include Tesla in the S&P in Nov. 16 created $200 billion in worth for Tesla shareholders,” Sosnick said.

Tesla’s price rise is exceptional, but Arnott and his associates found that stocks do indeed rise going into the S&P and fall when coming out. In a 2018 study of stocks that had gone into and out of the S&P 500 from 1987 to 2017, Arnott found that the average mega-cap stock (ranking in the top 100 or higher by market capitalization) outperformed the S&P 500 by 127% in the 12 months prior to the close of the rebalancing day. The average deletion loses 31% over the same time span.

Tesla: What happens next?
Not surprisingly, the pattern reverses after the addition and deletion: The added stocks tend to underperform, the deleted stocks tend to outperform. Arnott found that the average entry rises an additional 1% relative to the market on the day after joined the index, then loses about 2% relative to the market over the following year. The average deletion drops 1% more the day after its removal from the index, then beats the market by an average of 20% over the next year.

What does all this mean? “The S&P 500 is designed to buy high and sell low,” Arnott concluded.

Tesla’s size raises another point of concern: Typically, only two to three of the top 10 stocks ranked by global market-cap remain in that list 10 years later.

Arnott concluded that the weight of history is working against a similar massive rise in Tesla’s stock in 2021: “Given all the classical signs of a bubble in Tesla’s stock, and the evidence of 31 years of S&P additions and deletions, December 21-22 likely marks the beginning of a reversal in Tesla’s share price.”"

MY COMMENT

I would not try to do a trade near the close today. There could be some market glitches. I dont put a lot of weight in predicting price increases or drops based on "averages" talked about in the above article. Obviously every business is individual. The PERFECT event to top off 2020.....one of the more INSANE economic and market years in a long time.

Personally.....I think the primary danger....especially short term....from the Tesla event is....RUMOR and investor INSANITY as a result. We seem to be VERY subject to middle ages, superstition based, insane, thinking lately.

FOR ME.....a lot of focus on the second smallest holding in my accounts. NOT due to concern....simply curiosity.

 

NIKE....yes great earnings. AND....as usual I suspect that it will be DOWN for a few days as everyone in the investing media and all the so called experts.....NIT PICK the stock over some obscure forward looking statement or something else buried in the earnings.

Nike Q2 results top estimates as digital sales, growth in China help fuel recovery

https://finance.yahoo.com/news/nike-reports-q2-2021-earnings-results-211700098.html

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

"Nike (NKE) reported fiscal second-quarter sales and earnings that handily beat analyst expectations, as store reopenings and digital sales helped provide a boost to results. Shares jumped 4% in after-hours trading.

Here were the main results from the report, compared to consensus estimates compiled by Bloomberg:

• Q2 Revenue: $11.2 billion vs. $10.55 billion expected and $10.33 billion Y/Y
  
• Q2 Earnings: 78 cents vs. 62 cents expected and 70 cents Y/Y
  

Nike returned to sales growth during the quarter ending in November after reporting declines in each of the prior two quarters, as virus-related shutdowns abated and consumer spending picked back up. Nike’s May quarter results had been especially dire: Sales plummeted 38% during the period as store shutdowns swept both China, the original epicenter of the coronavirus pandemic, and then the rest of the world. During the company’s August quarter, Nike stemmed its sales decline to just 1%.

Digital sales have been at the center of Nike’s recovery, and the company had invested heavily in growing its direct-to-consumer channel even before the pandemic. Digital sales growth accelerated to 84% in Nike’s November quarter, even after stay-in-place orders were lifted and brick-and-mortar locations reopened more widely, in a testament to the long-lasting impact the coronavirus pandemic has had in driving sales online.

“With healthy inventory positions across all geographies, our return to growth is a testament to our digital strength, as well as our disciplined marketplace and financial management,” Nike Chief Financial Officer Matt Friend said in a statement. “As we look ahead, we are focused on moving even faster against our strategic vision of Consumer Direct Acceleration and fueling sustainable, long-term growth and profitability

Still, Nike-owned store revenue remained pressured by the pandemic, and Nike said its physical traffic across regions was still down year-over-year. The company also experienced some temporary store closures during the quarter as COVID-19 cases resurged in some geographies, though more than 90% of Nike-owned stores are now open, it added.

By region, China again led sales gains during the quarter, as the country first hit by the coronavirus pandemic made further strides in its economic recovery. Greater China sales rose 14% in the second quarter, extending a rise of 8% from the first. North America, Nike’s largest geographical segment by revenue, saw quarterly sales return to growth with a 1% rise over the same period last year.

Heading into quarterly results, many analysts had struck an upbeat tone on Nike despite its earlier struggles with the pandemic.

“Beyond the near-term challenges presented by COVID-19, Nike's strategy to accelerate its digital business—with a goal of digital representing 50% of Nike/partner sales—should continue to drive sales and operating margin expansion over the next several years,” Telsey Advisory Group analyst Joseph Feldman said in a note last week. “As such, we see further upside for the stock over the next 12 months, driven by relatively strong demand for athletic apparel and footwear, a proven execution track record, and a steady stream of product innovation.”

Shares of Nike have risen about 37% for the year-to-date through Friday’s close, outperforming against the S&P 500’s 14% rise over that period."

My Comment

What can I say.....I own it and have for a long time. An ICONIC company and a world wide leader. EXACTLY the type of stock that I LOVE to hold. Currently up about $5 after hours....meaningless, however.

 

Slight loss today.....not bad considering the number of stocks I have that are red today. The SP500 beat my by a negligible .01%. Glad to be moving on to a new week.

ACTUALLY....not a bad week:

SP500 for the week +1.25%
SP500 year to date gain +14.81%
SP500 year to date total return +17.28%

EIGHT DAYS.....market days that is....left in 2020. Anyone that needs to do some WINDOW DRESSING.....better get busy.

EDIT: I have edited the "SP500 year to date total return" to reflect the total return of the SP500, year to date, at the close today.

 

STIMULUS BILL is a done deal

Congress Set to Vote on COVID Aid Package After Key Compromise

https://www.newsmax.com/headline/congress-vote-covid-aid/2020/12/20/id/1002368/

https://www.nbcnews.com/politics/co...omise-over-covid-19-stimulus-package-n1251837

OK.....you CRYBABY.....WHINING......ENTITLED......HISSY-FIT THROWING......FICKLE......stock markets. "I WANT MY stimulus and I want it NOW".

You got what you wanted.....time to put up or shut up on Monday. Like ALL short term drama and BS story lines....I would not be surprised if the markets dont COMPLY......and.....dont do anything or even go down on Monday. I think we will be up....but I would not be surprised. AND....if we are flat or down.......all the MEDIA and so called experts will come up with all sorts of reasons why the market did not react........totally NEGATING all the stories they have been putting out for the past week or two about the markets and the stimulus bill.

I ACTUALLY believe that this event....passage of the bill.....will be the KICK OFF event for my SANTA RALLY and final 8 market days of nice gains to end the year on a HIGH note and BOOST us into the new year.

TOTALLY appropriate to say........HELL YEAH......MERRY CHRISTMAS TO US......TO INFINITY AND BEYOND........TO BOLDLY GO WHERE NO MAN HAS GONE BEFORE......well lets not get too carried away.

ACTUALLY....at this point I dont even care....it will just be nice to be able to finally see the MEDIA.... STFU...... with their OBSESSIVE focus on the stimulus bill. FINALLY.....the markets can just move on.

 

THIS little article outlines some data that is part of the basis for a continuation of the BULL MARKET. ALTHOUGH....the fact that this is very well known data makes the case that ALL this info is baked in at this time. I.....personally....dont put a huge amount of confidence in this sort of evaluation since money can exit the markets just as quickly as it goes in.....over the short term. BUT.....I do believe.....there is a lot of PENT UP demand.....and.....a lot of potential investors that will now enter the markets since the end of COVID is in sight.

Searching for the next buyers of this bull market with inflows surging and the consensus long

https://www.cnbc.com/2020/12/19/sea...he-consensus-long.html?recirc=taboolainternal

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

"Key Points

• Inflows into U.S. equity funds approached $30 billion in the most recent week, the fifth-highest total ever, says EPFR Global. One measure of investors’ equity exposure is at a two-decade high.
• However, corporations, money markets and systemic hedge funds could be possible next sources of demand for stocks.
• Investors can comfort themselves that this potential energy for the market remains, but it is unclear how much longer they can extend the bull market.

With the stock market up nearly 70% in less than nine months, in a year when the S&P 500 made a new record high an average of every eight trading days, as individual investors have already thrown unprecedented sums into equities over six weeks and fund managers’ cash reserves sit near eight-year lows — who are the next ready buyers of this bull market?

There’s a sense in which it’s a fruitless and thankless exercise to identify the marginal buyers or sellers in a complex $35 trillion stock market with most inflows and outflows opaque. The market isn’t a bucket to be filled and drained, but a vast system of pipes and valves in which pressure can build and leaks can spring from many places.

We can cite “cash on the sidelines,” in the hackneyed phrase. But if it comes off the sidelines to buy stocks, that same amount of cash sits in the hands of the sellers. And share prices depend as much on their owners’ reluctance to sell and willingness to let winners ride and leverage build as from new buy orders. Prices move based on the relative urgency of buyers and sellers, not the raw quantity of dollars deployed.

Still, in what has come to feel lately like a seller’s market – fevered IPO activity, corporate insiders unloading shares heavily and everyone with 1,000 LinkedIn followers seemingly raising cash for a special purpose acquisition company – it’s worth assessing the popular arguments for where incremental demand might come from.

As noted here in recent weeks, this is a well-loved bull market that has entered the “belief phase.” In the most recent week, inflows into U.S. equity funds approached $30 billion, the fifth-highest total ever, says EPFR Global.

Bank of America’s global wealth and investment management clients’ equity exposure is near a two-decade high.



Demand for call options – leveraged bets on further stock gains – is running higher than it has since the late 1990s. And tactical trading firms in the National Association for Active Investment Managers have rarely been more committed to equities over the past 15 years.



Bespoke Investment Group
Just because many investors are all in doesn’t mean the capital markets are maxed-out on stocks.

Possible next buyers
Joyce Cheng, JP Morgan’s chair of global research, follows the money to identify potential buying power: “An additional $2.1 trillion of cash is held outside of the financial sector by S&P 500 companies. We expect $1 trillion of equity inflows/demand in 2021 driven by systematic flows, hedge fund positioning, retail buying, share buybacks, and rotation from non-equity [assets].”

Money-market fund balances are some $1 trillion higher than they were before the Covid crash in the spring. This would seem to suggest individuals could be itchy to “equitize” this zero-yielding cash, and maybe so. But others have noted a good chunk of this apparent surplus reflects corporate cash, the proceeds of enormous debt issuance this year.

Either way, it represents potential energy for the market. Companies in a recovery tend not to sit on cash, and it’s likely that some combination of an aggressive restart of share buybacks and a hunt for acquisition targets is already in train. The Federal Reserve Friday just gave permission to big banks to begin repurchasing stock again, which will uncork tens of billions now sitting inert as excess reserves.

Not to mention those SPACs, which collectively have $63 billion in cash that must be used for an acquisition within two years of a SPAC’s launch. Private-equity funds hold many multiples of this amount, on which they would pile debt to acquire businesses.

While most measures of hedge-fund positioning show this crowd in a headlong chase of risk assets, a class of funds that follow systematic asset-allocation strategies have sat out. These vehicles typically take their cue from market volatility levels, and wait for implied volatility to ebb before expanding their equity exposure aggressively.



The S&P 500 Volatility Index (VIX) has been grudgingly declining but remains above 20, a rough threshold between an agitated and a calm volatility backdrop. In 2009, with the S&P having had a rally similar to this year’s off a climactic March low, the VIX finally closed under 20 on Dec. 22. If history continues to rhyme, at least vaguely, then these systematic funds could be your eager buyers of the highs.

Forced bidders
And take a moment to consider index funds as the late-coming buyer of inflated stocks. These passive vehicles, fed by largely passive automatic retirement savings plans, now stand as potential forced bidders for more hyped-up growth stocks after they ingested Tesla at Friday’s close at 170-times next year’s earnings forecast after the stock’s 150% gain in six months.

There is now an unusual amount of market value in huge-cap growth stocks sitting outside the S&P 500, including Square, Workday and Zoom Video – not to mention the Ubers and Airbnbs and Snowflakes not close to qualifying due to lack of profitability. It would be an exaggeration to call S&P 500 index funds the market’s “greater fools,” but there’s a vein of truth in this.

Whether all these sources of demand become forceful buyers is less important than that hopeful investors can comfort themselves with the notion that they are out there.

Bull-market psychology feeds on itself: Investors roll over their winnings into new bets, focus more on reward than risk, reset higher their return expectations.

We’re very much in this mode entering 2021, with the consensus sure of a spring-loaded vaccine-enabled recovery, a Fed intent on erring on the side of easier rather than tighter policy, an anticipated drop in new corporate-debt issuance that will leave fewer risk assets to go around.

Bull markets thrive on a collective belief that other buyers await higher prices, a faith that gets tested and refreshed by swift corrections which come with little warning, just when the crowd is most convinced new buyers are plentiful. Such phases can carry on for quite a while, though not nearly forever.

MY COMMENT

Of course ALL the above are market drivers to some degree. I PREFER to think of the ULTIMATE market drivers and individual stock drivers as being.......drum roll please......BUSINESS SUCCESS. The markets are NOT just some mechanism being driven by money flows. The REAL bottom line in the movement of money is the success and financials of actual businesses......as seen through their results and financials. I agree with the above....but for me it is company and business success that is the real KEY.

It is NICE to see sums of money available to enter stocks and funds. BUT.....we have seen many periods of extreme bullishness turn into the opposite....prolonged corrections and even bear markets....many times in the past. I will take what I can get and be fully invested for the long term.....but.....there is no doubt that sooner or later we will have a prolonged correction or even a bear market. This is just the reality of investing. Nothing can go up forever. This is just part of the process....part of the investing cycle.

SO......enjoy and rack up the gains for as long as they last......but......dont lose sight of the fact that it will NOT last forever.....and.....BE A RATIONAL INVESTOR. The markets NEVER fail to surprise those that think they have it all figured out. This is why LONG TERM INVESTING is the name of the game.

 

"Nonsense news taking over all the important news yet again. An overly red open implied."

YES.......exactly. TODAY will probably be the perfect example of the IDIOCY of short term media garbage in the business and investing spaces. MUCH of it is thinly disguised politics or some agenda being pushed by someone in power. Much of it has little to nothing to do with ACTUAL business or investing. MOST of it is definitely short term in the extreme. MUCH of it.....is written by people that are TOO young to have any real experience with investing......in fact and of course......the people writing much of the STUFF you read in the business news is written by "journalism" majors.......NOT.....business majors. In other words......rank amateurs with little to no.......actual or personal.......experience with investing or business.

The talking heads on TV.....more of the same. I will say there is some pretty good....considering.....DAILY investing content on TV......Stewart Varney, Charles Payne, Maria Bartiromo, a good portion of the daily content on CNBC. Cavuto...worthless....Liz Claman...worthless. In terms of daily papers....Wall Street Journal is nice as is Investors Business Daily.

BUT.....keep in mind.....NONE of this media stuff should be used as investing advice....you have to do your own homework.

 

AND....talking about RATIONAL investing.....TomB16 has mentioned lately that he is nearing the time when he will have to use his investments to live on as his retirement income. It is easy in a BOOMING market to get carried away and take TOO MUCH risk with money in stocks and funds.

As someone that has been living off personal assets for 22 years now.......I can STRONGLY SUGGEST that it is critically important to have at least THREE YEARS of cash money available for short term living needs. It is easy to get carried away in a BULL MARKET......and.....end up with too much of your retirement funds at market risk.

It is PAINFUL to have 3 years of money in cash and watch a BULL MARKET going on around you......and.....missing the gains you could be earning on that money. It is EVEN MORE PAINFUL.....to see your retirement money eaten up by a BEAR MARKET or some investment that did not work out.

 

WELL.....we are to Christmas week. In honor:

The Most Bizarre Year of My Life, Recalled In the Form of a Christmas Poem

https://www.realclearmarkets.com/bl...d_in_the_form_of_a_christmas_poem_653848.html

Twas the Night Before Christmas
by
David H. Resler

"Twas the night before Christmas, all calm and serene,
As moonlight bathed the marsh grass in a silv’ry sheen.
But my spirit was troubled and lacking in cheer
For we’d come to the end of a truly bizarre year.

First, we’d endured a month-long impeachment trial
Brought by those annoyed mainly by Donald Trump’s style.
Although for acquittal most Senators voted
To Trump’s removal would his foes stay devoted.

At the year’s start, our economy was quite strong,
But no one foresaw how fast it’d go terribly wrong.
For, unseen to all, a global pandemic did loom
That would bring a quick end to our decade-long boom.

Hoping to avert a fate we’d all come to dread,
We halted most commerce to slow the Covid’s spread.
With shutdowns and lockdowns the world over decreed,
Economies collapsed with incredible speed.

Policymakers quickly sprang into action
Budgeting trillions to give spending some traction
The Fed did its part, setting interest rates low
And vowing also to let its balance sheet grow.

That these bold and quick actions did help I’m quite sure,
But the pandemic’s left wounds that will surely endure.
Dining and travel could take years to recover,
While new ways of spending we’ll surely discover.

School closures and remote learning have come at high cost
And it’ll take years to make up what our school kids have lost.
The real estate market has also been altered,
As big cities shrink ’cause their leaders have faltered.

We’ll keep meeting remotely with Facetime or Zoom ,
Though something gets lost when we’re not in the same room.
Social distance and masking have become the new norm
And we’re told the virus will spread unless we conform.

Daily, we heard the count of deaths and new cases
All duly sorted by region, ages, and races.
Rarely though did the press give context or perspective,
So the policy response too oft proved defective.

The self-righteous claimed we must -- “follow the science.”
And insisted their rules get total compliance.
But true science is complex with many dimensions,
That advances through debate and often dissensions.

And if a pandemic wasn’t enough of a curse,
Late in the Spring things took a turn for the worse.
When Mister George Floyd died ’neath the knee of a cop
The outrage that followed brought chaos no one could stop.

Protesters and marchers in cities large and small
Cried out demands of “equal justice for all.”
But too often all that hollering and hooting
Gave way to lawless riots, arson and looting.

This deadly brew of disease and social unrest
Has put long-held traditions and norms to the test.
And when we tried voting modes not used in the past,
We found more ballots than ever had somehow been cast.

Trump challenged the outcome through appeal and recount
But Biden’s vote margin prov’d too wide to surmount.
So early next year a new President takes charge,
Still the challenges ahead remain just as large.

Our future will again be more hopeful and bright,
When, at last, we can end this dread Covid blight.
And thanks to “Warp Speed,” that day soon may arrive,
And, once more in good health we will prosper and thrive."

 

AND.....just to remind us that 2020 is NOT over yet:

Hawaii's Kilauea Volcano Erupts On Big Island

https://www.npr.org/2020/12/21/948715787/hawaiis-kilauea-volcano-erupts-on-big-island

 

I FINALLY had a chance to look at my account for the day. I was surprised to see a nice gain for the day. NIKE helped a lot....but more green today than I expected. AND.....a big beat down of the SP500 by 1.09%.

If the markets will not come along with me.....I guess I will just have my own personal Santa Rally. The LACK of impact of the Stimulus Bill did not surprise me in the least. Just more hot air. Perhaps we will see a Stimulus bump tomorrow....the futures are not saying so...but they are not a great indicator.

 

There is a reason that I FOCUS on the BIG CAP leading companies in the world:

This Man Lost Everything Betting on Stocks

https://www.pragcap.com/this-man-lost-everything-betting-on-stocks/

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

"The headline of this article is something you’ll very rarely, if ever, see in the financial press. You’re much more likely to hear something along the lines of:

“Joe Schmo made $1,000,000 buying Tesla stock”

“Jane Doe retired early buying Bitcoin”

“If you’d invested $1,000 in Microsoft in 1990….”tual

I will not parse words here. THESE ARE ALL HORRIBLE ARTICLES.

Most of this is survivorship bias that promotes an imprudent gambler’s mentality. Let me explain.

Back in 2015 there was a great study from Longboard called The Capitalism Distribution. They found, unsurprisingly, that roughly 80% of the markets entire gains came from 20% of all stocks from 1989-2015. 80% of stocks had a 0% gain.



JP Morgan came to similar conclusions in a research paper titled “The Agony and the Ecstasy – the Risks and Rewards of a Concentrated Stock Investing“. In a study ranging from 1980-2013 they found:

• The median stock underperformed the market with an excess lifetime return of -54%. In other
  words, in most cases, a concentrated holder would have been better off invested in the market.
• Two-thirds of all excess returns vs. the Russell 3000 were negative, and for 40% of all
  stocks, returns were negative in absolute terms.
• Historically, there were some extreme winners: the right tail is ~7% of the universe and includes
  companies that generated lifetime excess returns more than two standard deviations over the mean.

That little blue block on the right hand tail is your Teslas and Microsofts. The thousands of other stocks are to the left. Meaning, 93% of everything else is not Tesla or Microsoft or whatever story stock you might read about in these articles. Said differently, betting your life’s savings on a single stock is more akin to betting it all on black. In fact, you have better odds of picking the right spin of the roulette wheel than you do picking the next Tesla (and actually holding onto it through the ups and downs and timing the entry/exit).

Now, don’t get me wrong. I am perfectly fine with active management and have long debunked the idea that “passive investing” is even a thing. We all have to make active decisions across our lives and as someone who has most of his net worth tied up in his own company I’d be hypocritical if I wasn’t a proponent of concentrated bets. But I think we need to be very specific about this. When I invest money in my company I am investing for future production in a business and industry in which I have a specific expertise. When most of us buy stocks on a secondary market we are allocating some of our savings in companies in which we usually have no involvement and no expertise.

This is why I am a big proponent of treating our “investment portfolios” like “savings portfolios”. What most of us do on the stock market is an allocation of savings as opposed to actual investment, which is technically what a firm does when it spends for future production. Yes, we want to get wealthier when we allocate our assets. But most of us need to do so in a manner that not only optimizes our upside, but does so without haphazardly risking the downside along the way. After all, this is literally our life’s savings. It shouldn’t be treated like money we take to Vegas for a weekend.

That said, there’s nothing wrong with being active in the market. Everyone, by definition, has to be some degree of active. You don’t need to just pile all your money in a Vanguard Index fund and ride the waves. But I think there’s two very important lessons to remember when reading these kinds of articles:

1. Stock picking is very, very difficult and most of us benefit from some degree of diversification.
2. Given the relatively high potential of catastrophic loss in stocks make sure to never bet more than you can afford to lose.

NB – Here’s the article that triggered me. Read it at your own risk.

MY COMMENT

Yes.....for most of us our investment account IS our LIFE SAVINGS. Invest accordingly. That is why I prefer the odds that I get as a long term investor. I dont like to GAMBLE with my money. SO.....I invest in the types of companies that give me great gains but due to their size and dominance protect me from nearly any catastrophe short of total economic collapse. Combine this with long term thinking and you have a simple yet effective recipe for success with your VALUABLE savings.

 

DELETED.....since the spam I was referencing has disappeared.

 

HISTORIC......is the right word:

Historic increase in U.S. GDP in third quarter revised slightly higher to 33.4% annualized rate

https://www.marketwatch.com/story/h...r-revised-to-33-4-annualized-rate-11608644494

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

"The numbers: The record increase in U.S. economic growth over the summer in the aftermath of the coronavirus pandemic lockdowns was revised slightly higher to a 33.4% annual pace, the Commerce Department said Tuesday.

The increase in gross domestic product, the official score card for the U.S. economy, was previously put at 33.1% during the three month period from July to September.

The rebound followed a record 31.4% decline in the April-June quarter reflecting the impact of business lockdowns to combat the coronavirus pandemic.

What happened: Consumer spending, the main engine of the economy, was revised slightly higher along with business fixed investments. These were partly offset by a downward revision to exports.

Big picture: After two quarters of distorted GDP data, the economy will return to a somewhat more normal growth rate in the fourth quarter of 2020. Economists are expecting growth at a 3.5% annualized rate in the fourth quarter. The passage by Congress of another COVID aid package on Monday could bolster the outlook for the first quarter. Some economists had been worried about a double-dip recession.

But for 2020, the economy has proven more resilient than expected. The Federal Reserve recently revised up its 2020 GDP forecast to a decline of 2.4% from prior estimates of a 3.7% drop.

What are they saying? “On the eve of 2021, the economy carries very little momentum as a catastrophic third Covid wave is limiting mobility, curbing employment and constraining demand. The $900 billion fiscal aid package is months late and will likely fall short of what is needed to prevent a rough winter, but it’s better than nothing,” said Gregory Daco, chief U.S. economist at Oxford Economics."

MY COMMENT

DUH.....CONTRARY to ALL the media and purveyors of DOOM&GLOOM......we have seen a HISTORIC "V" shaped recovery.......and.....that is a massive understatement. The recovery has been like a ROCKET. BEFORE the pandemic the economy and the markets......in nearly EVERY category.......were at historic levels.......after EIGHT........prior..... YEARS of deflationary stagnation.

This is not just random chance. THIS is the result of leadership and the very ELUSIVE and RARE ability of a leader to somehow pull things off that everyone says are impossible. This has NOTHING to do with being likable.....it is simply an in-born ability to achieve what others say is not possible.

I am NOT speaking politics.....but......this leadership will END on January 20. I have seen this many times over my life......somehow a person has something INNATE....that in spite of their faults.....leads to success over and over. A perfect example is George Patton in WWII....or....Elon Musk. I have seen it is sports, in business, in coaching, and in life.......it is a rare thing.

 

VERY small red day. AND.....got beat by the SP500 by .03%. My winners today were AAPL. AMZN and MSFT......everything else in the red.

I GUESS the markets REALLY did not give a sh*t about the stimulus drama. I think it is funny how all the so called experts are WRONG time and time again.