The Long Term Investor

Nice comment Tom.....especially the part about your mom. I learned to invest from my mom. She was a very early investor having investments in mutual funds in the 1950's and moving into individual stocks in the early 1960's. At that time there were very very few people in the USA that held either mutual funds or stocks. There were no IRA acccounts, no 401K, or any other retirement vehicles. It was the era of traditional pensions, so the vast majority.......probably about 95% of the population......had ZERO money in mutual funds of stocks. My grandfather had a stock portfolio from at least the 1940's till his death in the early 1960's. At the time of his death the portfolio was worth about $75,000. BIG CAP, DIVIDEND, AMERICAN, companies like Phillip Morris, Colgate, Proctor&Gamble, Coke, etc, etc, etc. That is how and why my mom had investing experience....... from him and working in some of his business offices as a teen and college student in the summers. My mom grew up in a business family in a small town since my grandfather and his family owned the local savings and loan and a real estate business and an abstract company. But it was a small town, in an isolated area of the Southwest. So they were well to do in their town but not by the standards of a bigger place.

Here is some info from INVESTOPEDIA about being an investor in the 1950's......like my mom and grandfather.......and up to the 1970's. VERY DIFFERENT than today. I remember those times very well.

"Investing in the 1950s

According to the first share owner census undertaken by the New York Stock Exchange (NYSE) in 1952, only 6.5 million Americans owned common stock (about 4.2% of the U.S. population). With a generation scarred by the market crash of 1929 and the Great Depression of the 1930s, most people in the 1950s stayed away from stocks. In fact, it was only in 1954 that the Dow Jones Industrial Average (DJIA) surpassed its 1929 peak, a full 25 years after the crash.


The process of investing was also more time consuming and expensive in the 1950s than it is now. Thanks to the Glass-Steagall Act of 1933, which prohibited commercial banks from doing business on Wall Street, stock brokerages were independent entities.

Fixed commissions were the norm, and limited competition meant that these commissions were quite high and non-negotiable. The limitations of technology in those days meant that the execution of stock trades, from initial contact between an investor and a broker, to the time the trade ticket was created and executed, took a considerable amount of time.

Investment choices in the 1950s were also quite limited. The great mutual fund boom was still years away, and the concept of overseas investing was non-existent. Active stock prices were also somewhat difficult to obtain; an investor who wanted a current price quotation on a stock had few alternatives but to get in touch with a stockbroker.

Although thin trading volumes reflected the relative novelty of stock investing at the time, things were already beginning to change by the mid-1950s. 1953 marked the last year in which daily trading volumes on the NYSE were below one million shares. In 1954, the NYSE announced its monthly investment plan program, which allowed investors to invest as little as $40 per month. This development was the precursor to the monthly investment programs that were marketed by most mutual funds years later, which in turn led to the widespread adoption of stock investing among the U.S. population in the 1970s and 1980s.

Investing in the 1970s

The process of change, as far as investing was concerned, accelerated in the 1970s, although the U.S.stock market meandered through this decade of stagflation. The DJIA, which was just above 800 at the start of the 1970s, had only advanced to about 839 by the end of the decade, an overall gain of 5% over this 10-year period. (For details see, Stagflation, 1970s Style.)

However, mutual funds were growing in popularity, following the creation of individual retirement accounts (IRA) by the Employee Retirement Income Security Act (ERISA) of 1974, as well as the introduction of the first index fund in 1976. In 1974, trading hours on the NYSE were extended by 30 minutes to accommodate the growth of the market. (For further reading on the ERISA, see our special feature on Individual Retirement Accounts.)

Perhaps the biggest change for investors this decade was the increasing settlement of securities trades electronically, rather than in physical form. The Central Certificate Service, which was introduced in 1968 to handle surging trading volumes, was replaced by the Depository Trust Company in 1973. This meant that, rather than physical stock certificates, investors were now more likely to have their stocks held in electronic form at a central depository.

In 1971, Merrill Lynch became the first member organization of the NYSE to list its shares on the exchange. In 1975, in a landmark development, the Securities and Exchange Commission banned fixed minimum commission rates, which had hitherto been a cornerstone of U.S. securities markets and exchanges throughout the world. (For more on the SEC, see Securities And Exchange Commission: Policing The Securities Market.)

These changes, coupled with the dramatic improvement in trade processing and settlement due to the increasing use of automation and technology, laid the foundation for significantly higher trading volume and the increasing popularity of stock investing in the years ahead. In 1982, daily trading volume on the NYSE reached 100 million for the first time. By 1990, the NYSE census revealed that more than 51 million Americans owned stocks - more than 20% of the U.S. population.

MY COMMENT

AMAZING and SHOCKING that by 1990 the percentage of the US population that owned stocks was STILL only about 20%. We are in a very different world now. Congratulations Tom, to your mom. A very smart lady. With the internet now and the general attitudes of people, there is little to no appreciation of the past. Those of us that lived through it have a very broad understanding of things that younger people do NOT appreciate when it comes to investing and life in general. BUT.....that is probably the norm through all of human history.

 

I LOVE the headline and story below. Gee.......NO ONE saw this coming. Yeah right......EXCEPT all of us that did see it coming and expected another NICE year for our investments. And, for those of us that are LONG TERM INVESTORS, we know that it is impossible to predict this sort of short term......."stuff"......to be polite. Not all the MORONS and IDIOTS that make a living off media clicks and ratings........well......they make a living from sensationalism, financial sensationalism. As I have said often in this thread. Avoid anything from these IDIOTS at all costs. This sort of media GARBAGE is hazardous to your financial health.

The stock market keeps setting new highs in a rally no one saw coming

https://www.msn.com/en-us/money/mar...rally-no-one-saw-coming/ar-AAJQLEP?li=BBnb7Kz

(BOLD represents my opinion of IDIOCY on the part of the financial media world)

"Faced with an array of daunting headwinds and coming off a tough year, Wall Street took a dim view of stocks in 2019. As a result, many major analysts missed one of the best years of this history-making bull market that continues to make new highs.

Of the 17 forecasters that CNBC tracks for S&P 500 price, just three have targets that are above where the broad-market index traded Monday. The median 3,000 target is 2.7% below mid-day levels with still nearly two months left to the year.

While the market’s path is always unknown and could come back down before the calendar turns to 2020, the year looks like an opportunity lost for those who bought into the pessimism. The S&P 500 continues to climb to new highs, while its sister index, the Dow Jones Industrial Average, also set a new high-water mark Monday.

The Dow is approaching an 18% gain for the year while the S&P 500 has gained close to 23% and even the small-cap Russell 2000 is ahead more than 18%.

“I don’t think you can blame people for being a bit cautious or skeptical,” said Sam Stovall, a chief investment strategist at CFRA Research. “If anything, earnings growth growth for this year has come down, and earnings expectations for next year have come down.”

Indeed, the S&P 500 is in the midst of an earnings recession that is on track to show the third consecutive quarter for negative year-over-year growth. Despite a 76% beat rate compared to expectations, earnings are still projected to a show a 2.7% decline in the third quarter, according to FactSet.

But it’s been more than that this year.

A range of opinions

Wall Street has been spooked by concerns over a potential recession, the U.S.-China tariffs and multiple geopolitical concerns such as how Brexit will turn out.

Still, the market keeps going higher and defying the naysayers. The “most hated bull market in history” observation so often repeated on Wall Street may have become the worst cliche in bull market history as the averages continue to push into new record territory.

“You do wonder what is causing the market to go higher. One [factor] is that the lack of alternatives continues,” Stovall said, citing the “TINA” belief that There Is No Alternative to U.S. stocks.

Stovall is among the many Wall Streeters who underestimated the market’s strength. He put a 2,975 target on the market, but was by far not the most pessimistic. UBS is the lowest on the Street with a 2,550 price target while Morgan Stanley has been consistently bearish with its 2,750 estimate.

In fact, Morgan Stanley is not only bearish on 2019 but believes low returns will continue for the next decade due to high valuations. Andrew Sheets, chief cross-asset strategist at the firm, said returns will be “challenging” considering the set-up from the trailing price-to-earnings ratio.

On the other side, though, are strategists including Piper Jaffray’s Craig Johnson, who has been one of Wall Street’s biggest bulls for years and holds a 3,125 target for the S&P 500. Though directionally right about the market’s moves, Johnson said “we weren’t perfect all along” in terms of timing, and he understands the skepticism about valuation.

“I think a lot of investors are struggling with valuation. The way this market has moved up, stocks have been pretty darn expensive,” Johnson said. “A lot of investors got caught off guard in Q4 last year. Those memories are still fresh in their minds about the big, dramatic selloff which wiped out a lot of bonuses for people last year. There’s that psychological impediment.”

Money to the mattresses

The fourth-quarter sell-off last year was fueled by weakening economic growth coupled with a Federal Reserve that seemed tone-deaf to what was happening, Two verbal miscues from Fed Chair Jerome Powell that pointed to tighter policy ahead fueled the belief that a year when the market fell 6.2% could bleed over into 2019.

Investors reacted by heading for cover.

Money market fund balances have surged this year to $3.5 trillion, the highest in a decade and up 23.7% year to date. Retail investors alone have pushed $324 billion into money markets in 2019, a 32% jump.

Sentiment has been turning of late, though, if not among the big Wall Street houses then at least with the mom-and-pop crowd that has been cheered by three Fed rate cuts and a macro scenario that no longer looks as gloomy as it did a few months ago. Bullishness, or the belief that the market will be higher in six months, was at a 12-week high of 35.6% in the most recent American Association of Individual Investors survey, while the bears fell to 28.3%.

Among professional investors, though, skepticism remains high.

The put-call ratio, a measure of sentiment among options traders, has remained above 1 since mid-September, a contrarian indicator that the market could be headed higher on strongly negative sentiment.

“There’s worry that we are going to be disappointed by the trade issue, economic data and earnings,” said Quincy Krosby, a chief market strategist at Prudential Financial. “Nothing stays the same forever. We’ve started to see an easing in all of the above. It doesn’t mean that’s the perfect scenario for the market, but it is perfect enough to get volume and breadth beginning to pick up.”

For the bulls, one of the big factors could simply be that the signs of a recession that had shot up during the summer have been tamed.

The bond curve inversion, where shorter-dated yields were higher than their longer-term counterparts, has since reverted. Inversions have preceded each of the last seven recessions, but there’s some sentiment that this time could be different due to unusual factors playing out in the bond market, even though fourth-quarter GDP growth looks like it will struggle to top 1%.

In any event, lack of a recession threat would be one huge load lifted from a market that has struggled to inspire confidence all year.

“The tug-of-war has not died down. There are those who still see that there is a recession looming and the market is oblivious to that,” Krosby said. “The fact of the matter is the market is suggesting there is not a recession that’s imminent, that the market was poised for recession for too long.”"

MY COMMENT

Among professional investors, though, skepticism remains high.

The bond curve inversion, where shorter-dated yields were higher than their longer-term counterparts, has since reverted.

the signs of a recession that had shot up during the summer have been tamed.

many major analysts missed one of the best years of this history-making bull market that continues to make new highs.

And on, and on, and on, BLAH, BLAH, BLAH. NO SH*T. I will tell you why stocks are UP, because the economy is strong, Jobs are strong, wages are strong, business is strong, the tax hikes helped everyone and the economy as a whole, the corporate tax cuts CONTINUE to drive business results higher and higher, etc, etc, etc. Those that let wishful thinking based on their personal politics and and short term media thinking are DOOMED to complete failure. Any that follow these MORONS and invest in and out of the markets accordingly are DOOMED to complete failure.

JUST to rub a little more salt into their wounds, here is where we are at the moment:

DOW year to date +17.72%

SP500 year to date +22.79%

WOW.......REALLY BIG WOW.....the Sp500 is up nearly 23% year to date. With a little help from Santa we could hit a +30% year on the SP500. And IMAGINE THAT........no one, yes no one, saw it coming. Yeah right......

 

BOEING stock is on a RUN this week. AS ARE the markets in general. We are hitting ALL TIME HIGHS in the primary general market averages:

Dow, S&P 500 and Nasdaq hit record levels after report China, U.S. agree to cancel tariffs in stages

https://www.marketwatch.com/story/s...-agree-to-cancel-tariffs-in-stages-2019-11-07

MY COMMENT

EVERYTHING is in place for a major year end rally. I dont see much that can screw things up. ALTHOUGH.......it is the things you cant see that kill you in the short term. When I make these sort of short term statements and predictions.......keep in mind......it is for fun. I certainly DO NOT want others investing or making moves off what I say on a stock market internet board.

BUT........sentiment, especially with the professionals and financial media is still hesitant and unbelieving. That is a good thing. In general there has been a lot of money that has moved to cash over the past months and I dont see any signs of EUPHORIA among the average investors at all. A good thing. The economy in jobs, wages, business, etc, etc, is KILLING IT. In my opinion there is lots of room for good quality stocks like those in the DOW and SP500 to make a good year end run. My GUESS......this is just a GUESS......5% to 10% run up by the end of the year. EVERYTHING is in place for 2019 to end up as a HUGE year. One of those years that makes your returns for the LONG TERM. When you miss out on a year with potential like this one, you NEVER make it up. That is why I am a fully invested.....all the time.....investor. There is no way to predict a year like this and I dont like to miss these sorts of unexpected UP MOVES. I am willing to take the risk of the negative in order to be in the markets when years like this happen. It is my investing philosophy that moves like this are more probable than not over time and you have to be invested to take advantage of them. They are unpredictable, but necessary to meet or beat the returns of the unmanaged averages. Since I am LONG TERM, I allow the power of TIME and Compounding make up for the negative times. I make sure I get the unanticipated positive returns. My risk tolerance and very clinical approach to long term investing combined with over 45 years investing allows me to follow this fully invested all the time approach. The other BIG FACTOR.........I DO NOT do GREED. I dont take flyers on the latest, greatest hot thing trying to make a killing. i have found that GREED is usually and often a short term emotion. I am NOT looking for a short term killing. I stick with TOP QUALITY, PROVEN BUSINESS, WITH (hopefully) GREAT MANAGEMENT, ICONIC PRODUCTS, WORLD WIDE MARKETING, AMERICAN, COMPANIES.

 

Investor BIAS is a HUGE negative issue for any sort of investor including long term investors. The article below touches on this issue in a basic way. I have seen this information out there for a long time, but it is always good to revisit this sort of info and I suspect there are a lot of younger or newer investors that dont really appreciate or have awareness of this information. I think of this as GENETIC BASED HUMAN BEHAVIOR. These sorts of traits developed over millions of years are adaptive behaviors that allowed the human race to be successful and survive. In investing this sort of stuff can KILL you quickly.

Don't Lose Money Playing Mind Games

https://www.investors.com/etfs-and-...inance-avoid-losing-money-playing-mind-games/

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

"It's one thing to understand investors' biases toward their money and portfolios, says Behavioral Finance Network's Jay Mooreland. It's harder to put that knowledge to use.

Many individual investors may never have thought about the need to cope with their hidden biases.

Even "advisors don't know what the heck to do with this stuff," he said. "We need to give advisors some applications, not just define terms." And if advisors struggle to know how biases cause people to make money mistakes, think how hard it is for investors themselves.

Giving investors tools to stop biases from hurting financial decisions is the goal of two separate sessions at the Schwab Impact 2019 conference, which runs Monday through Thursday at the San Diego Convention Center.

A lot of money is at stake as biases impact investment moves. And the challenge is widespread.

Four Common Behavioral Biases
Schwab's Omar Aguilar, who is speaking at Schwab Impact on the topic, says investors should avoid four common mistakes: recency bias, loss aversion, confirmation bias and home bias. Aguilar is chief investment officer of equities and multi-asset strategies.

Recency bias is the tendency to be swayed by recent events. It propels investors to chase performance. They pile into securities that have done well recently.

Loss aversion is the tendency to prefer avoiding losses over achieving comparable gains. "Usually loss aversion gets triggered in periods of high stress," Aguilar said. "It is what prompts (investors) to go to cash at the worst time. They sell low, then miss out on the subsequent market rebound."

Seeking Info That Confirms Your Existing Beliefs
Confirmation bias is the tendency for investors to seek information that reinforces their beliefs, rather than looking for objective data that might contradict them.

And finally, there is home or familiarity bias. "This is Warren Buffett bias because Buffett says you should invest in something you're familiar with, something you feel comfortable with," Aguilar said.

Practical Applications Of Behavioral Finance
In fact, Aguilar advises investors to cope with each type of bias by taking these steps:

• Recency bias: Resist the thought that whatever happened recently in the market will persist. "What happened recently does not necessarily reflect long-term trends, and it may not mesh with ... portfolio objectives and (a) long-term plan," Aguilar said. Advisors can help. "Communicate with clients. When they express an unrealistic expectation, point it out to them. Do this frequently and before a market downturn."
• Loss aversion: Stay focused on long-term goals. Again, advisors play a role here. "Advisors should tell clients to stay off the phone and not watch a Bloomberg terminal all day," Aguilar said. And remind clients the market has always rallied, and their long-term plans matter more than short-term volatility.
• Confirmation bias: Investors should look for divergent points of view on markets. One of advisors' key jobs is to provide clients with objective information they might not seek out by themselves. "Be proactive," Aguilar said. "Seek out viewpoints that may not reinforce a client's preconceived notions. And don't be afraid to tell clients to get a second opinion."
• Home bias: This bias can lead investors to overweight positions in familiar securities. And a portfolio review can highlight this error. "Remind clients of the risks in that, and help them diversify their portfolios," Aguilar said.

Putting Behavioral Finance To Work
For advisors seeking to harness behavioral finance, Behavioral Finance Network's Mooreland offers several practical steps. The advice applies just as much directly to investors.

Don't chase past performance. It's a way to combat recency bias — the belief that securities will continue to perform the way they have recently.

Next, make a plan and stick to it. "If you listen to (some pundits), you'll constantly question your plan and switch from one strategy to another," Mooreland said. Resist that temptation.

And think about how elements of your portfolio work in concert. Advisors play a role here. "Explain to (clients) what tends to go up and down in different markets so they won't be surprised when it happens. Surprise erodes confidence in their plan." And lack of confidence in the plan makes clients prone to doing the wrong thing — switching from one strategy to another.

Behavioral Finance Sessions At Schwab Impact
Behavioral finance will be a popular topic at Schwab Impact. It's the topic of a panel featuring Schwab's Aguilar, Greg Lawrence and Mark Riepe as well as Mercer Global Advisors' Henry Lao. That group is slated to convene on Tuesday at 1 p.m. The panel's title is "Building Better Portfolios with Behavioral Finance.""

MY COMMENT

YES.......basic stuff, but these behaviors are the building blocks of POOR PERFORMANCE. These behaviors are intimately connected to RISK TOLERANCE. In order to be a successful investor you have to be invested.......... and to be invested, and stay invested......... you have to have some level of self awareness to invest according to your personal risk tolerance.

 

Hi Tom. In general, and for the past 25-30 years, I have been very comfortable doing what I do in my stock accounts. The long term methods and portfolio I use have been about the same process and theory for the past 40+ years. I have a very clinical investing personality, very unemotional. Combine that with the fact that I have always been successful as an investor and I have always had a very good comfort level. Some of that comfort stems from the fact that I dont bet the farm and take GREED BASED risk that is beyond my assets. It also helps that I have grad schooling in business, was a former business owner till retiring at age 49, and that I have a law degree (I DO NOT PRACTICE OR HOLD A LICENSE). NOT that any of those educational experiences teach you anything about investing. But from my business schooling and work life I do have an understanding of accounting and how to read business financials. I also got used to dealing in large sums of money in my work life from an early age........late 20's. Since I dont invest outside my comfort range in terms of available money, I am usually pretty comfortable. I do manage accounts of various family members and a trust and I would say that responsibility DOES NOT weigh on me at all. I guess I am lucky to be born that way. I have always had a head and talent for money, business, and investing. For me it is just a God given talent that I believe I was born with, not some genius ability. I do come from a family with multiple generations of business people and investors on one side, so there is probably some genetic heritage there. At the current time my income annuities and social security create a guaranteed income for me of a minimum of$175,000 to $180,000 per year for life, before any capital gains or investing gains. I also own a paid off home and a significant value in personal property (art, antiques, etc, etc) that is good enough quality to be liquid. So all in all I have a very good comfort level. BUT.....being human, it would piss me off to invest a big chunk of money, like the $830,000 and immediately go into a $50,000 hole. Even though it would piss me off, it would not change my investor behavior.......ie: investing that large sum of money all in all at once when I did. I have lived through many many corrections and recessions and I EXPECT in a normal year to have to live through 1-3 corrections. No big deal, just NORMAL, short term, market behavior.

I DO like to see nice gains with newly invested money. Like the $830,000 that I recently invested, I am now up over $40,000 in a short time. I MUCH PREFER to have a nice gain early, but I also understand that short term it is random chance. At this time and at the time of that investment a month ago, I did not see anything standing in the way of a continued UPWARD move in the markets for at least the next 6-9 months. As the election nears things will get more and more erratic and crazy, based on media BS and political garbage. polls, etc, etc.

HERE is the news of the day, that will be a factor in the Santa Clause rally that I believe is more probable than not going to the end of the year and into January. Hopefully in the 5-10% range from where we are today.

Consumer Sentiment Climbs Higher

https://www.breitbart.com/economy/2019/11/08/consumer-sentiment-climbs-higher/

"Consumers are unshaken by the impeachment drama unfurling in Washington, D.C.
The University of Michigan’s consumer sentiment index edged higher in early November, rising to 97.5 from October’s reading of 95. Economists had expected a smaller rise.

The survey’s gauge of current conditions declined a bit. This was more than offset by an improvement in expectations.

“References to the impact of impeachment on economic prospects were virtually non-existent, mentioned by less than 2% in October and November,” said Richard Curtin, the survey’s chief economist.

Consumer sentiment is looked to for clues about consumer spending, which accounts for somewhere around 70 percent of economic activity. It is particularly important now because business investment has slumped. Consumer sentiment may also be politically important as we approach the 2020 presidential contest.

“Although consumers have become somewhat more cautious spenders, they see no reason to engage in the type of retrenchment that causes recessions,” said Curtin."

MY COMMENT

As I have said a number of times. The short term future of stocks and funds will be driven by consumer sentiment, booming jobs, booming wages, more money in the pocket for individuals due to the tax cuts and the continued driving of business by the corporate tax cuts. ONWARD AND UPWARD.........TO INFINITY AND BEYOND.

 

HERE is another PERFECT example of the investing/financial media and the baloney they pull. I was watching CNBC yesterday morning for a brief while. I normally have Varney on in the mornings in the background and than at 11:00 switch to CNBC since I cant stand the garbage that Cavuto spouts on his show. CNBC is bland and oriented often toward trading, but I find them fairly accurate in a general way. Yesterday there was a segment on the $2.2TRILLION that business is siting on. There was a guest spouting on and on that the $2.2 Trillion was being held by business for paying tariffs. He than claimed that the figure was deceptive since small businesses were having such a hard time and were struggling financially. TOTAL BALONEY, by a guest that OBVIOUSLY was stating a political bias as fact to try to influence viewers. I expect the guests to try this sort of crap. BUT......what I think is media malpractice for a financial show......is that ALL the hosts just sat there and said nothing. What the "guest" was saying is BLATANTLY WRONG. Business is not siting on $2.2Trillion due to tariffs. They are siting on that money because they have gone on a financing BINGE to take advantage of low interest rates and because they are experiencing record productivity (expense and employee cutting) and tax savings due to the tax reform, and are NOT spending that extra money on research, plants and facilities, expansion of products and marketing, acquisitions, etc, etc. NOT TO MENTION, returning that money to shareholders as dividends.

The WORST BALONEY that went unchallenged is the part about small business. Small business is THRIVING. The opposite of what the "guest was claiming as unchallenged fact. Just ANOTHER example of media BALONEY by just siting there and not having the sense to challenge a totally false statement. The dirty truth is probably that unless the producer of the show whispers something in their ear the hosts on these sorts of shows are IDIOTS and really dont know much at all.

The Truth:

Small-Business Optimism Rises in October: NFIB

https://www.marketwatch.com/story/small-business-optimism-rises-in-october-nfib-2019-11-12-6485329

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

"Small-business owners' confidence in the U.S. economy rose in October, as concerns of a recession receded, according to a survey by the National Federation of Independent Business.

The NFIB Small Business Optimism Index had an October reading of 102.4, up 0.6 point from the prior month.

The NFIB said optimism rose because business owners are still creating jobs, raising wages and expanding their businesses.

Overall, eight of the 10 components in the index advanced in October.

The NFIB survey is a monthly snapshot of small-business activity in the U.S., which accounts for nearly half of private-sector jobs. Economists look to the report for a read on domestic demand and to extrapolate hiring and wage trends in the broader economy.

The NFIB survey results--based on responses from 1,618 small-business owners last month--showed that the labor market remains tight, with 25% of firms reporting finding qualified workers as their top concern, the report said.

Around 59% of business owners reported capital outlays in October, and 29% of firms reported plans for capital outlays.

A net 30% of firms reported higher worker compensation, while 22% of all firms plan to raise compensation.

Job creation remained steady in October, with an average addition of 0.12 workers per firm. This was still a stark contrast from February, when small businesses added an average 0.52 workers per firm.

MY COMMENT

The above exchange on a national business show with MUTE hosts in response to a blatantly false statement is typical. The MEDIA has an agenda. In the alternative they are IDIOTS. Or......probably BOTH. These are GOLDEN days for small business. The only negative is the fact that is is very difficult to find qualified workers. In addition that $2.2Trillion has NOTHING to do with tariffs. As usual.......invest according to the actual facts as you determine them to be......NOT the CRAP you see in the daily media......even the financial media.

BOEING.....added over $14 per share yesterday, giving back some today but is still up very nicely over the past week or two. The stock is STILL, in my opinion, a SCREAMING BUY. There is some real money to be made in this stock over the nest 6-12 months at the level it is today. It is STILL about $76 per share below where it was just 8 months ago before the impact of the 737 FIASCO. In my opinion there is HUGE upside to this stock. HOWEVER, anyone buying this stock needs to have the guts to sit through the remainder of the 737 issue, which in my opinion is more serious and harder to fix than the company is admitting. I.....am GUESSING.....that this 737 stuff will be fixed some time over the next 6 to 12 months and at that time the company will march back toward $440 per share. I will continue to hold Boeing stock.......I also remain fully invested for the long term as usual.

 

For any that thought the CIRCUS on capital hill today would tank the markets or even have some impact. NO SUCH LUCK. BORING.........not to mention a total waste of time. Looks like we are STILL on track to add a lot of wealth and value for investors over the remainder of the year. AND......January should be a nice continuation of this short term KILLER market.

 

BOEING.......continues to climb out of the DEEP HOLE that it dug for itself with foreign manufacturing, foreign parts, and foreign labor here in the USA. The dangers of saving money on the backs of competent AMERICAN workers. Add in management malpractice on this 737 issue and you have the current situation. I will continue to hold the stock because I believe they have an actual world wide monopoly in the airplane market plus a nice defense business on the side. It will be two steps forward and one step back for the coming months......at least until the 737 is allowed to fly again. I would hope they are at least smart enough that THERE WILL BE NO MORE SURPRISES going forward. Hopefully that have now gotten all the negative info out and public and the drip, drip, drip of bad news is over. BUT.....nothing surprises me anymore with modern CELEBRITY, me, me, me, corporate leaders.

Nice mixed markets today with the DOW and SP500 up a little bit. BUMMER for China. GEE......I really don't see ANY impact of the TRADE WAR or the TARIFFS here in the good old USA. Except.........of course.......for all the BIG BUCKS (billions) of dollars that are flowing into the US Treasury from the Chinese and those foolish enough to manufacture and give away their technology, manufacturing secrets, and business methods by manufacturing in China. Actually, I believe it might be a good thing to EXPAND the tariffs and HAMMER China while we have the chance. No reason for us to be in a hurry to end this trade war. Everything about this situation is in our favor. AND everything going on around the world right now is just CONFIRMING in a big way that WE are the worlds economic leader and the only game in town when it comes to investing or safeguarding money.

Asian markets mixed after China data disappoints


https://www.cnn.com/2019/11/13/investing/asian-market-latest/index.html

 

TIME to cheer-lead the markets today.

Santa Clause rally is ON. What a move today. Dow over 28,000 for the fist time in history. All time record high. Lots of time left in the year.....plenty of time to tack on another 5-10% by year end. This year has the potential to have HISTORIC GAINS. Notice.......I said "potential".........since short term, who knows what will happen. But at times like this you just HOLD ON and enjoy the ride. At the moment we are on a FOUR WEEK STREAK. JUST FOR FUN........my year end prediction.........DOW 30,240. Anyone else feel free to post your year end prediction.........good or bad.

DOW year to date +20.05%
SP500 year to date +24.48%

 

"Sometimes I think the worst case scenario is if a new "investor" buys at the outset of a huge up trend and thinks they have some sort of investing or trading gift. In this case, these folks are in for a whole new level of humility at some point in the future."

Although I agree with the above quote from TomB16......I believe it is more likely that someone that has not invested would be afraid to put money into the markets. I STILL see lots of hesitation and fear from the general public when it comes to puling the trigger to invest. OBVIOUSLY anyone that invests needs to be aware that short term results DO NOT reflect some sort of amazing investing genius. Or if the markets tank right after you invest......it does not mean you are an idiot.

SPEAKING of short term results. You will remember that on October 7 I invested $830,000 in cash into my portfolio model.....ALL IN ALL AT ONCE. Why? Because I have been following the academic research for many decades of investing that shows that all in all at once BEATS dollar cost averaging. Most people, probably do NOT follow this research because it is PSYCHOLOGICALLY painful to invest this way regardless of the facts. I assume some might be interested in the results of this little event, so here is where things are at the moment.

I will focus on one account that started with $675,000 of the $830,000. It is easier for me to focus on this one account since the rest of the $830,000 went into an existing account and is mixed in with the positions that were already in the account.

So this particular account on October 7 had $675,000 placed into the account and invested on that day according to my portfolio model. (in general, I tweaked some of the stocks to emphasize some of them and also emphasized some of the funds over others a little bit) After 6 weeks:

Total account gain $40,000
Account value $715,000
Stock side gain 5.2%
Fund side gain 6.89%
Total account gain 5.89%

A big part of the reason for the fund side out-performance is the Dodge & Cox Stock Fund which is up 9% over that time.

I SUSPECT that it would be hard to find ANYONE ELSE that would have put that sort of money into the markets at that particular time. BUT I simply believe the research and follow the PROBABILITIES. So this was not some sort of genius market call. It was just following the historical PROBABILITIES. What I do have, is the constitution and risk tolerance to make this sort of investment and if it goes down right off the bat to NOT panic and to simply hold through the short term. Being a LONG TERM INVESTOR, I trust the probabilities, but I understand there is no guarantee and there is no certainty and that the pay off for doing this sort of investment strategy comes over the long term. The difference between all in all at once and dollar cost averaging is achieved over the long term.

SO......anyone that is new to investing. IGNORE the short term results. (in spite of the above) If you investing plan is realistic and reasonable and the funds or stocks that you invest in are fundamentally sound investments you will do just fine over the long term. You have to TRUST THE FORCE. Having a risk tolerance that allows you to stay in the markets will allow you to smooth out all the crazy short term events and results in order to achieve historical market gains.

 

Here is a little article that I agree with. I believe that the general market direction for the short to medium term is UP. If not for political and election SHENANIGANS I would put the UP direction at 2-3 years. With the political BS I would put it at 8-16 months generally. If the DEMS win the presidency with one of the many communist/socialistic people running on their side, than all bets are off.

Why Record-High Stock Prices Mean You Should Buy More

https://www.riskhedge.com/outplacement/why-record-high-stock-prices-mean-you-should-buy-more/RCM

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

"Nobody wants to be the schmuck who bought stocks at the tippy-top.

Did you check your 401(k) this week? If so, you surely noticed US stocks hit new all-time highs. And the S&P 500 is now on track for its best year since 1996.

How does this make you feel in your gut? Are you happy stocks are achieving new highs? Or does it scare you... tempt you to sell all your stocks… and run for cover?

Record High Prices Scare Investors
I talk with hundreds of investors... and I can tell you with 100% certainty record high stock prices scare most folks.

A financial advisor told me the other day: “Every client buying stocks right now is terrified. And those already in the market are nervous this is the top.”

I understand the feeling. Owning stocks at all-time highs can feel like standing at the top of a skyscraper and looking over the edge. After all... stock prices are higher than they’ve ever been. That can only mean danger. Right?

What if I told you record highs are nothing to fear?

In fact, they’re cause for celebration.

You see when stocks hit all-time highs, more all-time highs are likely right around the corner. Since 1915 the Dow Jones Industrial Average has made over 1,350 new all-time highs. That works out at roughly 13 new highs a year.

According to 104 years of data, stocks climb an average of 7.8% in the year after they achieve new all-time highs. Even better, five years later, stocks rise another 32%, on average.

And get this... once the market hits a new high, there’s a 90% chance it’ll hit another high within four months! In other words, record highs are rarely a danger sign. Instead, they’re simply stepping stones to more all-time highs.

There’s No Such Thing As a “Sure-Thing” in Investing.
Great investors think in probabilities, not certainties. But a 90% chance of making money is about as close to “certain” as it gets.

Humans are wired to run away from things that “feel” dangerous. Record high stock prices feel dangerous. Our instinct tells us paying a high price for anything is bad.

In most areas of life, this instinct serves you well. It’ll save you from getting taken advantage of by a sleazy salesman... or from buying an overly expensive car... or a giant yacht you don’t need.

But with investing, this instinct works against us.

Over 100-years of data shows there is nothing dangerous about record highs. Since 2013 the S&P 500 has hit 223 new all-time highs.

Imagine you got nervous in 2013... 2014... or 2015... and sold all your stocks. Many folks don’t have to imagine. I know a lot of investors who did exactly that.

They’re still waiting for stocks to “come back down” ... and they missed out on doubling their money in one of the greatest booms in history.

Stocks Will Likely Continue to March Higher
With stocks on a roll, you’d think professional investors would be feeling good. Maybe amateurs get hung up on feelings... but surely professionals control their emotions and focus on the cold hard data.

Every couple months, financial magazine Barron’s holds its “Big Money Poll.” In short, it asks professional investors where stocks are headed over the next year.

Again, these are professionals managing hundreds of billions of dollars.

Today, only 27% of money managers think stocks will rise over the next 12-months. Not only is that the lowest reading in over 20 years... It directly contradicts 100 years of data!

Legendary investor Sir John Templeton said: “Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria.”

Said differently, market booms often end when investors get overly optimistic... and they often begin when investors are overly pessimistic. If Templeton’s right, we could very well be closer to the beginning of a big market rally than the end!

It’s Tempting to Think Every New All-Time High Is “the Top.”
But that thought is wrong 99 in 100 times.

Of course, one day, a record high will mark a top. Stocks don’t go up forever. But the chances of this being the top are small.

As the great Fidelity Investments money manager Peter Lynch once said; “More money has been lost by investors trying to anticipate corrections, than has been lost in corrections themselves.”

The bottom line is this: 100-years’ worth of data is screaming at us to buy stocks. The widespread pessimism is telling us it’s a great time to buy stocks, too.

Will you listen to 100 years of data? Or will you listen to your emotions?"

MY COMMENT

It is data like this and the other research that I mention above that makes me confident to invest significant money even in the current environment and to invest aggressively, all in all at once. I invest as the article mentions.....based on probabilities. I also invest based on a very long term horizon. I was talking to an 80 year old friend, investor, Senior Vice President at an investment firm, and fellow art collector on Sunday. He has about 55 years of experience as an investor and working in the brokerage business. He is in complete agreement with the fundamental, long term approach that I discuss here. He is also very positive when it comes to the current direction of the general markets and also agrees that the one potential issue for the medium term is the election. (not that his opinion means anything to anyone other than me)

 

I LIKE this little article. It is a good starting point for many today that want to invest but dont have the time, knowledge, or inclination to invest in individual stocks. The VAST majority of people today that own stock investments probably are doing so in a retirement vehicle like a 401K. One of the most basic 401K investments that is available to most people is a SP500 Index Fund. My personal opinion is that for the average person a SP500 Index Fund is ALL they need. A simple, all in one, investment fund that if held for the long term will outperform most traders, speculators, and stock pickers. The KEY is.......LONG TERM. The SP500 investor will achieve a return over the long term of somewhere in the neighborhood of 10%. For busy younger investors that dont have the time or interest to actively manage a portfolio my opinion as to the best approach is to simply put your retirement or 401K money in a SP500 Index Fund. If you have the discipline to follow this strategy for 20, 30, 40 years I believe this is all you need in your portfolio. The key of course is LONG TERM use of this vehicle. To achieve the return of approximately 10% and smooth out the UP and DOWN periods will REQUIRE a long term investing time span. Take a look at the companies that are represented in the SP500......the GREATEST companies in AMERICAN BUSINESS. When you own this fund you own the largest and greatest 500 companies in America.

What is the S&P 500 Average Annual Return?

https://finance.yahoo.com/news/p-500-average-annual-return-231601665.html

"Many investors build their portfolios around index funds. These bundled assets provide a return that tracks some third-party metric such as the price of gold, the bond market or, commonly, the U.S. stock market. The S&P 500 average annual return makes its index one of the most stable investors can ask for. Here’s what it looks like.

What Is The S&P 500?

The S&P 500 is a stock market index which measures the value of the 500 largest companies traded on U.S. stock markets. It is generally considered to be the best benchmark of how the U.S. domestic market is performing. Even though most lay sources refer to the Dow Jones Industrial Average when they say something like “the market” reached a certain value, when investors refer to “the market” they are usually talking about the S&P 500.

This market index has existed for more than 90 years, since 1928. In that time the S&P 500 average annual return was just under 10%. for almost any investor an S&P 500 index fund typically offers a highly competitive rate of return.

What is an Average Annual Return?

An average annual rate of return is what you would receive, on average, if you invested your money in an asset on a year-to-year basis.

The annual rate of return for an asset is how much it grew or shrunk over one year, taking into account all profits and losses. It is the difference, expressed as a percentage, between the asset’s value at the beginning of the year and at the end.

The average annual rate of return on an asset is the annual rate of return the asset has delivered over its lifetime averaged out. So, for example, say a stock has existed for three years. In the first year it grew 10%. By the second it shrank by 5%. Finally, in the third year, it grew by 20%. The average annual rate of return would be: (10 + -5 + 20) / 3 = 8.3. This stock has an average annual rate of return of 8.3%

What Is The S&P 500 Average Annual Return?

As noted above, the S&P 500 average annual return is slightly below 10%.

The S&P 500 tends to have highly variable values in any given year. In 2017, for example, the market posted an annual return of +19.42%. By 2018 it had a return of -6.24%. However, back 2012 it grew by 13.41% while in 2013 it grew by 29.6%. Over the past 20 years alone this market index has fluctuated within a range of 60 points, from a low of -38.49% to 2013’s high of nearly 30%.

This has been consistent over the entire life of the index.

The 10% S&P 500 average annual return is the sum total of all these highs and lows. It is a simple average. Nothing about it is weighted.

It is particularly important when reviewing the S&P 500’s performance to remember that each year is assessed relative to the last. This means that showing growth and losses as percentages can, at times, create an impression that the market is stronger or weaker than it actually is. To understand this, consider a hypothetical index called ABC Track:

• In 2010, that index value was 100.
• In 2011, the index value was 120. Change +20%
• In 2012, the index value was 125. Change +4%
• In 2013, the index value was 90. Change -28%
• In 2014, the index value was 121. Change +35%

Analyzing the S&P 500 Average Annual Return

Between 2011 and 2012 it appeared that the index did quite poorly. Growth was a mere fraction of what it had been the year before. In reality the index still grew, and at an objectively reasonable rate. A five point increase in an index that tends to grow by no more than 20 points is a modest but comfortable return.

On the other hand, 2013 looked like the end of the world. The index lost a quarter of its value in a single year. Yet in doing so it fell to just slightly below its 2010 level. In the following year the index posted monster gains, the largest percent growth in its history. This is not uncommon following a collapse, and in doing so those gains did nothing more than return the fund to its previous rates of return.

The point here is that rates of return can be deceptive. By showing you information in percent form, a rate of return can imply that an asset is stronger or weaker than it actually is. What matters is the objective value of your asset, in this case an S&P 500 index fund, before you buy or sell it.

Why Does This Matter?

This matters for two reasons.

First, this average rate of return lets you compare investing in an S&P 500 index fund against other potential investments. You can consider how alternatives stack up against this rate of return, particularly given its consistency. The S&P 500 has averaged approximately a little bit below 10% for years.

Second, it’s important to understand that this will reflect only your gains over the long term. On an annual basis the S&P 500 tends to swing widely. It is in fact very rare for the index to ever come close to its S&P 500 average annual return; in most years it is significantly different.

The Bottom Line

It’s important to understand that on a given year when you choose to sell your fund, the index might be up by 30% or it might have declined by 20. What’s more, it depends on when during the year you sell. At time of writing, the S&P 500 had fluctuated within a range of nearly 300 points over the previous six months.

This is an average and it tells you what to expect over the long haul, but not much more."

MY COMMENT:

VERY FEW investors over their life and very few professionals in the investing business will beat the SP500 on ANY level. MOST will NOT beat the SP500 year to year and MOST will NOT beat the SP500 over the long term. This BROAD Index is a powerful tool that gives many basic investors the ability to invest in the 500 largest and greatest companies in the American business world.......the cream of the crop world wide. The fact that the index contains 500 different companies gives an investor GREAT diversification.

 

I talk about a LOT of short term "stuff" in this thread. Even though I am a long term investor, I do keep up with my stocks, funds, and the general markets and business world on a daily basis. I saw this little BLURB of an article earlier today and looked it up a few minutes ago. I believe this little bit of news will have the potential to significantly drive the markets tomorrow. NOT that it means anything, it is just the typical VAGUE CHINESE BS that they put out there. Even when China puts out anything substantive they can NEVER be trusted to live up to their word anyway. They are playing a very LONG GAME.....way longer than the 4 or 8 years that anyone is in power in DC.

http://www.china.org.cn/china/2019-11/25/content_75442345.htm

"The general offices of the Communist Party of China (CPC) Central Committee and the State Council have jointly issued a directive calling for intensified protection of intellectual property rights (IPR).

Titled "The Guideline on Strengthening Intellectual Property Rights Protection," the document aims to implement decisions and plans of the CPC Central Committee and the State Council on stepping up IPR protection and improve related systems and mechanisms.

"Strengthening IPR protection is the most important content of improving the IPR protection system and also the biggest incentive to boost China's economic competitiveness," reads the document.

The document said China will make comprehensive use of the law, technology and social governance policies to step up IPR protection.

According to the document, by 2022, China will strive to effectively curb IPR infringement, and largely overcome challenges including high costs, low compensation and difficulties in providing evidence for safeguarding intellectual property rights.

By 2025, social satisfaction with IPR protection in China will reach and maintain a high level.

Meanwhile, China will strengthen the punishment for infringements and counterfeiting, and improve the protection system for new business forms.

The document calls for speeding up the introduction of a punitive compensation system for infringements of patents and copyrights, and strengthening the protection of trade secrets, confidential business information and their source codes.

China will also make greater efforts to step up international cooperation in IPR protection, facilitate communication between domestic and foreign rights holders, and provide support in overseas IPR disputes."

MY COMMENT

NICE statement that has the potential to really DRIVE the markets in a big way tomorrow. Although, the statement actually says NOTHING. Later in the week it will be interesting to watch all the BLACK FRIDAY data being analyzed. Kind of like........"reading the entrails of a duck" or if you prefer.........a snake.

 

Yes, I am an art collector. You and I do have something in common. Besides being an investor I am also a professional musician. When I retired from the business world at age 49, I went back into the music world.

YES.......I do NOT do any INTERNATIONAL investing or stocks. I also NEVER invest in banks, auto companies, drug companies, insurance companies, and a few other categories. My ENTIRE investing focus is on AMERICAN, BIG CAP, DIVIDEND PAYING, ICONIC PRODUCT, WORLD WIDE MARKETING, companies and funds. My reasoning is simple. Over my entire life of investing, WE, the United States have been the supreme leader when it comes to business in the world. In my opinion the ABSOLUTE BEST companies are American companies. Not because I am an American, because this is simply fact. The type of companies that I invest in are world leaders in what they do and how they do it. They are world leaders in innovation and invention and business. With the number of companies and businesses available to me as an investor in the USA, there is no need for me to look at outside companies. I try to ALWAYS keep my investing strategy simple. I stick with what I know and I stick with what i do and how I do it. I have been investing in the same style for over 40 years now. I DO have international exposure. I have it because the type of companies that I invest in market their products around the world and are leaders in their category around the world. I trust the financials of companies in the USA more that I trust reporting in foreign companies, ESPECIALLY CHINA.

Now as to advice, I do not give investing advice. I post what I do and my opinions. If others choose to take something from what I do and apply it to themselves that is up to them. I would say I am a very CLINICAL LONG TERM investor. Patience is very different. I expect my investments to do well and grow. I usually give up on a stock when the fundamental financial data and stock performance is LAGGING and my view is that it will continue to do so into the medium term to long term future. I tend to look at my investment portfolio as a WHOLE. My key performance metrics, investment goals, that I use to evaluate my results are:

1. Averaging, a long term return of 10% or more.

2. Beat the SP500 annually.

If I can do number 1 above, than I am meeting or beating the long term average return of the SP500. If I can do number 2 above than I am beating the short term performance of the SP500. By achieving goal number 1 I am doubling my money every 7.2 years. I am NOT GREEDY. My long term average return is WELL ABOVE my 10% goal. Sometimes I meet goal number 2 some times I dont.

If you or anyone else starts at the begining of this thread and read it as a whole you will get the total idea of what I do, why, and how. The general info in this thread is as relevant today as when it was first posted. It represents a general investment philosophy.

 

The best way I can describe what I do is this little article from page 6 of this thread.

An Evolve-or-Die Moment for the World’s Great Investors

https://fortune.com/longform/value-investing-warren-buffett-tech-stocks/

(BOLD represents what I try to do and how I do it with the OLD companies and the NEW)

"At this year’s annual Berkshire Hathaway meeting in Omaha, Warren Buffett, the high priest of value investing, uttered words that would have been grounds for excommunication if they had come from anyone but him.

Buffett began his career nearly 70 years ago by investing in drab, beaten-up companies trading for less than the liquidation value of their assets—that’s how he came to own Berkshire Hathaway, a rundown New England textile mill that became the platform for his investment empire. Buffett later shifted his focus to branded companies that could earn good returns and also to insurance companies, which were boring but generated lots of cash he could reinvest. Consumer products giants like Coca-Cola, insurers like Geico—reliable, knowable, and familiar—that’s what Buffett has favored for decades, and that’s what for decades his followers have too.

Now, in front of roughly 40,000 shareholders and fans, he was intimating that we should become familiar with a new reality: The world was changing, and the tech companies that value investors used to haughtily dismiss were here to stay—and were immensely valuable.

“The four largest companies today by market value do not need any net tangible assets,” he said. “They are not like AT&T, GM, or Exxon Mobil, requiring lots of capital to produce earnings. We have become an asset-light economy.” Buffett went on to say that Berkshire had erred by not buying Alphabet, parent of Google. He also discussed his position in Apple, which he began buying in early 2016. At roughly $50 billion, that Apple stake represents Buffett’s single largest holding—by a factor of two.

At the cocktail parties afterward, however, all the talk I heard was about insurance companies—traditional value plays, and the very kind of mature, capital-intensive businesses that Buffett had just said were receding in the rearview mirror. As a professional money manager and a Berkshire shareholder myself, it struck me: Had anyone heard their guru suggesting that they look forward rather than behind?

There is a deep and important debate going on in the investment community, one with profound repercussions for both professional money managers and their clients. Some believe that Buffett is right—that we have become an asset-light economy and that value investors need to adapt to accommodate such changes. Noted value managers like Tom Gayner of Markel Corp. and Bill Nygren of Oakmark Funds, for instance, count companies like Amazon and Alphabet among their top holdings. The fact that these stocks often trade at above-market valuations—a factor that once scared away orthodox value investors—hasn’t deterred them, because the companies’ futures are so bright that they’re worth it.

Other value managers like David Einhorn at Greenlight Capital and Bruce Berkowitz at Fairholme are betting on the very same old-economy companies that Buffett long favored. Berkowitz, Morningstar’s domestic equities Manager of the Decade from 2000–10, has seen his performance suffer this decade, thanks to positions in AT&T and, most notably, Sears Holdings, which declared bankruptcy earlier this fall. Einhorn’s performance has also suffered; his largest position is GM, and he says he has been short what he calls a “bubble basket” that includes Tesla, Netflix, and Amazon.

All value investors continue to agree that price is an important component of value—that’s why we’re called value investors. What’s happening now is a debate about what the drivers of value are—of what constitutes value in the 21st-century economy—and what will drive both the economy and the market forward over the next generation.

Value investors are just that—we hunt for value, and our focus on price in relation to a business’s value makes us easily distinguishable from other investors. Momentum investors, for example, care about price only insofar as they can sell whatever they’ve bought to someone else at a higher one—the so-called greater-fool approach. Then there’s growth investing, in which price takes a distant second place to a business’s prospects for rapid expansion. Because weighing price vs. value is paramount in value investing, those in this school have a reputation of being long-term-oriented, self-denying cheapskates.

The father of value investing was Ben Graham, who gave birth to it roughly 100 years ago, when 100% of the components of the Dow Jones industrial average were just that—industrials. Hard assets were what drove companies like Anaconda Copper and National Lead. Consumer marketing was in its infancy; in 1915, the closest thing the Dow had to a consumer products company was General Motors (or maybe American Beet Sugar).

The year before, Graham had graduated second in his class from Columbia University with such a gifted intellect that he was offered teaching positions in three departments: philosophy, mathematics, and English. Acquainted with poverty at an early age, however, Graham chose a career in finance. The market of his day was dominated by tipsters, schemers, and speculators; stock operators trying to corner the market in United Copper had caused the Panic of 1907, which wiped out Graham’s widowed mother’s savings. Graham loathed such speculations, but he was attracted to the upside of equities. He saw them for what they were: a fractional ownership of a company’s business.

Driven by both his academic temperament and practical necessity, Graham set about trying to figure out a predictable, systematic way to make money in stocks. For an answer, he turned to corporate financial statements and the tangible assets represented therein. Graham saw that while equities went up and down in the short run according to the whims of the market, a company’s tangible assets—its forges and its foundries and the inventory they produced—had a solid, knowable value. Graham began to calculate that value in a precise, mathematical way. He asked himself: What would a company be worth if it were to liquidate its assets and pay off its liabilities? Sometimes the liquidation would actually occur; other times it would be a theoretical exercise that gave Graham what he termed a “margin of safety” when buying a security.

By quantifying value and then juxtaposing it with price, Graham found he could make sense of markets. Thus was born security analysis and, with it, value investing.

From the beginning, value investing focused on the quantitative and tangible aspects of a business. Graham was an intellectual who lived in abstractions; he didn’t want to know about the products the companies made. Irving Kahn, one of Graham’s assistants, told Buffett biographer Roger Lowenstein that if someone began to describe to Graham what a company actually did, he would get bored and look out the window. With his focus on liquidation value, Graham tended to buy boring, beaten-down businesses—cigar butts, they came to be known, good for only a few extra puffs. Walter Schloss, a Graham analyst who later became a legendary value investor in his own right, once pitched Graham on Haloid, which owned the rights to a promising technology that would one day become the Xerox machine. While there is no record as to whether Graham looked out the window, he nevertheless said no.

“Walter,” he said, “it’s just not cheap enough.”

One of Graham’s acolytes was a young man from Omaha who was born into the Depression but came of age during America’s large, optimistic postwar expansion. As a teenager, Warren Buffett tried to understand the stock market by studying charts and other technical indicators; when he came upon Graham’s writings, he said that he felt “like Paul on the road to Damascus.” Buffett came East for business school to study under Graham, who by then was teaching at Columbia, and he briefly worked for Graham after graduation. The classic middle-American boy, however, Buffett soon quit New York for his beloved hometown.

Surveying the economy of the mid-1950s with his own partnership, Buffett saw that it was vastly different from the one Graham had encountered as a young man. While the Dow Jones industrial average was still dominated by industrials, it also contained Procter & Gamble, Sears Roebuck, and General Foods. These companies were fundamentally different from an industrial company: The primary driver of their business value had little to do with hard assets. Rather, the value had to do with the company’s brands—with the loyalty and familiarity that customers felt for Ivory Soap and Jell-O gelatin. These emotional ties, encouraged and cemented by mass marketing, allowed businesses to charge high prices for relatively mundane goods.

The great enabler of such businesses was the rise of national television, which both emanated from and reinforced a culture of homogeneity. Market-leading brands used scale in a very different but no less effective way than manufacturing companies. A beer, shampoo, or cola brand with dominant share could flood the three major TV networks with more advertising than their competition, yet still spend less than the competition as a percentage of absolute sales dollars. This set up a virtuous circle for dominant brands and a vicious circle for those less fortunate. Brands like Budweiser went from strength to strength; strong regional brands like Narragansett beer, once the No. 1 seller in New England, slowly but surely withered away.

With the help of his partner Charlie Munger, Buffett studied and came to deeply understand this ecosystem—for that’s what it was, an ecosystem, even though there was no such term at the time. Over the next several decades, he and Munger engaged in a series of lucrative investments in branded companies and the television networks and advertising agencies that enabled them. While Graham’s cigar-butt investing remained a staple of his trade, Buffett understood that the big money lay elsewhere. As he wrote in 1967, “Although I consider myself to be primarily in the quantitative school, the really sensational ideas I have had over the years have been heavily weighted toward the qualitative side, where I have had a ‘high-probability insight.’ This is what causes the cash register to really sing.”

Thus was born what Chris Begg, CEO of Essex, Mass., money manager East Coast Asset Management, calls Value 2.0: finding a superior business and paying a reasonable price for it. The margin of safety lies not in the tangible assets but rather in the sustainability of the business itself. Key to this was the “high-probability insight”—that the company was so dominant, its future so stable, that the multiple one paid in terms of current earnings would not only hold but perhaps also expand. Revolutionary though the insight was at the time, to Buffett this was just math: The more assured the profits in the future, the higher the price you could pay today.

This explains why for decades Buffett avoided technology stocks. There was growth in tech, for sure, but there was little certainty. Things changed too quickly; every boom was accompanied by a bust. In the midst of such flux, who could find a high-probability insight? “I know as much about semiconductors or integrated circuits as I do of the mating habits of the chrzaszcz,” Buffett wrote in 1967, referring to an obscure Polish beetle. Thirty years later, writing to a friend who recommended that he look at Microsoft, Buffett said that while it appeared the company had a long runway of protected growth, “to calibrate whether my certainty is 80% or 55% … for a 20-year run would be folly.”

Now, however, Apple is Buffett’s largest investment. Indeed, it’s more than double the value of his No. 2 holding, old-economy stalwart Bank of America.

Why? Not because Buffett has changed. The world has.

And quite suddenly: Ten years ago, the top four companies in the world by market capitalization were Exxon Mobil, PetroChina, General Electric, and Gazprom—three energy companies and an industrial conglomerate. Now they are all “tech”—Apple, Amazon, Microsoft, and Alphabet—but not in the same way that semiconductors and integrated circuits are tech. These businesses, in fact, have much more in common with the durable, dominant consumer franchises of the postwar period. Their products and services are woven into the everyday fabric of the lives of billions of people. Thanks to daily usage and good, old-fashioned human habit, this interweaving will only deepen with the passage of time.


Explaining his Apple investment to CNBC, Buffett recalled making such a connection while taking his great-grandchildren and their friends to Dairy Queen; they were so immersed in their iPhones that it was difficult to find out what kind of ice cream they wanted.


“I didn’t go into Apple because it was a tech stock in the least,” Buffett said at this year’s annual meeting. “I went into Apple because … of the value of their ecosystem and how permanent that ecosystem could be.”

If the postwar era was about consumer brands operating at scale, the early 21st century is about what we might call digital platforms. Like the branded enterprises before them, they have the permanence and probability that make for a good long-term value investment. Innovation scholar Carlota Perez has written about how at least five times in Western civilization, new technologies have erupted, gone through a speculative frenzy, and then busted, only to settle down after a shakeout into a long, protracted period of stability. We’ve had the high-tech eruption, we’ve had the frenzy of the dotcom boom, and we’ve had the bust. Now we are in what Jonathan Haskel and Stian Westlake, authors of Capitalism Without Capital, call the “bedding-in” phase.

Unlike branded companies, digital businesses often benefit from network effects: the tendency of consumers to standardize on a single platform, which reinforces both consumer preference and the platform’s value. Because of this, the market shares of these platform companies dwarf those of the consumer products giants; software businesses like these are often characterized by a “winner take all” or “winner take most” dynamic. Combine this with the fact that they require little to no capital to grow, and you have Value 3.0—business models that are both radically new and enormously valuable.


“In the past you would’ve needed a tremendous amount of capital to achieve global scale,” says Oakmark’s Nygren, whose top position in his Oakmark Fund is Alphabet, “but these companies have done it just by writing code and pressing ‘send.’ ”

Like their branded predecessors, the platform companies are wisely reinvesting their vast profit streams into not only their core business but entirely new platforms as well. Take Alphabet, which my fund also owns: It began with search, a classic two-sided market in which consumers looking for goods and services are paired with advertisers who want to reach them. Google gained an early edge thanks to a superior search algorithm; with the word “google” now routinely used as a verb, it commands 95% of all mobile search. Google tweaks its algorithm twice a day to maintain its search superiority; meanwhile, the cash flow from this asset-less platform is so abundant that the parent can afford to spend $20 billion a year on research and development. That’s more than the annual earnings of Coca-Cola and American Express combined. It’s going into not only the core franchise but also nascent platforms like YouTube (user-generated video content), Android (smartphone operating systems), and Waymo (driverless cars). None of these businesses earns much now, but they may soon do so, and they are funded entirely by Google’s search platform. Little wonder that Amazon founder Jeff Bezos once told a colleague, “Treat Google like a mountain. You can climb the mountain, but you can’t move it.”

Meanwhile, Bezos has built a mountain or two of his own. As the first big mover in e-commerce, he created a network of warehouses and logistics capabilities that now allows him to deliver packages to more than 100 million Prime customers in two days or less. He too has chosen to reinvest Amazon’s profits back into the business in various forms: lower prices for customers, ancillary services like Prime Video, and entirely new industries like Amazon Web Services, which provides outsourced, essential computational “plumbing” for the next generation of digital startups. In its core retail business, Amazon still has only a roughly 5% share of U.S. retail commerce despite being at it for more than 20 years. Amazon’s stock may be overvalued today—but with its dual moats of immense customer loyalty and low-cost provider status, there is no argument that it is very valuable.

As these platform companies create billions in value, they are simultaneously undermining the postwar ecosystem that Buffett has understood and profited from. Entire swaths of the economy are now at risk, and investors would do well not only to consider Value 3.0 prospectively but also to give some thought to what might be vulnerable in their Value 2.0 portfolios.

Some of these risks, such as those facing retail, are obvious (RIP, Sears). More important, what might be called the Media-Consumer Products Industrial Complex is slowly but surely withering away. As recently as 20 years ago, big brands could use network television to reach millions of Americans who tuned in simultaneously to watch shows like Friends and Home Improvement. Then came specialized cable networks, which turned broadcasting into narrowcasting. Now Google and Facebook can target advertising to a single individual, which means that in a little more than a generation we have gone from broadcasting to narrowcasting to mono-casting.


As a result, the network effects of the TV ecosystem are largely defunct. This has dangerous implications not only for legacy media companies but also for all the brands that thrived in it. Millennials, now the largest demographic in the U.S., are tuning out both ad-based television and megabrands. Johnson & Johnson’s baby products, for example, including its iconic No More Tears shampoo, have lost more than 10 points of market share in the last five years—an astonishingly sharp shift in a once terrarium-like category. Meanwhile, Amazon and other Internet retailers have introduced price transparency and frictionless choice. Americans are also becoming more health conscious and more locally oriented, trends that favor niche brands. Even Narragansett beer is making a comeback. With volume growth, pricing power, and, above all, the hold these brands once had on us all in doubt, it’s appropriate to ask: What’s the fair price for a consumer “franchise”?

To be sure, some of the digital-disruption rhetoric is overdone. Cryptocurrency replacing the bank system? Not likely. David Einhorn’s bearish calls on Tesla and Netflix may well be right, not because the stocks are expensive but because they face rising competition. And for all the hype about autonomous vehicles, they’re not anywhere close to being here—yet. But a lot can change in half a generation. If you google “Easter Day Parade, New York City 1900” and then “Easter Day Parade, New York City 1913” and look at the pictures that appear, you will see that the former has nearly 100% horse-drawn carriages while the latter has nearly 100% horseless carriages—i.e., automobiles. And when driverless cars do arrive, what happens to the auto industry? What happens to the auto-insurance industry—that cuddly, capital-intensive commodity business that value investors love to talk about at cocktail parties?

Long-term investors need to be thinking about such shifts, and they need to position their portfolios in accordance with them rather than against them. Darwin is often misunderstood, says Markel’s Gayner, who counts both Amazon and Alphabet among his holdings. “It’s not survival of the fittest, but those who are most adaptable to change, that make it through.”

MY COMMENT

In short, I look for DOMINANT companies with a product line that has been accepted and become the gold standard for consumers and customers. My portfolio contains old school companies, and new school companies. BUT, I focus on companies that are PROVEN. I try to get into a company like Amazon or Nike when they are early in their life BUT have already become the market leader in their area. If I can identify such companies a little earlier than the general public, I can do very well with them over the long term. I look for companies with long term staying power and try to identify them a little sooner than the masses. I do a lot of reading and stay very current with trends. I look for and try to invest in a very select small number of businesses that have BIG momentum for the long term as world wide iconic businesses. To identify such companies requires intuition, business ability and sense, education, and many other factors that can NOT be taught. I dont try to get in when a company is speculative, I try to get in when it is in the early stages of taking off as an established business. I like companies that are semi-monopolies in their business area. Like Nike, like Boeing, like Amazon, like Google, like Home Depot, like Costco, etc, etc, etc. I hold them till they no longer have long term, money generating, momentum. I like companies with a license to print money for the long term.

I have been investing for so long, 45 years, in the same way it is now second nature and it is difficult to put into writing in a post like this. In general reading this thread will give a good idea of my thinking process and investing process. What makes investing strategy difficult is the fact that it is an intuitive process in addition to the factual data side of things.