The Long Term Investor

HERE is a pretty good summary of the week.

Stock market news live updates: Wall Street roars to new records ahead of earnings season

https://finance.yahoo.com/news/stock-market-news-live-updates-april-9-2021-221143900-221441259.html

(BOLD is my opinion OR what I consider important content)
"Stocks advanced on Friday, with blue-chip and technology benchmarks vaulting to new record highs, as Wall Street continued to price in expectations of a booming economy as the first quarter earnings season kicks off.

Both the Dow Jones Industrial Average (^DJI) and the S&P 500 (^GSPC) rallied in quiet trading to close at their highest ever levels, with both indexes finishing a third consecutive weekly win streak. Meanwhile, the Nasdaq recovered earlier losses to end marginally higher, also setting a new record.

Traders considered more reassurances from Federal Reserve Jerome Powell, who reiterated in remarks Wednesday that the Fed was looking for "actual progress" rather than "forecasts" for progress toward the central bank's employment and inflation goals.

Also, next week will kick off the Q1 earnings reporting season, with Corporate America expected to reap the rewards of an economic recovery that's seen gaining momentum. According to FactSet, S&P 500 companies are likely to report their highest earnings growth in more than 10 years.

The Fed chair also underscored the distance still left for the economy to go before reaching these targets and prompting a policy shift, with the recovery in the labor market especially still "uneven and incomplete" to date. A disappointing jobless claims report earlier on Thursday, with new claims unexpectedly climbing for a second straight week, appeared to affirm these sentiments.

Treasury yields have come back down as fears over a near-term Fed policy shift deflated, prompting investors to circle back to growth stocks and large-cap tech names in particular that would benefit from a lower-rate environment. Microsoft (MSFT), Alphabet (GOOGL) and Facebook (FB) each notched record intraday and closing highs during Thursday's session.

These moves back into tech stocks, however, have come at the expense of some of the cyclical and value names that had been outperforming earlier this year. The S&P energy and financials sectors have lagged over the past month, though they remain the two top outperforming sectors when looking back over 2021 to date.

“We’ve seen this rotation into more value-oriented names from growth to value, but as we enter into earnings season, we anticipate growth names to see somewhat of a rebound because we expect strong earnings coming out of the growth names," Colleen MacPherson, Penobscot Investment Management portfolio manager, told Yahoo Finance. "But overall, I think the trend into value, small caps, more cyclical names will continue as the economy reopens and more people are inoculated and we get back to normalcy.”

—

4:00 p.m. ET: Stocks close at fresh records

• S&P 500 (^GSPC): 4,128.78, +31.61 (+0.77%)
• Dow (^DJI): 33,800.60, +297.03(+0.89%)
• Nasdaq (^IXIC): 13,900.19, +70.88 (+0.51%)
• Crude (CL=F): $59.35 per barrel, -0.25 (-0.42%)
• Gold (GC=F): $1,744.30, -13.90 (-0.79%)
  
  
• 10-year Treasury (^TNX): +3.4 bps to yield 1.666%"

MY COMMENT

WOW....we are getting a little carried away with earnings expectations......above. The BEST earnings in more than 10 years........HISTORIC earnings coming up.

I would rather see it played a little closer to the vest. If the expectations get too carried away....we might actually see some disappointment.

For those.....that have the GUTS.....to be long term....we are looking at a historic bull run over the next couple of months. EVERYTHING....is teed up. The one thing that gives me pause......things look.......TOO GOOD. This is when.......some big black swan........ comes out and bites you in the butt.

BUT........I will worry about that when it happens....in the meantime.....I continue to be fully invested for the long term as usual.

 

There is NOTHING WRONG with having fun and celebrating when money is being made. I am sure we are ALL....well most...in the same boat being raised up by the same tide. SO.....CELEBRATE, CELEBRATE....DANCE TO THE MUSIC. AT LEAST....for this weekend.....we have PLENTY of time to get back to REALITY.....next week.

 

It has been a long time since I mentioned what I do to pick a new stock.

I do NOT pick stocks based on the articles like I post here. If I am looking for a new stock I put together a short list of interesting companies. I might skim the holdings of the SP500 and see if anything jumps out. Or I might see some article or something that gives me interest in a company. I look for ICONIC PRODUCT, AMERICAN, DOMINANT, WORLD WIDE MARKETING, GREAT MANAGEMENT type companies. I like dividend paying companies. I want to own the best of the best.

After I put together a short list.....3-6 companies that seem interesting.....it is all about FUNDAMENTAL ANALYSIS. I look at at least five years of financials for the company.....Balance Sheet, Income Statement, Profit and Loss Statement, Cash Flow Statement, etc.

I have a good education in business and law and I use those skills along with my investing and financial intuition to compare at least 5 years of financial information. I am mainly looking for ANYTHING that jumps out as abnormal or that needs follow-up....the good and especially the bad. I am also looking at the progress and growth or lack of progress or growth of the company from year to year as reflected in the financials. I dont use any particular formula or guidelines....I look at those items as someone that was a long time business owner. I particularly look at debt and assets and growth of each.

I will often than look for any online analysis of the same financials by others and analysts. I like to go to the company web site and look at their annual reports, letter to shareholders, and legally required financial filings, etc, etc. I also usually use the site below to access financial data on a company....there is a huge amount of information on this site:

https://www.macrotrends.net/

I do not use any sort of Technical Analysis since I do not believe in it....just my personal BIAS.

In the end after evaluating everything it comes down to an intuitive decision whether or not to buy a company stock. I tend to like BIG LONG TERM MOMENTUM businesses that are established but still have a long way to run. I am hoping that any stock I buy will be a long term holding for many years. My goal is to try to identify companies that have VALUE by virtue of the fact that they have years and years of high growth ahead of them and will be long term DOMINANT in their field.

 

Well it is the weekend. As I was siting early Saturday with the TV on in the background I have been thinking about how hedge funds do versus the SP500. An article about Melvin Capital losing about 50% in the first quarter got me started on this topic. We see articles all the time about how this or that hedge fund is bringing in BIG GAINS. Are the PROFESSIONALS......that run hedge funds....arguable the best money managers in the world considering the fees that people pay them.....able to beat the SP500?

There is MUCH information on this topic online.....and .....much of it shows that they CAN NOT beat the SP500. I like this little article from INVESTOPEDIA on the topic.

Hedge Funds: Higher Returns or Just High Fees?

https://www.investopedia.com/articles/03/121003.asp

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

"Unlike mutual funds, hedge fund managers actively manage investment portfolios with a goal of absolute returns regardless of the overall market or index movements. They also conduct their trading strategies with more freedom than a mutual fund, typically avoiding registration with the Securities and Exchange Commission (SEC).


There are two basic reasons for investing in a hedge fund: to seek higher net returns (net of management and performance fees) and/or to seek diversification. But how good are hedge funds at providing either? Let's take a look.


Key Takeaways

• Hedge funds employ complex investing strategies that can include the use of leverage, derivatives, or alternative asset classes in order to boost return.
• However, hedge funds also come with high fee structures and can be more opaque and risky than traditional investments.
• Investors looking at hedge funds need to understand the cost-benefit calculation of a fund's strategy and value proposition before putting money into it.

Potential for Higher Returns, Especially in a Bear Market
Higher returns are hardly guaranteed. Most hedge funds invest in the same securities available to mutual funds and individual investors. You can therefore only reasonably expect higher returns if you select a superior manager or pick a timely strategy. Many experts argue that selecting a talented manager is the only thing that really matters.


This helps to explain why hedge fund strategies are not scalable, meaning bigger is not better. With mutual funds, an investment process can be replicated and taught to new managers, but many hedge funds are built around individual "stars," and genius is difficult to clone. For this reason, some of the better funds are likely to be small.


A timely strategy is also critical. The often-cited statistics from Credit Suisse Hedge Fund Index in regard to hedge fund performance is revealing. From January 1994 to October 2018—through both bull and bear markets—the passive S&P 500 Index outperformed every major hedge fund strategy by about 2.25% in annualized return. But particular strategies performed very differently. For example, between 1994 and 2009, dedicated short strategies suffered badly, but market neutral strategies outperformed the S&P 500 Index in risk-adjusted terms (i.e. underperformed in annualized return but incurred less than one-fourth the risk).


If your market outlook is bullish, you will need a specific reason to expect a hedge fund to beat the index. Conversely, if your outlook is bearish, hedge funds should be an attractive asset class compared to buy-and-hold or long-only mutual funds. Looking at the period up to October 2018, we can see that the Credit Suisse Hedge Fund Index lags behind the S&P 500 with a net average annual performance of 7.53% versus 9.81% for the S&P 500 (since January 1994).


Diversification Benefits
Many institutions invest in hedge funds for diversification benefits. If you have a portfolio of investments, adding uncorrelated (and positive-returning) assets will reduce total portfolio risk. Hedge funds—because they employ derivatives, short sales, or non-equity investments—tend to be uncorrelated with broad stock market indexes. But again, correlation varies by strategy. Historical correlation data (e.g. over the 1990s) remains somewhat consistent, and here is a reasonable hierarchy:


Image by Julie Bang © Investopedia 2020
Fat Tails Are the Problem
Hedge fund investors are exposed to multiple risks, and each strategy has its own unique risks. For example, long/short funds are exposed to the short squeeze.

The traditional measure of risk is volatility or the annualized standard deviation of returns. Surprisingly, most academic studies demonstrate that hedge funds, on average, are less volatile than the market. For example, over the period from 1994 to 2018, volatility (annualized standard deviation) of the S&P 500 was about 14.3% while the volatility of the aggregated hedge funds was only about 6.74%.

The problem is that hedge fund returns do not follow the symmetrical return paths implied by traditional volatility. Instead, hedge fund returns tend to be skewed. Specifically, they tend to be negatively skewed, which means they bear the dreaded "fat tails," which are mostly characterized by positive returns but a few cases of extreme losses.

For this reason, measures of downside risk can be more useful than volatility or Sharpe ratio. Downside risk measures, such as value at risk (VaR), focus only on the left side of the return distribution curve where losses occur. They answer questions such as, "What are the odds that I lose 15% of the principal in one year?"


A fat tail means small odds of a large loss. Image by Julie Bang © Investopedia 2020
Funds of Hedge Funds
Because investing in a single hedge fund requires time-consuming due diligence and concentrates risk, funds of hedge funds have become popular. These are pooled funds that allocate their capital among several hedge funds, usually in the neighborhood of 15 to 25 different hedge funds.

Unlike the underlying hedge funds, these vehicles are often registered with the SEC and promoted to individual investors. Sometimes called a "retail" fund of funds, the net worth and income tests may also be lower than usual.


Fund of funds structure. Image by Julie Bang © Investopedia 2020
The advantages of funds of hedge funds include automatic diversification, monitoring efficiency, and selection expertise. Because these funds are invested in a minimum of around eight funds, the failure or underperformance of one hedge fund will not ruin the whole. As the funds of funds are supposed to monitor and conduct due diligence on their holdings, their investors should, in theory, be exposed only to reputable hedge funds.

Finally, these funds of hedge funds are often good at sourcing talented or undiscovered managers who may be "under the radar" of the broader investment community. In fact, the business model of the fund of funds hinges on identifying talented managers and pruning the portfolio of underperforming managers.

The biggest disadvantage is cost because these funds create a double-fee structure. Typically, you pay a management fee (and maybe even a performance fee) to the fund manager in addition to fees normally paid to the underlying hedge funds. Arrangements vary, but you might pay a 1% management fee to both the fund of funds and the underlying hedge funds.

In regards to performance fees, the underlying hedge funds may charge 20% of their profits, and it is not unusual for the fund of funds to charge an additional 10%. Under this typical arrangement, you would pay 2% annually plus 30% of the gains. This makes cost a serious issue, even though the 2% management fee by itself is only about 1.5% higher than the average small-cap mutual fund.

Another important and underestimated risk is the potential for over-diversification. A fund of hedge funds needs to coordinate its holdings or it will not add value: If it is not careful, it may inadvertently collect a group of hedge funds that duplicates its various holdings or—even worse—it could become a representative sample of the entire market.

Too many single hedge fund holdings (with the aim of diversification) are likely to erode the benefits of active management while incurring the double-fee structure in the meantime. Various studies have been conducted, but the "sweet spot" seems to be around eight to 15 hedge funds.

Questions to Ask
At this point, you are no doubt aware that there are important questions to ask before investing in a hedge fund or a fund of hedge funds. Look before you leap and make sure you do your research.

Here is a list of questions to consider when seeking a hedge fund investment:

• Who are the founders and the principals? What are their backgrounds and credentials? How long before the founders/principals expect to retire?
• How long has the fund been in business? What is the ownership structure? (E.g., is it a limited liability company? Who are the managing members? Are classes of shares issued?)
• What is the fee structure and how are principals/employees compensated?
• What is the basic investment strategy (must be more specific than proprietary)?
• How often is valuation performed and how often are reports produced for investors (or limited partners)?
• What are the liquidity provisions? (E.g., what is the lock-out period?)
• How does the fund measure and assess risk (e.g., VaR)? What is the track record in regard to risk?
• Who are the references?

The Bottom Line
For most ordinary investors, hedge funds are out of reach as they cater to high-net-worth individuals (accredited investors) who can muster the often six- or even seven-figure initial investment minimums. Still, understanding a hedge fund's potential for outsized returns must be weighed against its unique risks and higher fees."

Here are a few more articles on the topic:

https://www.bloomberg.com/opinion/a...vent-special-sauce-in-beating-s-p-500-in-2020

https://www.aei.org/carpe-diem/the-...er-the-last-10-years-and-it-wasnt-even-close/

MY COMMENT

Well you know what they say about statistics. These sorts of statistical arguments have no meaning. BUT.....here is the significant take from the above.....for me:

"From January 1994 to October 2018—through both bull and bear markets—the passive S&P 500 Index outperformed every major hedge fund strategy by about 2.25% in annualized return."

Of course.....when people see those BIG hedge fund results in the media.....probably placed there by some PR firm......they NEVER consider the OUTRAGEOUS fees.

So...considering that hedge fund managers in general........SUPPOSEDLY....... represent the BEST active managers around. AND....considering that they are ........ALL.....traders and very active managers. I believe they are the perfect PROXY to use to evaluate TRADING versus LONG TERM INVESTING.

OBVIOUSLY....hedge funds are using market timing, short term trading, Technical Analysis, computer trading programs, etc, etc, etc. I will NOT state the obvious.........draw your own conclusions.

 

WELL....here is my (local) weekend real estate post. I just looked at the listings for my little area of 4200 homes. We are......right now seeing.......A SPRING LISTING SURGE.......11 active listings. Here we are in mid April......the peak of the Spring home selling and buying season......and we have 11 listings. Of those 11.......5 are over $1MILLION and......6 are below.

If we see the TYPICAL normal behavior that has been happening lately......about 3-4 days from now the majority of those listings will be PENDING.

EVEN Zillow is now showing my home as having gained $300,000 in value over the past 1.75 years. According to what I see in the actual market data...we are now up by $400,000+ in just less than two years. We knowingly OVERPAID when we downsized a little less than two years ago......we wanted this particular home and floor plan and lot location. We also overpaid to get a one story home in an area where one story homes are not common. The value of this home at the time was between $725,000 and $750,000. We paid $800,000 while the house was......"coming soon". The market and conservative COMPS now say that this home would sell for $1.2MILLION or more......probably within a week of being listed.

So the bottom line.....in less than 2 years.....the house has SUPPOSEDLY gone up by 50% from the OVERPAID price we paid.

OK....well this is a desirable, gated neighborhood, with EXCEPTIONAL schools, etc, etc,.....but this is INSANITY. It FEELS GOOD....and looks good on paper........but......it is CRAZY. I wonder how these sorts of gains will do going forward. What goes up....can go down....just as quickly. It is CERTAINLY a buying FRENZY and a BUBBLE. BUT....at the moment....it is a BUBBLE that seems to have no end in sight.

NOT that any of this means anything.....IT IS ALL ON PAPER. We have lived through FOUR major real estate COLLAPSES in our lives. We tried to sell during three of them to take advantage of the low prices and move up. We are safe since we own.....free and clear....BUT....I wonder what is going to happen to all the people paying the current prices........IF...or when.......the next collapse happens?

What a HORRIBLE time to be trying to buy a home....especially if you are a first time buyer. I LIKE the gains.......but.......I dont like markets that are INSANE....it seems socially and financially DISRUPTIVE.....and I dont like that FEEL in a market. UNFORTUNATELY....for the buyers and especially the young first time buyers.....IF I had to bet on it....I would bet that this market is going to continue for a long time....years.

The one bit of good news......less desirable.....but still nice....... areas to the EAST of Austin......Elgin, Manor, Bastrop, etc......are STILL affordable.....BUT.....I am sure prices are being driven up in those areas. You can STILL buy a home in those areas in the $275,000 to $375,000 price range and......some.....of those areas are within 10-20 miles of the city. There is STILL a lot of build-able land in those areas......BUT.....prices are no doubt going to adjust UP in those areas as we move forward.

https://austin.culturemap.com/news/...me-values-are-growing-austin-market-top-tier/

https://www.kxan.com/news/local/aus...re-over-asking-price-than-any-major-u-s-city/

http://www.homebuyinginstitute.com/news/austin-market-explained-in-two-numbers/

http://www.homebuyinginstitute.com/news/where-sellers-are-asking-more/

 

SO....we start a new week tomorrow....AND....the beginning of EARNINGS. The BANK STOCKS are up to the plate first.

Wall Street Week Ahead: With stocks at record highs, investors look to upcoming earnings

https://finance.yahoo.com/news/wall-street-week-ahead-stocks-173134430.html

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

"Wall Street is kicking off a crucial reporting season as U.S. companies provide quarterly results a year after the coronavirus pandemic crippled the economy and as investors look for reasons to support a stock market at record highs.

Results begin in earnest next week with major banks. Overall S&P 500 earnings are expected to have jumped 25% in the first quarter from a year ago, according to IBES data from Refinitiv.

That would be the biggest quarterly gain since 2018, when tax cuts under former President Donald Trump drove a surge in profit growth.

Graphic: US earnings growth https://fingfx.thomsonreuters.com/gfx/mkt/oakpewzqbpr/Pasted image 1617919685577.png

With the S&P 500 index at record highs, valuations are stretched heading into the season, leaving some investors looking to earnings for further support.

"We've seen earnings estimates go up, but... when you look at the market price as a multiple of those forward earnings, it has stayed pretty steadily at around 22 times," said Brad McMillan, chief investment officer at Commonwealth Financial Network.

"If we're going to see significant moves going forward, it's going to come from earnings."

The S&P 500 was trading at 22.3 times forward earnings as of Friday compared with a long-term average of about 15, based on Refinitiv's data.

Early quarterly results have been strong. Strategists say that bodes well for the rest of the season, and it could be a sign that results may exceed already high expectations.

The 20 S&P 500 companies that reported earnings as of Thursday topped analyst estimates by 11% on average, said Nick Raich, chief executive of The Earnings Scout, an independent research firm. That is about 1.5 times the average for those companies over the last three years and about triple the longer-term average, he said.

Another positive sign is that estimates overall have been rising heading into the earnings period. Estimates typically drop ahead of a reporting period after companies give conservative outlooks.

At the start of March, analysts expected first-quarter S&P 500 earnings growth of 22%, based on Refinitiv data.

Still, some fear that investors will be disappointed after the sharp run up in earnings expectations, which could dent stock prices after a months-long rally led by economically sensitive groups including energy and financials.

Investors have bet that these stocks are the most likely to benefit from the reopening of the U.S. economy.

For all of 2021, S&P 500 earnings growth is expected to be 26.5% versus a decline of 12.6% last year.

One risk to future earnings is the threat of U.S. President Joe Biden's corporate tax hikes from their current 21%. A 28% tax rate would take 7.4% off S&P 500 companies' earnings per share, according to UBS.

BANKS UP FIRST

Two sectors to watch are financials and materials, McMillan said, noting: "If businesses are starting to grow again, they're going to need to borrow money."

Financials are expected to show one of the biggest earnings gains, up 75.6% year-on-year, while materials are seen up 45.4%.

Graphic: S&P 500 profit estimates by sector https://graphics.reuters.com/USA-STOCKS/WEEKAHEAD/nmopaangqpa/chart.png

JPMorgan Chase is due to report Wednesday, and results from other big banks are also due during the week. The banks are expected to produce astounding bottom-line profit increases from a year-ago as they release funds held aside for potential loan losses and perhaps report a record quarter for capital markets revenue.

Financials were one of the best performers in the first quarter, with the S&P financial index up 15%, while the energy sector led S&P 500 sector gains in the first quarter, rising 29%. Technology was one of the worst-performing sectors, rising just about 2% in the quarter.

Investors also may be looking to see whether "stay-at-home" companies and other technology-related names that performed well early in the pandemic can sustain their growth.

Technology shares in recent sessions have begun to outperform more economically focused shares.

Investors are optimistic companies will offer more guidance now after being reluctant give projections at the start of the pandemic.

"We'll probably see more companies giving outlooks," said Tim Ghriskey, chief investment strategist at Inverness Counsel in New York. "That will give the market a lot of confidence.""

MY COMMENT

YES......for the next month or two....it is going to be ALL ABOUT EARNINGS. We are probably looking at....blockbuster.....results. BUT.......the media and investor FRENZY may get ahead of the actual numbers.....and.......make it hard to live up to the HYPE.

AND....the real key is going to be actual INDIVIDUAL company results. I have no doubt that we will see a continuation of the trend of many years where earnings are HUGE....yet the stock drops for the next few days. JUST....the reality of the current media environment.

 

POOR QQQ.....it has not been keeping up with the other averages lately. BUT.....with earnings coming up and many months to go in the year.....I have no doubt that this Index will end the year.....just fine.

The Invesco QQQ ETF Is Finally Ready to Join the Rally

https://finance.yahoo.com/news/invesco-qqq-etf-finally-ready-155118819.html

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

While the S&P 500, Dow Jones and Russell 2000 were busy making new highs, the Nasdaq was left behind. The Invesco QQQ ETF (NASDAQ:QQQ) was getting hit as tech stocks were roughed up. QQQ stock lagged as a result, but you can’t keep this group down forever.

Think of it like a basketball in the water. You can pull it below the surface for brief periods. You can even really drive it down if you try. But after a while, it rockets back to the surface and breaks back above the water.

That’s sort of like QQQ stock. It can lag the broader market at times and can even see bigger losses than the general market during a correction. However, this exchange-traded fund is a leader and it can only be held back for so long.

From Laggard to Leader?

Daily chart of QQQ stock.


Source: Chart courtesy of TrendSpider

The QQQ ETF has lagged behind its peers, as the Nasdaq has lagged the other indices. That’s largely to blame on two things, though.

First, while growth stocks roared higher to start the year, this group went on a painful slump. Unfortunately, that happens with growth stocks. These names run long and far — oftentimes doubling or tripling along the way — then suffer 30% to 50% pullbacks.

It’s just the nature of the growth-investing game. However, more times than not, these pullbacks tend to be buying opportunities.

The second reason QQQ stock underperformed? FAANG.

While FAANG is a notable component in other indices too, the group doesn’t have as heavy of a weighting as it does in the QQQ. This group — and large-cap tech stocks in general — have been consolidating for months.

Although sideways price action doesn’t negatively impact the QQQ ETF necessarily, it doesn’t help it. At a time where high-growth stocks are under pressure, the QQQ desperately needed FAANG and other large-cap tech stocks to bail it out.

When they couldn’t, the Nasdaq and the QQQ were susceptible to larger declines.

However, we’re getting a nice rally in high-growth stocks as the group tries to bottom. FAANG and other mega-cap tech stocks have turned around too. Several are hitting new all-time highs. Those that haven’t are trading better too.

Perhaps investors are rotating out of value stocks and looking for more growth. Maybe they feel this group is too cheap. Or perhaps it’s investors getting bullish ahead of earnings.

Whatever the reason, it doesn’t matter. It bodes well for QQQ stock as the Nasdaq and tech make a comeback. Now let’s see if it can make new highs.

QQQ Stock vs. Its Peers

The market has a way of ebbing and flowing. But regardless of how those ebbs and flows go, the QQQ isn’t not something that should be neglected. For starters, despite its recent underperformance, it tends to be a big-time out-performer.

Up 67% in the past 12 months, the QQQ trounces the S&P 500’s 47% gain (although that’s still respectable).

Over the last three and five-year periods, the outperformance grows. The QQQ is up 114% and 207% in that stretch, while the S&P 500 is up 57% and 100%, respectively.

We’re not here to beat up on the S&P 500. In fact, I like the index and feel that having exposure to that group of stocks is a good thing. However, the QQQ simply provides more “oomph” for investors.

Others will critique it as risk vs. reward, that in order to get those big returns, investors must accept higher risk. They argue that the QQQ is a riskier holding than the S&P 500. But is it? Amid the novel coronavirus correction of 2020, QQQ stock sank 30.55%, while the S&P 500 fell 35.4%.

Granted, that’s just one data point. However, it shows that the QQQ’s exposure to some of the market’s strongest companies and brands didn’t leave it overexposed and at risk, it insulated it to some degree against the broader market’s decline. In other words, it’s weighing was an asset, not a liability.

I love that investors can add or subtract tech exposure in a pretty quick manner with the QQQ as well. The fact that it’s not a risky volatile asset in down times, yet outperforms on the upside means it’s a holding every investor should consider."

MY COMMENT

TAKE HEART....owners of QQQ. Your time is coming and I believe you will do just fine by the time we get to the end of the year. Earnings should be a MAJOR boost to this Index.

 

AND......since it is the weekend.....here is a little article that I found interesting. A HISTORY of the invention of the INDEX FUND.

Who invented the index fund? A brief (true) history of index funds

https://www.getrichslowly.org/history-of-index-funds/

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

"Pop quiz! If I asked you, “Who invented the index fund?” what would your answer be? I'll bet most of you don't know and don't care. But those who do care would probably answer, “John Bogle, founder of The Vanguard Group.” And that's what I would have answered too until a few weeks ago.

But, it turns out, this answer is false.

Yes, Bogle founded the first publicly-available index fund. And yes, Bogle is responsible for popularizing and promoting index funds as the “common sense” investment answer for the average person. For this, he deserves much praise.

But Bogle did not invent index funds. In fact, for a long time he was opposed to the very idea of them!

Recently, while writing the investing lesson for my upcoming Audible course about the basics of financial independence, I found myself deep down a rabbit hole. What started as a simple Google search to verify that Bogle was indeed the creator of index funds led me to a “secret history” of which I'd been completely unaware.

In this article, I've done my best to assemble the bits and pieces I discovered while tracking down the origins of index funds. I'm sure I've made some mistakes here. (If you spot an error or know of additional info that should be included, drop me a line.)

Here then, is a brief history of index funds.

What are index funds? An index fund is a low-cost, low-maintenance mutual fund designed to follow the price fluctuations of a stock-market index, such as the S&P 500. They're an excellent choice for the average investor.

The Case for an Unmanaged Investment Company
In the January 1960 issue of the Financial Analysts Journal, Edward Renshaw and Paul Feldstein published an article entitled, “The Case for an Unmanaged Investment Company.”

Here's how the paper began:

“The problem of choice and supervision which originally created a need for investment companies has so mushroomed these institutions that today a case can be made for creating a new investment institution, what we have chosen to call an “unmanaged investment company” — in other words a company dedicated to the task of following a representative average.”

The fundamental problem facing individual investors in 1960 was that there were too many mutual-fund companies: over 250 of them. “Given so much choice,” the authors wrote, “it does not seem likely that the inexperienced investor or the person who lacks time and information to supervise his own portfolio will be any better able to choose a better than average portfolio of investment company stocks.”

Mutual funds (or “investment companies”) were created to make things easier for average people like you and me. They provided easy diversification, simplifying the entire investment process. Individual investors no longer had to build a portfolio of stocks. They could buy mutual fund shares instead, and the mutual-fund manager would take care of everything else. So convenient!

But with 250 funds to choose from in 1960, the paradox of choice was rearing its head once more. How could the average person know which fund to buy?

When this paper was published in 1960, there were approximately 250 mutual funds for investors to choose from. Today, there are nearly 10,000.

The solution suggested in this paper was an “unmanaged investment company”, one that didn't try to beat the market but only tried to match it. “While investing in the Dow Jones Industrial average, for instance, would mean foregoing the possibility of doing better than average,” the authors wrote, “it would also mean tha the investor would be assured of never doing significantly worse.”

The paper also pointed out that an unmanaged fund would offer other benefits, including lower costs and psychological comfort.

The authors' conclusion will sound familiar to anyone who has ever read an article or book praising the virtues of index funds.

“The evidence presented in this paper supports the view that the average investors in investment companies would be better off if a representative market average were followed. The perplexing question that must be raised is why has the unmanaged investment company not come into being?”

The Case for Mutual Fund Management
With the benefit of hindsight, we know that Renshaw and Feldstein were prescient. They were on to something. At the time, though, their idea seemed far-fetched. Rebuttals weren't long in coming.

The May 1960 issue of the Financial Analysts Journal included a counter-point from John B. Armstrong, “the pen-name of a man who has spent many years in the security field and in the study and analysis of mutual funds.” Armstrong's article — entitled “The Case for Mutual Fund Management” argued vehemently against the notion of unmanaged investment companies.

“Market averages can be a dangerous instrument for evaluating investment management results,” Armstrong wrote.

What's more, he said, even if we were to grant the premise of the earlier paper — which he wasn't prepared to do — “this argument appears to be fallacious on practical grounds.” The bookkeeping and logistics for maintaining an unmanaged mutual fund would be a nightmare. The costs would be high. And besides, the technology (in 1960) to run such a fund didn't exist.

And besides, Armstrong said, “the idea of an ‘unmanaged fund' has been tried before, and found unsuccessful.” In the early 1930s, a type of proto-index fund was popular for a short time (accounting for 80% of all mutual fund investments in 1931!) before being abandoned as “undesirable”.

“The careful and prudent Financial Analyst, moreover, realizes full well that investing is an art — not a science,” Armstrong concluded. For this reason — and many others — individual investors should be confident to buy into managed mutual funds.

So, just who was the author of this piece? Who was John B. Armstrong? His real name was John Bogle, and he was an assistant manager for Wellington Management Company. Bogle's article was nominated for industry awards in 1960. People loved it.

The Secret History of Index Funds
Bogle may not have liked the idea of unmanaged investment companies, but other people did. A handful of visionaries saw the promise — but they couldn't see how to put that promise into action. In his Investment News article about the secret history of index mutual funds, Stephen Mihm describes how the dream of an unmanaged fund became reality.

In 1964, mechanical engineer John Andrew McQuown took a job with Wells Fargo heading up the “Investment Decision Making Project”, an attempt to apply scientific principles to investing. (Remember: Just four years earlier, Bogle had written that “investing is an art — not a science”.) McQuown and his team — which included a slew of folks now famous in investing circles — spent years trying to puzzle out the science of investing. But they kept reaching dead ends.

After six years of work, the team's biggest insight was this: Not a single professional portfolio manager could consistently beat the S&P 500.

Mihm writes:

As Mr. McQuown’s team hammered out ways of tracking the index without incurring heavy fees, another University of Chicago professor, Keith Shwayder, approached the team at Wells Fargo in the hopes they could create a portfolio that tracked the entire market. This wasn’t academic: Mr. Shwayder was part of the family that owned Samsonite Luggage, and he wanted to put $6 million of the company’s pension assets in a new index fund.

This was 1971. At first, the team at Wells Fargo crafted a fund that tracked all stocks traded on the New York Stock Exchange. This proved impractical — “a nightmare,” one team member later recalled — and eventually they created a fund that simply tracked the Standard & Poor’s 500. Two other institutional index funds popped up around this time: Batterymarch Financial Management; American National Bank. These other companies helped promote the idea of sampling: holding a selection of representative stocks in a particular index rather than every single stock.

Much to the surprise and dismay of skeptics, these early index funds worked. They did what they were designed to do. Big institutional investors such as Ford, Exxon, and AT&T began shifting pension money to index funds. But despite their promise, these new funds remained inaccessible to the average investor.

In the meantime, John Bogle had become even more enmeshed in the world of active fund management.

In a Forbes article about John Bogle's epiphany, Rick Ferri writes that during the 1960s, Bogle bought into Go-Go investing, the aggressive pursuit of outsized gains. Eventually, he was promoted to CEO of Wellington Management as he led the company's quest to make money through active trading.

The boom years soon passed, however, and the market sank into recession. Bogle lost his power and his position. He convinced Wellington Management to form a new company — The Vanguard Group — to handle day-to-day administrative tasks for the larger firm. In the beginning, Vanguard was explicitly not allowed to get into the mutual fund game.

About this time, Bogle dug deeper into unmanaged funds. He started to question his assumptions about the value of active management.

During the fifteen years since he'd argued “the case for mutual fund management”, Bogle had been an ardent, active fund manager. But in the mid-1970s, as he started Vanguard, he was analyzing mutual fund performance, and he came to the realization that “active funds underperformed the S&P 500 index on an average pre-tax margin by 1.5 percent. He also found that this shortfall was virtually identical to the costs incurred by fund investors during that period.”

This was Bogle's a-ha moment.

Although Vanguard wasn't allowed to manage its own mutual fund, Bogle found a loophole. He convinced the Wellington board to allow him to create an index fund, one that would be managed by an outside group of firms. On 31 December 1975, paperwork was filed with the S.E.C. to create the Vanguard First Index Investment Trust. Eight months later, on 31 August 1976, the world's first public index fund was launched.

Bogle's Folly
At the time, most investment professionals believed index funds were a foolish mistake. In fact, the First Index Investment Trust was derisively called “Bogle’s folly”. Nearly fifty years of history have proven otherwise. Warren Buffett – perhaps the world's greatest investor – once said, “If a statue is ever erected to honor the person who has done the most for American investors, the hands-down choice should be Jack Bogle.”

In reality, Bogle's folly was ignoring the idea of index funds — even arguing against the idea — for fifteen years. (In another article for Forbes, Rick Ferri interviewed Bogle about what he was thinking back then.)

Now, it's perfectly possible that this “secret history” isn't so secret, that it's well-known among educated investors. Perhaps I've simply been blind to this info. It's certainly true that I haven't read any of Bogle's books, so maybe he wrote about this and I simply missed it. But I don't think so.

I do know this, however: On blogs and in the mass media, Bogle is usually touted as the “inventor” of index funds, and that simply isn't true. That's too bad. I think the facts — “Bogle opposed index funds, then became their greatest champion” — are more compelling than the apocryphal stories we keep parroting."

MY COMMENT

AND....as they say.......the rest was history. Interesting reading for the weekend.

 

YEAH....poor QQQ....they are ONLY up by about 7.85% for three months of the year......they could easily be headed to a 20-25% year.

As to real property......I am GLAD to take the gain in value. I think the market is CRAZY and I nave NEVER seen a market this hot before.......anywhere in the country. At least EVERYTHING is selling and sellers are making a ton of money. Buyers either dont care what they are paying......many are all cash.......or they are getting way more house than they could otherwise since the rates are so low and nerly everyone buying is from out of state.

LOL.....when I say I dont like markets that are this crazy....that is on a very "clinical' level......I really dont have any emotional care about it.......I will watch with interest. I am NOT impacted in the least since we own free and clear and our taxes are FROZEN.

As to collectables......yes, an extreme market like everything these days. At least the collector type people seem to have lots of money to spend. ALL the things....that I follow at Heritage are skyrocketing.......sports cards and collectables, space collectables, comic books, photographs, art, high quality antiques in certain categories, etc, etc. The last BIG....general collapse...that I remember was in 2008/2009.......after the BIG price run up just prior.

BOTTOM LINE.......yeah everything is on paper. We all live "on paper".....except for any metals, coins, cash, or other REAL ASSETS that we might own.

 

Property taxes in Texas are...HIGH. With the great majority of the tax being the school district. Here is how our freeze works.

"School District Property Tax Freeze
Sometimes called the “senior freeze,” property owners 65 and over reach what is known as the homestead tax celling. This tax ceiling states that once you reach the age of 65, your school district taxes on a resident homestead cannot increase. If the school district property taxes decrease, your bill will be lower, but the bill will not increase above the school district tax amount you paid in the year you qualified for the senior freeze. The only way the school district tax will increase is if you make a significant improvement to your property (outside of regular home repairs and maintenance)."

Our taxes have been frozen for about 7 years now. We pay about $12,000. Without the freeze we would pay about $20,000.