The Long Term Investor

Back in town after being gone for the last five days. GLAD to see that you guys propped up the markets while I was gone. A DIRTY JOB, but someone has to do it. In my simple opinion the general markets continue to show great strength and staying power. IN SPITE of everyone trying to talk them down, the markets just will not be held back. Looks to me like they have a good ways to run if we can avoid some killer news event. My moving obligations are winding down and I should have more time to post going forward. Recent buys include adding to Boeing, Nike, Costco, and of course more Amazon.

 

HERE is a little pre forth of July reading. This little article is somewhat out of context since it discusses prior articles and thoughts by the author......BUT...the key points are critical to any sort of ACTUAL investor......ESPECIALLY.....long term investors.

Quant Cassandra

https://www.aqr.com/Insights/Perspe...ftware-_-email-_-New post from Cliff Asness-_

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

"Below you will find a page from one of my standard presentations for the few years before this dreadful last year and change. 2 I had forgotten about this until a recent client meeting. The page was created to address the then common question, “what does the future of quantitative (or factor) investing look like?” The implication behind this common question was almost all positive back then. It’s going great. It makes sense. When does it take over the world? How big and important can it get? So, complete with the actual font used at the time, here’s the exact page I spoke to answering this inquiry:

I, and AQR, have very little to brag about over the last year and change, especially when it comes to most of our individual equity strategies (defensive equity, global macro and a few other niche strategies have been nice, but mostly it’s a tale of woe for our equity strategies and for a lot, though certainly not all, of our clients’ experiences). And, while I will be shamelessly bragging about the above prognostications, I also have to admit it wasn’t even great insight at the time. It was all very obvious and I’m certainly not the only one to have said similar things. But “obvious” is often a long way from “really believed and internalized” and in the gap between those two fortunes are made and lost.

So, while, again, not a particularly impressive feat on my part, I do have to immodestly note the accuracy of each bullet point. Sixteen months ago (approximately when things got rough for us – not 8-10 years of pain like people discuss for simple value investing, though some days it feels like it) we were closing strategies due to excess demand (and some of you were mad at us for that – you know who you are!). Back then, and for quite some time, I said we couldn’t forecast when tough times would hit but they absolutely would hit. I said that I believed our strategies would be just as good after that experience as before. While I hope my forecast that they’d then be “hated” was a bit extreme on my part, I think I got that directionally right too. Most important was the last line. Despite our shared belief in these ideas (or else why were we doing them together?), we knew (for quite a while and before any tough times hit) that sticking with them through the inevitable painful periods, which always seem to be at the outer edge of what you might have guessed possible, would be much harder than it should be in a world of cold scientific automatons.

These strategies, in my humble opinion of course, can be great long-term additions to many portfolios. But they do go through unforecastable 3 bad times, like most real-life strategies do. And those times are way, way tougher to stick with than anyone thinks ex ante. Even I’m finding it tougher than I would’ve forecast and I’m the guy who created the page above telling everyone it would be super tough! 4

When I am discussing my colleagues’ superb paper Buffett's Alpha, as I often am, I start by reassuring my listeners that our authors don’t really think Buffett is a closet quant. But, rather, they show that quant themes like value, profitability, and low risk clearly show up in his returns (correlation with quant ideas does not mean he’s been up at night learning Python). In fact, we consider it rather impressive that the things he talks about, not just looking for cheap companies but cheap, consistently profitable, safe companies, seem to be verified by the quantitative analysis. Doing exactly what you say you’re doing is less common than you might think! They go on to show that his Sharpe ratio is quite good (not a surprise) but not the “three Sharpe ratio” that seems to be the holy grail of many hedge funds. Such a high Sharpe would lead, if real, to very few periods of pain, most of them lasting for about an hour and a half (e.g., “Honey, it was a horrible week at the office as we lost money for most of Thursday afternoon, but it’s all ok now. Hold me.”). Now, his Sharpe is quite good, but, as they show, it’s less than 1.0. We think that a Sharpe between 0.5 and 1.0, that can be done at large size, is a tremendous thing. So, while it might surprise some who are used to hearing about the latest hedge fund that claims to offer a 2.0 or 3.0 Sharpe ratio, Buffett has managed to achieve his amazing feats with a very good but still “human” risk-adjusted return. Basically, you can say my colleagues’ paper shows it’s pretty easy to become one of the very richest people in the world. Just pick a few good factors. 5 But there’s one more catch…

I’ve left something out. There’s another thing I stress in this story that comes out of my colleagues’ research, and it’s likely the hardest part of what Buffett has done. One of the secrets of Buffett’s success is that he takes a lot of volatility. In fact, he runs a portfolio with volatility generally well north of the S&P 500. 6 Furthermore, he produces this by leveraging a portfolio that stand-alone would be less risky than the S&P. There’s nothing wrong with that (in fact we think it’s kind of right). But the real magic skill of his is that despite some fairly horrific and none-too-short relative and absolute return periods, he’s stuck with his style, and his risk level, like grim death. 7 There’s no sign he’s ever backed off through multiple down years and drawdowns, including a horrific experience during the technology bubble when he underperformed the stock market by 76%. At the risk of being too obvious – we think the lesson here is do something you believe in based on basic economics and as much evidence as humanly possible, that can be done at high capacity and generates reasonable risk-adjusted returns that improve your portfolio, and then stick to it 8 when it will inevitably test you more than you imagined. Again, in our opinion, that is the simple, but really not easy, recipe for investment success.

I will leave it to past and future blogs to discuss the long-term evidence, 9 the long period of successful real life returns, and the even longer backtests, for what we do, and why our belief in our strategies is unshaken (e.g., the strategies have clearly not been arbitraged away, they have not gotten too expensive to trade, etc.). Here I will just remind everyone, including myself, that this is all much harder to do in real life than many think before experiencing these times. We have been through it before, and we certainly knew all this sixteen months ago (see above!) when times were great. And, yet, it’s still excruciating when it happens. That is, perhaps, the point and indeed why the strategies don’t get arbitraged away (or, as I say in the old presentation excerpt, “grow to the moon”). This stuff is hard! Easy things do get arbitraged away. Hard things less so.

We didn’t think we were so great sixteen months ago (though I think we were pretty good!) and I don’t think we stink now (quite the opposite, but I’m known to be arrogant). In investing, perhaps more so than many other fields, you truly have to learn to “…meet with Triumph and Disaster And treat those two impostors just the same.”

If all of us, as investors, can persevere, we believe the long-term benefits are great (sunlit uplands and all that). But, even knowing all this in advance doesn’t make it easy. Hopefully, this reminder of what we all knew sixteen long months ago is helpful (to me too!)."

MY COMMENT

A little obscure article that in some ways is hard to focus on since much of it is out of context. BUT....the key takeaway is the part discussing Buffett and his ability to stick with the markets and his companies that he invests in.......LIKE GRIM DEATH. Of course you have to have a reasonable strategy to begin with. Sticking to a BAD strategy or investment plan will lead NOWHERE.

 

The stock market BOOM is alive and very well. The general economy is functioning EXTREMELY positively. BUT.....the name of the game for investors is owning individual business models in the form of specific companies. (at least those that dont focus on indexes like the SP500) In my opinion the MOST dominant company in the current economy is.....AMAZON. In over 40 years of investing I can count on TWO HANDS the few companies that have dominated like this stock and this business.

Here are a couple of relevant articles on the HISTORY and FUTURE of the company:

Inside the conflict at Walmart that’s threatening its high-stakes race with Amazon

https://www.vox.com/recode/2019/7/3...modcloth-amazon-ecommerce-losses-online-sales

Amazon's extraordinary 25-year evolution

https://www.cnn.com/interactive/2018/10/business/amazon-history-timeline/index.html

MY COMMENT

Of course I continue to own this company and in my usual fashion I DO NOT re-balance my portfolio. I let the winners run. SO......AMZN is now the largest single stock holding in my portfolio and I expect this to continue for a long time into the future. On the subject of re-balancing.......it is my habit to NOT take money from BIG WINNERS and put that money into other investments. If a company is killing it, I let them run for as long as they can pull it off. If a company starts to falter I will sell some or all of the holding. BUT, while it is booming, I try to squeeze every dollar out of the stock as possible. LARGEST GAINERS in my portfolio at the moment and for some time now are:

AMAZON
NIKE
COSTCO
APPLE

 

WEIRD........within ten seconds of posting the above I hear on FOX BUSINESS that AMAZON turns 25 years old today. They than went on to discuss the company and it's history, business model, etc, etc. GREAT MINDS.......or.......

 

HERE is an interesting article with some very nice general information that is food for thought.

(BOLD is my opinion and what I view as important content)

Trouble Is Lurking Under the Stock Market’s Surface

https://www.barrons.com/articles/stock-market-trouble-51562217641?siteid=yhoof2&yptr=yahoo

"While both the S&P 500 and the Dow Jones Industrial Average finished at record highs Wednesday, with the Nasdaq Composite close to its own new high, something different is hiding beneath the surface.

The average stock is doing much worse than most people realize, warns Andrew Lapthorne, quantitative strategist at SG Securities. In the U.S. and around the world, most stocks are “struggling,” he says, and they remain well below levels from 18 months ago.

You wouldn’t know from looking at the indexes, because they’re dominated by a few, booming big growth-oriented names—like Apple (AAPL), Microsoft (MSFT) and Amazon.com (AMZN). Traditional stock market indexes weight companies by their stock-market value, not equally.

Since January 2018, the S&P 500 has risen 11%. But among the broad universe of U.S. stocks worth more than $50 million, just over half are still in the red over that time, according to FactSet data. The median stock is down 0.7% over 18 months.

The picture around the world is even starker. About two-thirds of global stocks are lower, measured in U.S. dollars, than they were 18 months ago. The median decline is a remarkable 14%.

“They’re off the radar, and they’re suffering from cyclical malaise,” he says. “The S&P 500 is not a very good barometer of global prosperity... there are 11,000 other companies that are not doing so well.”

And this is especially acute when you look at smaller companies that arne not in “growth” industries. So-called “small cap value” stocks are still struggling. The MSCI US Small Value Index has fallen nearly 5% over 18 months. The tongue-twisting MSCI ACWI (All Country World Index) Small Value Index, the broadest index of small value stocks everywhere, is nearly 10% in the red.

Actually, we may have seen this movie before. Large-cap growth stocks dominated the market in the late 1990s. They boomed while smaller stocks, and especially the less exciting so-called “value” stocks, languished.


There’s no mystery to this. Investors chase performance. They buy what they know and what they hear about. And it becomes a vicious circle: Big, popular stock A goes up, so it gets lots of media coverage, so more people rush to buy it, so it goes up more.


Booming large-cap growth stocks “are being driven by fund flows, and they’re being driven by low bond yields,” says Lapthorne. (The low bond yields make money cheaper, and encourage investors to chase risky assets, including stocks.)

When the dot-com bust happened in 2000, the big losses were in the most popular large-cap growth stocks. There was a sudden, massive shift toward smaller stocks and “value,” which then outperformed for about seven years.

Could this happen again? Only time will tell.

Lapthorne says this “malaise” affecting smaller stocks may mean they’re cheap and due for a rally—or that they’re signaling economic danger ahead that the headline indexes may be missing.

Logically, he says, if you think the global economy is going to go into recession you’d buy Treasury bonds. If you don’t, you’d bet on smaller, more value-oriented stocks catching up with the big names, on the grounds they’re more of a bargain.

Or, rationally, you might hedge yourself both ways: Build a portfolio of small value stocks—U.S. and overseas—and balance them with the long-dated, zero-coupon Treasury bonds that would be expected to jump if we get a recession."

MY COMMENT

My BIAS is to focus my investing on the SP500 and a handful of BIG CAP, ICONIC, AMERICAN companies. In a good economy or a bad economy I prefer to be invested in the best of the best. I DO NOT believe in INTERNATIONAL investing and I tend to avoid the small cap side of things. BUT....if a stock falters, I will sell and move on to another, better, prospect. As to "CYCLICAL MALAISE", in my opinion that is a direct result of the Socialistic and bureaucratic, "we are the world" IDIOCY that is seen around the world AND the deflationary depression that continues to WRACK the world at the moment and for at least the past ten years.

I PREFER to invest in FUNDAMENTAL based companies that are dominant financially around the world. I find these companies to be more stable and secure for the LONG TERM. They are easier to find as an investor. In fact they are often OBVIOUS. I prefer to take the simple approach and not spend a lot of time FIGHTING the obvious or the crowd. At the same time, when a company falters I will simply move on. I remain FULLY INVESTED for the LONG TERM as usual.

 

DOING WELL as a long term investor is actually very simple. Yet, the VAST majority of "investors" fail to get anywhere close to the returns of the un-managed indexes. The reason.....what sounds so simple in theory is very difficult for humans to actually do in reality. We always muddy things up with complexity and FAILURE to follow the very simple rules. Here is another reminder article of a few of those simple rules for investors:

Warning for Investors: Sobriety Checkpoint Ahead

https://www.morningstar.com/articles/934481/warning-for-investors-sobriety-checkpoint-ahead.html

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

"In an upward-trending market like the one we’ve enjoyed for much of 2019--and for the past decade, for that matter--checking your investment-account balances can provide a little bit of a thrill, or maybe just some well-deserved peace of mind about your financial future.

If you had $100,000 in a boring old balanced fund (albeit a good-quality one) 10 years ago, you’d have nearly $272,000 today--and that’s not factoring in any additional contributions you may have made. And if you had your whole $100,000 portfolio in stocks at this point 10 years ago, your balance would be more than $400,000. Seeing your account value grow from year to year is a strong motivator to stick with the plan and perhaps even bump up your contribution rate as your salary allows.

At the same time, enlarged portfolio balances may encourage perverse behaviors, or at least unrealistic expectations. Coasting on very strong recent returns, it can be tempting to use your larger nest egg as a reason to pull back on your savings rate, or let a too-aggressive asset allocation ride. It’s also easy to get blinded by the baseline total, losing sight of the factors that can erode the actual spending power of your portfolios--specifically, inflation and tax costs. (This is true in good markets and bad.) An amount that looks positively robust today may seem less adequate when it comes time to spend it.

If you’ve been watching your portfolio grow by leaps and bounds for the past decade, take a moment to congratulate yourself for your part in it: your contributions, your investment selections, and your perseverance through periods of market volatility. (Periods of turbulence, such as the debt ceiling "crises" of 2013 and 2015 and the fourth quarter of 2018, were short-lived, but we didn’t know they would be at the time; they felt bad while they were happening.) At the same time, acknowledge that luck played a role in your success, and be sure to not let your large balance lead you to any of the following four pitfalls.

1. Overspending/undersaving.
Even though your long-term investment accounts are likely segregated from your spending assets, a larger total portfolio has a way of making you feel more comfortable with spending more. A more expensive vacation. More frequent meals out. A $6.50 latte versus your usual $3 drip coffee order. (That’s me, raising my hand.) The periodic splurge can be money well spent if it keeps you sane and happy; the trick is to not have so many indulgences that they cut into your savings rate. Market history, expert forecasts, and current valuations suggest that the strong market that has prevailed since early 2009 will portend a less-impressive one over the next decade. If that’s the case, you’ll have to save more, not less, to grow your portfolio as much as you’ve been able to do recently. In other words, pick your financial indulgences carefully and make sure they don’t cut into your savings, which will ultimately be the bigger determinant of your portfolio’s bottom line than market returns.

2. Taking more equity-market risk.
Relatedly, a sustained strong market can encourage excessive risk-taking. If you’re a young investor with a long time horizon until spending, you absolutely should have a substantial allocation to equities for your long-term portfolio, and periodic market dips can be a good time to add to them. But if you’re saving for shorter-term goals, be sure that you’re not confusing confusing your risk tolerance, which may be high, with your risk capacity, which is lower because of your near-term spending horizon. And if you haven’t been battle-tested by living through previous bear markets, whether the early 2000s, the financial crisis, or both, you may not be that great of a judge of your risk tolerance to begin with.

My midyear portfolio checkup suggests some benchmarks for setting in-retirement asset allocations. But if you’re saving for a goal that’s closer at hand, you might use a bucket approach to guide you to a sensible allocation; this article includes some model exchange-traded fund and mutual fund portfolios for short- and intermediate-term goals. The latter have a bit of equity exposure, but not much; the short-term portfolios have none.

If you’re closing in on retirement, you have even more of an incentive to not let your fattened portfolio distract you from de-risking your portfolio. The market environment you encounter in your retirement is the luck of the draw; it’s down to timing, and most of us don’t have as much control over our retirement dates as we might wish to think. If a bear market materializes early in your retirement, your portfolio is positioned too aggressively, and you don’t dramatically rein in spending, that can permanently impair your portfolio’s sustainability. This video discusses asset-allocation considerations for younger retirees and/or people who are considering retirement within the next five years.

3. Underestimating the role of inflation.
Inflation is stubbornly low right now--so low, in fact, that the Federal Reserve would like to nudge it higher to prove that the economy is healthy. Yet the enlarged portfolio balance you see today doesn’t reflect where costs will be when you get around to spending it, one reason why big milestones in your retirement account balance can be illusory.

While it might seem tempting to ignore inflation when determining the viability of your retirement portfolio, rising costs can be an enormous swing factor, as discussed here. Portfolios that properly anticipate the role of inflation could be hundreds of thousands of dollars larger than those that do not. It’s also worth remembering that healthcare outlays have historically been a larger share of the outlays of retiree households than for working folks, and it’s likely to stay that way. Thus, even though the headline inflation rate is low, your own inflation experience could be quite different.

4. Forgetting that it’s really not all yours.
Also in the category of “Objects in your portfolio are smaller than they appear,” it can be easy to forget about how taxes can lower your take-home return. Making pretax contributions to a 401(k) or other company retirement plan can give your portfolio a real boost. But the tax collector needs to take a cut at some point, and for traditional 401(k) and IRA contributions, that point is when you begin taking withdrawals in retirement. Taxes will also reduce your take-home amount for retirement assets held in a taxable account; even though you've already paid taxes on the amount you've invested, you'll still owe taxes on most income and all dividend distributions, as well as capital gains over your holding period. If you don't factor those taxes into your retirement planning, you could face a standard of living that's dramatically below what you thought it would be.

Say, for example, you're adhering to the 4% rule for your retirement portfolios. Assuming a $1.5 million starting portfolio and a 4% withdrawal in year one, you could tap your portfolio for $60,000. But that's a gross number--it doesn't incorporate that at least some of that money will be taxed, and the tax treatment will differ depending on where you're holding the money. If all of it is in a tax-deferred account like a Traditional IRA or 401(k), all the contributions that you didn’t pay tax on, as well as any investment earnings, will be taxable upon withdrawal. Assuming you're in the 22% tax bracket, your take-home withdrawal shrivels to less than $50,000. If you were withdrawing from taxable accounts or better yet Roth accounts, the tax collector would take a smaller cut of the withdrawal.

My point isn't to discourage you from saving within tax-deferred accounts like 401(k)s and IRAs, even though you'll take a haircut when you make withdrawals from them. Rather, it's to underscore the importance of factoring in taxes when determining the viability of your retirement plan and deciding whether you have enough. If you're using an online calculator to see whether your retirement portfolio is on track, you'll want to make sure it is segregating your retirement assets by their tax treatment. If it's not, it's too simplistic a tool to be useful. Also bear in mind that tax rates could realistically go up in the future. Because you don’t know what tax rates will be when you pull the money out in retirement—either secularly or your own personal tax rate—I’m a believer in using multiple silos for retirement savings. Traditional tax-deferred accounts may well be a key part of your retirement-savings portfolio, but it can also be smart to build assets in Roth and taxable accounts as well. You won’t get the same instant gratification (higher initial withdrawals/faster growth of pretax contributions) from those accounts that you will from tax-deferred accounts, but you’ll be grateful for them when it comes time to pull the money out in retirement""

MY COMMENT

We have been experiencing the GOOD TIMES for ten years now with a historic rally in stocks. I try to avoid the temptation to think that I am an investing genius when much of my gains are simply GIVEN to me by a generally rising market.

 

I HATE weeks like this when the markets let fear and unease drive stocks. These underlying JITTERS have been very prominent for the past few years. The MEDIA needs to grow up and shut up with the anti-economy "stuff" that usually has NO basis in fact. Of course, I dont expect anything to change. This is just the reality of the current economy and markets and investors. As usual, I believe that what we continue to see and experience shows the actual strength and staying power of the markets in general. In addition, those that invest in rational and leading businesses in the form of stocks will continue to do well over the long term.

If everyone else is worried about stocks, capitalize on the fear and make a fortune

https://www.usatoday.com/story/mone...e-most-investors-fear-your-friend/1642596001/

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

"Fear is your friend when the market seems low, but also when it is up, like now, and seems too high for so many people.
Fund managers of all types, for example, are at their most pessimistic since the financial crisis, a recent survey showed.
But as Warren Buffett famously preached: Be fearful when others are greedy – and greedy when others are fearful.

Such fear is ironic as stocks just hit all-time highs this week. That means the Bank of America’s fund manager survey is merely one sign of today’s rampant fear. And the American Association of Individual Investors’ weekly survey showed less than 30% of retail investors think stocks will rise over the next six months. At the same time, investor sentiment and economic confidence gauges across Europe are tanking. Headlines echo these fears, driving folks to yank money from stock mutual funds and ETFs in four of the prior six weeks through mid-June.

Bitcoin hit a 17-month high, but dropped immediately after. (Photo: MicroStockHub, Getty Images/iStockphoto)

Sour sentiment is bullish. Why? Markets pre-price widely known information – fears, opinions, forecasts and more. When you see headlines warning of tariffs, Brexit, Iran, or Europe’s allegedly imploding economy, understand that stocks already considered them.

Anything less bad is a positive surprise, hence bullish. Consider this bull market’s March 2009 birth. Folks feared a new Great Depression. The recession we got was big and bad, but not that big. Stocks rose while the economy fell. U.S. stocks jumped 72.3% in the bull’s first 12 months.

Consider today’s big fears like Iran’s threats to close the Strait of Hormuz and choke oil supply. Investors’ dread is priced in now. Anything tamer brings relief. Tamer is likely, because of ample global supply and the fact that Iran can’t really block the strait. Tankers have been attacked in years past, which wasn’t good – but it was no economic crisis either.

What about European economic fears? A slow-growing economy with weak manufacturing beats recession. Bullish!

How about Brexit? By now, any darned development on that front beats expectations. As for tariffs, have you noticed, as I predicted here last August in great detail, that tariffs only take a nibble from global output, rather than cause the much-feared recession? It's another pre-priced fear. Again, bullish.

I’ve often said bull markets end one of two ways: One, atop the legendary “wall of worry” as euphoria makes positive surprise essentially unattainable. Or the wallop – a multi-trillion dollar negative shock. The 2007-09 financial crisis was a wallop. But every other post-WWII bull market ended in euphoria. That matches Sir John Templeton’s legendary framework: “Bull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria.” Absent a wallop, bull markets end when investors tire of worrying.

We’re nowhere near that today. Stocks still have a big wall of worry to climb. At a true euphoric peak, sentiment surveys boast optimism. Money pours into stock mutual funds and ETFs. Headlines cite as many opportunities as risks. The investment world will ridicule the bears, not the bulls. You’ll fear missing gains more than fear suffering losses. If I write that bad times loom, you’ll call me crazy.

Sentiment isn’t a timing tool, of course. Euphoria is more like a dimmer switch than an on-off switch. To see euphoria correctly when it comes, you must think differently than others do. Instead of letting widespread fears send you scampering, envision what they say about sentiment broadly. When you see people excited to own stocks and dismissing risks, then start thinking about your exit.

Today, they do the opposite. Their fear is your future fortune."

MY COMMENT

The......same old, same old.......continues. We have played this game for years now.....at least for two years. This is not a political comment..........BUT it is obvious that since the TRUMP election the media has been in a frenzied TEMPER TANTRUM. Many in media are pushing anything they can to try to talk down the economy and stocks. They DONT CARE who they hurt. As a long term investor I look at reality and the economic reality I see right now looks pretty darn good going forward.

 

WELL.......we are on a tear again with nothing in sight to derail the markets. I believe that there is potential for another 10% of gains to be added by the end of the year. If that happens the total return for the general averages will be WELL NORTH of 20% for the year.

DOW year to date +15.73%
SP500 year to date +19.53%

In accord with the above my prediction for year end is:

DOW 30,000.
SP500 3,300.

Anyone else got any year end predictions? This is one of those years that you HAVE to be in the markets to meet or beat the returns of the general averages over the LONG TERM. I am too lazy to do it, but it would be interesting to go back and put together a list or timeline of ALL the various times this year that the DOOM&GLOOM media and others have touted all the various fear inducing situations and economy and market killing situations that have been thrown out there this year. Many, with little to no actual reason or support by actual reality and fact. ACTUALLY, other than perhaps a year or two during the REGAN era, what we are seeing right now is the most perfect economic environment I have seen in my lifetime for investors. As I have said many times on here.......the BIG BLACK SWAN that has the potential to bring all this to a SCREECHING HALT is the NATIONAL INTELLIGENCE TEST........the election......in 16 months.

 

TODAY was a good down payment on my predictions above and a great way to end the week. Have a good weekend all.

 

I cant really say that I am a VALUE INVESTOR. I have bought a lot of companies over the years that were not classic value plays. At times I have bought companies when they were at historic highs. My BIAS as an investor is to LATCH onto companies that are world wide names with iconic products or business models, often early in their business life.......but not too early. OBVIOUSLY by the time they are a world wide name with an iconic product or business model they are often companies that have made the very difficult transition away from being a pure money losing start-up. I prefer to try to catch the great companies early but not too early when many will fail or drop to the wayside. Even though I personally am not a PURE value investor, I do see and recognize that this form of investing is one of the few models that actually works. Thus, the current article:

Deja Vu For Value Stocks

http://www.servowealth.com/blog/its-deja-vu-for-value-stocks

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

"“What’s wrong with value stocks?” You can find a version of this headline almost daily if you look hard enough. Articles are referring to the fact that low-priced value stocks have underperformed high-priced growth stocks over the last 10 years (12 if you go back to 2007). That wasn’t supposed to happen. From 1926 through May 2009, the Fama/French US Value Index beat the Fama/French US Growth Index by almost 4% per year: +12.7% for value versus +8.9% for growth.

How bad has value done over the last 10 years for pundits to be questioning whether value stocks are dead? That depends on your perspective. If you expected +12-ish percent returns, as history would have predicted, you’ve been quite happy. The Fama/French US Value Index has gained +12.2% per year over the last decade through May, just 4% less than its long-term average. If you expected almost 4% per year higher returns than growth, you’ve been let down. The Fama/French US Growth Index has almost doubled it’s long-term return, averaging +15.7% per year, 76% higher than the historical record! Value returns have been normal, growth returns are way out over their skis.

What's Up With Value?

The first question to ask about the lack of a value “premium” over growth stocks is: Has this ever happened before? The logical answer is yes. If value beat growth over every 10-year period, who would bother to buy growth stocks? No one would bet against a sure thing.

The data confirms this. Over all 10-year periods since 1926, value has outperformed growth 83% of the time (822 of 996 rolling periods), by an average of +4.1% per year, which means it has UNDERperformed almost 20% of the time. Should we expect value to trail growth over decade-long stretches? No. Has it happened before? Absolutely. Why is this still surprising to investors, advisors, and financial journalists? Who knows, but if we guess that most people don’t know history, we’d be off to a good start.

Return "Premiums" Aren't Return "Guarantees"

How do we put these outcomes in perspective? Let’s compare the value premium to the “equity premium,” or the average return of the US stock market (CRSP 1-10 Index) to “risk-free” 1-month T-bills? Over the same 10-year rolling periods, stocks have only outpaced T-bills slightly more often than value beat growth: 85% of the time (851 out of 996 periods). The average outperformance is also a bit higher: +6.7% per year.

Why compare the return of stocks within the market with the return of the stock market versus T-bills? Aren’t all stocks basically the same? Not at all, it turns out. During the 17% of periods when value UNDERperformed growth, the overall stock market did quite well, beating T-bills by an average of +5.3% per year. Value stock underperformance doesn’t necessarily mean negative returns, just lower returns compared to higher-priced stocks. But when stocks do poorly, underperforming risk-free T-bills, the value side of the market tends to shine on a relative basis. While value has outperformed growth by an average of 4.1% per year during all decades, that number rises to +4.9% per year, 20% higher than average, during only the decades where stocks trail T-bills. While value stocks tend to be riskier than growth stocks on a stand-alone basis, they tend to reduce the risk of low long-term portfolio returns due to their diversification benefits. The price of this is that value stocks might hold you back when growth stocks are shooting through the roof.

Does The Past Still Apply?

Finally, this data covers a long period of time, and maybe if past periods of value underperformance were too long ago they could be irrelevant to modern markets. This turns out not to be the case. Possibly the greatest puzzle of all regarding the bearish tone about value investing is how we could have lived through an identical period less than 20 years ago but no one remembers? Any investor who’s been around for even an intermediate period of time should remember this quite well. But as Georg Wilhelm Friedrich Hegel once said, “We learn from history that we don’t learn from history.”

Over the 10-year period from 1990-1999, the Fama/French US Growth Index beat the US Value Index by 3.1% per year. That is only 0.3% per year less than the +3.4% rate at which growth beat value over the last 10 years.As expected, the stock market overall did quite well from 1990-1999, beating 1-month T-bills by an average of +13.7% per year—0.2% per year more than stocks outperformed T-Bills during the last decade.On value versus growth, the five-year comparisons are similar too; value trailed growth by -6.8% per year over the last half-decade and -7.4% per year from 1995 to 1999.

Skate To Where The Puck Is Going To Be

What happened, in the intervening years between 2000 and June 2009, you might ask? The Fama/French US Value Index outperformed the Fama/French US Growth Index by 5.6% per year, almost 40% more than it’s long-term 10-year average! The overall stock market wasn’t so fortunate, the broad market had one of its worst stretches in modern times with a negative return, underperforming 1-mo T-bills by 5.5% per year. Unlike the 1990s and 2010s, where every diversified stock investor who held on made money, in the 2000s, the only way to earn a positive return was to hold value stocks. Growth investors lost a significant sum.

It’s tough to sit tight for a decade or longer while your investment approach underperforms the market. But value investors have reasons for optimism: a long history and solid fundamental principles underlying the expectations that value should outperform growth over time. What’s more, we’ve seen markets like this one before. Contrary to the obituaries being written about value stocks, now might be the best time in modern history to be high on a low-priced approach to stock investing."

MY COMMENT

Even if I was a pure value investor I dont think I would have any concern with the past ten years. A return of 12% would be just fine for me. Actually one of my two investing goals is to average a total return of at least 10% per year for the long term. I am NOT GREEDY.

Of course, as I said I dont consider myself a pure value investor. I may use some of the same tools and rely on basic FUNDAMENTAL ANALYSIS and company financials in looking at stocks, but I do not hunt for the beaten down company. As I said I more often tend to focus on the Iconic, BIG CAP, AMERICAN, company with an world wide iconic business model.........BUT.......a company that is very early in their DOMINANT life as a business. For example buying MSFT in 1990/1991. Or buying AMZN about 4-5-6 years ago. You dont have to be first in on a stock to do well. You simply have to have some ability to identify good DOMINANT companies and invest in them before the crowd. Time and long term investing will do the rest with little to no effort. Index investing actually does the same thing. For example an investor that has all their investment funds in the SP500 Index is basically doing the same thing. By the time a company gets on the index they are a successful company but often with MUCH room to run for years or decades. So to a certain degree the SP500 and other similar indexes are serving as a screening tool for business success.

 

We are now beginning what is important in investing......quarterly earnings. Not just earnings, FINANCIALS, that tell the story of every public corporation past and future. NOW......many including the media and others with a axe to grind will spin earnings however they wish. AND.....many short term investors and speculators will focus on one tiny part of a companies financials......like forward looking statements ......to the exclusion of everything else. BUT, my opinion of the upcoming financials is that they will show a good economic and business environment with most companies in the SP500 doing well.

If cracks are forming in the US economy, banks didn't get the memo

https://www.cnn.com/2019/07/17/investing/recession-bank-earnings/index.html

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



New York (CNN Business)If a recession is brewing in the United States economy, it will come as a surprise to the nation's largest banks.

"Big banks are hauling in fat profits, driven not by the ebbs and flows of fickle financial markets, but by strength in the real economy. Specifically, they're cashing in on steady growth in spending and borrowing from American households — the main driver of the US economy.

During the second quarter, Bank of America (BAC) and JPMorgan Chase (JPM), the two leaders of the US banking industry, each made more money than ever before. Even scandal-ridden Wells Fargo was able to grow its customer deposits.
Banks, which are at the front line of the economy and talk to business clients every day, struck an optimistic tone about the health of the US economy — even as they warned of negative repercussions from looming rate cuts by the Federal Reserve that are aimed at speeding growth.
The industry is on very solid footing with credit issues low and capital high."

"I wouldn't get too pessimistic yet," JPMorgan CEO Jamie Dimon told analysts on Tuesday during a conference call.
Bank of America boss Brian Moynihan saidon an earnings call that his bank, which serves one in two US households, experienced "solid consumer activity, pointing to a continued growing economy in the United States this year, albeit at a slower pace."
Bank of America's consumer deposits grew by a steady 3%, while loans climbed by 6%.
Of course, the outlook could change rapidly should the trade war and economic slowdown in Europe and Asia infect US businesses.

So far that does not appear to be happening, at least based on the bank earnings reports. Bank of America's global banking division grew loans and leases by 5%. Deposits jumped by 12%.
Importantly, major banks did not report significant credit issues such as a surge in bad loans caused by business or household trouble. Loan losses remained at muted levels.
"What the banks are telling us is positive. They aren't signaling a decline," said Christopher Marinac, director of research at Janney Montgomery Scott. "The industry is on very solid footing with credit issues low and capital high."

Vanishing volatility
For the biggest US banks, sturdy consumer spending and borrowing helped offset trouble in trading.
The Fed's shift from hawkish to dovish has caused already-muted volatility to vanish even further. Correlations — how closely asset classes are linked together — rose. Those are never good signs for the trading divisions that flourish on high-volume turbulence.
"The markets business has been tough — really tough," said Nicholas Colas, co-founder of DataTrek Research. "It thrives on volatility, on people needing to make trades."
Most major US banks reported declines in stock trading volume. Citigroup reported a 4% dip in fixed income markets revenue and called it a "challenging trading environment." And Bank of America's stock trading revenue dropped 13% due to weaker overseas derivatives trading.

The big exception was Goldman Sachs (GS), which managed to grow its stock trading revenue as it grabbed market share from rivals and benefited from investments in trading execution.
But trading turmoil is nothing new for the big banks. This part of the business has been in decline for years, if not decades, and will continued to be pressured by the rise of ETFs and passive investing broadly.
"Equities peaked in 1999. There are long-term trends at play here," said Colas.

Rate troubles
The more serious threat to banks is the swings in borrowing costs driven by volatility at the Federal Reserve and the inverted yield curve — the gap between short and long-term rates.
Banks take in deposits at short rates and lend out at long rates. They make money off the spread between the two.
The Fed's string of rate hikes enabled banks to almost immediately charge more for loans, while deposit costs rose more gradually and with a lag. Now, the opposite is happening as the Fed is expected to lower rates.
Bank of America, JPMorgan and Wells Fargo (WFC) all warned that Fed rate cuts will hurt lending profits. But the degree of that pain depends on how many times the Fed lowers rates.

"If the Fed cuts three or four times, it becomes far more than a nuisance," said Janney's Marinac. The CME's FedWatch tool suggests roughly a 62% probability that there could be three or more rate cuts by the end of the year.
The banks are hoping that the Fed will cause a gradual steepening of the yield curve. That would help bank profitability.
But here's the catch: A rapid steepening could confirm that the Fed was in fact too tight and a recession is coming. That would, of course, be bad for banks — and for everyone.

Buyback binge
For now, big banks continue to return vast amounts of cash to shareholders in the form of generous dividends and buybacks.
Aggressive share repurchases have sharply reduced share counts and inflated per-share profits. Bank of America repurchased $6.5 billion of its stock last quarter alone. Citigroup's (C) share count dropped by 10%.
Analysts at Keefe, Bruyette and Woods argued in a recent report that earnings per share growth at banks would disappear if buybacks are excluded.

Perhaps investors are catching on to this. Banks trade at the lowest multiple to next year's earnings of any sector in the S&P 500, according to Colas.
"They are the cheapest group by a country mile," said Colas.
It's hard to imagine what those low valuations would look like without buybacks.
Still, Colas urged investors to wait before scooping up bank stocks. He said real evidence of a recession, whenever it strikes, will cause bank stocks to get even cheaper and present a buying opportunity.
"We're telling clients don't touch financial stocks," said Colas. "You make money in this group when things are bad. Things are obviously not bad right now.""

MY COMMENT

This article is CLASSIC. Lets join good earnings news with talk of recession. YES.....we are in a GOLDEN time for investors at the moment. BUT, as said in the article various events like the so called trade war could change things.......BIG EMPHASIS on "could". Possible but not likely. I prefer to invest based on PROBABILITY and at the moment all the probabilities are on the positive side of things. Of course, being a LONG TERM, fully invested all the time, sort of investor I dont care about media, speculator, or trader short term turmoil or BS. I care about RACKING UP quarter after quarter of good financials in the companies that I own. As long as those good quarters BEAT the bad quarters that is all I care about. As to recession or correction.....that is just the reality of the business and economic cycle and I really dont care about either.

 

My distraction with having moved (downsized) and now owning two homes continues. At least I am near the end of the fixing up of the new home and repairs/projects to the old home. This week we will make the listing of the prior home active.

I like TomB16's comments above. Spoken like a true long term investor.

I see lots of professional and non-professional investors CHASING RETURNS right now as usual. This is in my opinion one of, if not the primary reason, that the average investor and typical professional can NOT beat the SP500 over the medium to long term. The OTHER primary reason that I constantly see with investors for failing to perform is investing on hunches, guesses, technical BS, complexity, etc, etc. All of these are PROBABILITY killers. No one can be certain of anything 100% when it comes to investing. BUT, you can invest based on REAL CLINICAL probability. "CAN" being the operative word since most people are unable to do this due to emotion and other human behaviors. That is one reason that I like the SP500 Index as a primary investment for most people that want to invest for the long term since the statistical probability is that the SP500 will be positive 65-70% of the time and will achieve a long term total return of 10% or more per year.

HERE is what is the NORM in the investing business now and for the past 50-100 years if not longer:

Terrified money managers are chasing overvalued momentum stocks

https://www.marketwatch.com/story/y...-07-22?mod=mw_latestnews&mod=mw_theo_homepage
(BOLD is my opinion and what I consider important content)

"Fascinating new data from Bank of America shows how terrified money managers are chasing the stocks that have already gone up, in the hope of not getting fired for missing the latest rally.

“Active investors are now “buying what’s working” more aggressively than usual,” write the bank’s quantitative data team in a new report. So-called momentum stocks, meaning the stocks that have already risen the most in the past 12 months, are now heavily overbought and overvalued as a result, they say.

“Our 12-month price momentum factor is almost 25% more overvalued on forward earnings than usual, and this basket of stocks with the strongest returns over the last 12 months are, in aggregate, overweight by ... institutional long-only investors relative to the benchmark.”

It’s a fascinating insight into what’s driving the market now. FOMO, or Fear of Missing Out. Money managers don’t want to risk their careers by missing out on the rally. They have their yachts to worry about. The customers’ yachts, famously, are a secondary concern.

Seems like only a couple of months since the market was plunging in terror about a trade war that was going to ruin us all.


(Oh wait… it was only a couple of months ago. But the market couldn’t be irrational, could it?)

The number-crunchers at Bank of America note that panicked, herd-like money managers aren’t just covering their rears by buying “what’s working.” They’re also avoiding stocks that seem to offer the lowest earnings risks.

“Companies with a high level of “analyst disagreement”,” meaning those where the analysts’ earnings forecasts vary the most, are now “deeply underweighted by active funds,” they write. Stocks with the most earnings uncertainty are now trading at deep discounts in terms of price-to-earnings ratios.

Oh, and FOMO is also panicking hedge-fund managers, even though they’re supposed to be zigging when the rest of the market zags.

“A fear of being different is also evidenced in an increasing overlap in holdings of hedge-fund and long-only managers — in fact, the overlap between long-only and long-short funds’ top 50 stocks is close to record highs,” they say.

Hedge funds are also net long of “high momentum” stocks, they add. That’s just peachy. They’re charging clients hefty fees for “hedging,” and then they’re not hedging. We’ve seen this movie.

Buying stocks with “momentum” is one of the most successful strategies on Wall Street. It’s also one of the most dangerous, because when momentum reverses it can do so hard.

A strategy that bet on the 20% of stocks with the most momentum, and bet against the 20% with the least momentum, would have lost 70% of its value in 12 months just after the financial crisis, James White and Victor Haghani at money management firm Elm Partners recently pointed out.

Bank of America notes that so-called “value” stocks, “high-quality cyclicals,” and companies with a lot of earnings uncertainty are all being left behind by the charging market. They may offer great long-term opportunities.

No one knows when this will turn. Momentum can keep going for a very long time. But chasing it too hard can be a dangerous game."

MY COMMENT

The more things change the more they stay the same. I suspect that this sort of chasing returns behavior has been driving investors and professionals and traders for as long as there has been markets. There is a reason why the average professional, investor, trader, etc, etc, can NOT come anywhere close to the unmanaged averages over the long term.

 

FOR those that own BA.....BOEING......stock these are interesting times. The latest earnings SUCK as you would expect this this sort of crisis event that the company is involved in right now. ACTUALLY, I am surprised that the stock has not gone much lower. I am still positive on my shares and expect that will continue till this short term event is over.......about the end of the year. I STILL intend to hold this stock for the LONG TERM since it is the dominant company in a two company industry. I like this business........one where the product costs hundreds of millions of dollars and is constantly needing replacement every ten to twenty years by the customers due to technology advances and wear and tear. So far this....."little"......event has not produced the big buying opportunity that I thought it would. I do believe (simply personal opinion) that this issue is more complex and larger than is being talked about in the press since it is going to take at least a year to resolve. I am speculating that is goes beyond a simple software upgrade, that should not take a year to fix. I am speculating that this issue is creating all sorts of cascading issues as they try to fix one thing and it impacts many other things which than need to be fixed or corrected. I am speculating with no basis in fact that there is much more of a redesign going on here than is known.......but who knows and who cares as long as they are able to get things sorted out.

Boeing reports $2.9 billion quarterly loss — its worst ever — after taking 737 Max charge

https://www.cnbc.com/2019/07/24/boeing-earnings-q2-2019.html

 

BOEING........looks like there is some good movement to the down side today. About $346 and down over 4% so far for the day. Perhaps we are FINALLY starting to see the impact of this MAX "stuff" hitting the stock harder. With this latest drop the stock is now starting to get into the range where I would be a buyer if I had funds to put in for the LONG TERM. Although, I would prefer to be a buyer in the $310 to $320 range.....but it is iffy whether or not the stock will get into that range. Buyers at the current price will do well over the LONG TERM, but at the current price will have to be confident and willing to not panic if the stock drops another $10 to $25 over the short term (6-10 months). This is a FLUID situation, one where only hindsight will tell where the bottom is and when the pain is over for the company.

In some ways reminds me of the VW diesel catastrophe. During that event I was an owner of a turbo diesel Jetta. It was amazing to participate in that process and experience a situation where a major company could NOT come up with a fix for a technical issue and in the end just had to give up, EAT IT, and buy back all the cars in addition to giving each owner a nice settlement over and above the value of their car. We got a very nice settlement from VW and had to sell our car back to them. I AM NOT saying that this Boeing situation is the same (I am NOT saying that this was fraud, a cover-up, or criminal on the part of Boeing) or going to end up the same way, but it has the same feel........press reports and releases from the company in panic and confusion talking about a fix and continuous walking back of the date the issue will be resolved. The primary similarity to me is the fact that this is a classic situation of a corporation dealing with CRISIS MANAGEMENT and a public relations disaster.