The Long Term Investor

Here is a pretty good summary of how we are doing at this moment today.

Stock market news live updates: Stocks fall ahead of busy earnings, data week

https://finance.yahoo.com/news/stock-market-news-live-updates-february-7-2022-123603255.html

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

"Stock turned lower Monday at the start of another busy week for corporate earnings and fresh economic data as investors continue to assess the Federal Reserve's path forward for monetary policy.

The S&P 500 erased earlier gains and dipped after posting its best weekly gain of the year last week. The Dow and Nasdaq also declined after trading higher earlier in the session.

After last week's rollercoaster trading — with stocks sliding following Meta Platforms' (FB) disappointing outlook, and then rebounding sharply following Amazon's (AMZN) earnings beat — investors are poised to receive another hefty batch of corporate earnings results. Companies including Disney (DIS) to Uber (UBER), Lyft (LYFT), Pfizer (PFE) and Coca-Cola (KO) are each set to report quarter results in the coming days. Peloton (PTON) will also post results amid reports that companies including Amazon and Nike (NKE) are considering making bids to purchase the fitness technology company.

Heading into this week, just over half of S&P 500 companies had reported actual quarterly earnings results. The expected growth rate for aggregate S&P 500 earnings stood at 29.2%, according to data from FactSet on Friday. If maintained for the next several weeks of the earnings season, this would mark the fourth straight quarter that earnings grow by more than 25%

And on the economic data front, this week's Consumer Price Index (CPI) due out Thursday will serve as one key report helping market participants determine the next moves from the Federal Reserve to curb rising prices.

Consensus economists are looking for the CPI to rise by 7.2% on an annual basis for January, marking the fastest rise in prices since 1982. Such a result would further add fuel to the narrative that the U.S. economy has recovered sufficiently, and is now running hot enough, to warrant an aggressive pivot to tightening from the Fed. Last week's much better-than-expected jump in payrolls in the Labor Department's January jobs report also underscored the extent of the recovery.

"Following the stunning performance of the January employment report, the coming week’s key release is likely to be Thursday’s January CPI report as it will provide policymakers and market participants insight about inflation amid furthering signs of persistent, elevated price pressures that, in turn, support expectations for hawkish monetary policy actions initiating in March," Sam Bullard, Wells Fargo senior economist, wrote in a note on Sunday.

"Further increases in inflation expectations, particularly longer-term expectations, would only add more pressure on the Fed to act in March and uncertainty over the path of rate hikes," he added.

And indeed, market participants have increasingly priced in the likelihood that the Federal Reserve will ultimately raise interest rates five times in 2022, marking an increase from the just three interest rate hikes the central bank itself had telegraphed in December. Some investors have also suggested that the Fed might hike rates by 50 basis points after its March policy-setting meeting rather than by a quarter-point, which would mark the first move of such a magnitude since 2000.

10:16 a.m. ET: Bitcoin prices extend gains, topping $43,000

Bitcoin prices (BTC-USD) rose for a fifth straight day on Monday, heading for its longest winning streak since early September as a rebound in equities and other risk assets extended to cryptocurrencies.

Prices for the largest cryptocurrency by market capitalization were up 5% to more than $43,400 Monday morning in New York. This brought Bitcoin to its highest level since January 15, according to Bloomberg data.

Other smaller cryptocurrencies also rallied. Prices for the meme coin Shiba Inu (SHIB-USD) jumped nearly 40% Monday morning, while Solana (SOL-USD) gained nearly 8%.

9:38 a.m. ET: Peloton shares gain 27% amid acquisition reports

Peloton (PTON) shares rose by nearly 30% just after market open Monday morning amid reports that the fitness technology company had attracted interest among several major companies for a potential takeover.

The Financial Times and Wall Street Journal reported Friday that both Nike and Amazon were considering making bids to purchase Peloton. Peloton shares have fallen 83% over the past 52 weeks as the company signaled demand was beginning to wane for its connected at-home stationary bike and treadmill products. The company has also recently received a sharp rebuke from activist investment firm Blackwells Capitals, which called for Peloton CEO John Foley to be removed amid the stock's slide.

Despite the stock pop following reports of the deal, some Wall Street analysts expressed skepticism that such a deal would actually go through.

"We believe any deal is unlikely given (i) PTON's dual class share structure, with a handful of insiders holding the vast majority of super-voting shares; (ii) co-founder / CEO Foley's long-term vision for capturing burgeoning Connected Fitness TAM [total addressable market] is still in early innings, with expansion across verticals & geos in coming years, as well as likely higher penetration of broader home fitness market over time; and (iii) poor potential fit with reported suitors, including Amazon," Cowen analyst John Blackledge wrote in a note early Monday."

MY COMMENT

The KEY information in the above is the data that shows that EARNINGS are coming in very nicely. Here is what counts for long term investors:

"The expected growth rate for aggregate S&P 500 earnings stood at 29.2%, according to data from FactSet on Friday. If maintained for the next several weeks of the earnings season, this would mark the fourth straight quarter that earnings grow by more than 25%."

Of course.....with all the focus on the rate increases that will happen in March....no one cares about the earnings which continue to be quite good. In fact.....they continue to BEAT the expectations of the experts and others that have been saying for at least the last 3-4 reporting periods that they were going to either drop or be flat. In typical fashion....all those people......that are WRONG quarter after quarter....... subtly increase their past pronouncements as they see that they are going to be wrong.

 

No one is talking about the Ten Year yield which sits at 1.93% right now. Amazingly the Thirty Year yield sits at 2.23%. Who in the world is going to lock in 30 year money at 2.23%?

Explainer: The U.S. yield curve has been flattening - Why you should care

https://www.reuters.com/business/fi...en-flattening-why-you-should-care-2022-02-03/

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

"NEW YORK, Feb 3 (Reuters) - The U.S. Treasury yield curve has been flattening over the last few months as the Federal Reserve prepares to hike rates, and some analysts are forecasting more extreme moves or even inversion.

The shape of the yield curve is a key metric investors watch as it impacts other asset prices, feeds through to banks' returns and even predicts how the economy will fare. Here's a quick primer explaining what a steep, flat or inverted yield curve means and whether it will forecast the next U.S. recession.

WHAT IS THE U.S. TREASURY YIELD CURVE?

The U.S. Treasury finances federal government budget obligations by issuing various forms of debt. The $23 trillion Treasury market includes Treasury bills with maturities from one month out to one year, notes from two years to 10 years, as well as 20-and 30-year bonds.

The yield curve plots the yield of all Treasury securities.

WHAT SHOULD THE CURVE LOOK LIKE?

Typically, the curve slopes upwards because investors expect more compensation for taking on the risk that rising inflation will lower the expected return from owning longer-dated bonds. That means a 10-year note typically yields more than a 2-year note because it has a longer duration. Yields move inversely to prices.

A steepening curve typically signals expectations of stronger economic activity, higher inflation, and higher interest rates. A flattening curve can mean the opposite: investors expect rate hikes in the near term and have lost confidence in the economy's growth outlook.

WHY IS THE YIELD CURVE FLATTENING NOW?

Yields of short-term U.S. government debt have been rising fast this year reflecting expectations of a series of rate hikes by the U.S. Federal Reserve, while longer-dated government bond yields have moved at a slower pace amid concerns that policy tightening may hurt the economy.

As a result, the shape of the Treasury yield curve has been generally flattening. A closely watched part of the curve, measuring the spread between yields on two- and 10-year Treasury notes , shows the gap at roughly 60 basis points, nearly 20 points lower than where it ended 2021. That flattening steadied this week as investors viewed some Fed officials as being a bit less hawkish.

While rate increases can be a weapon against inflation, they can also slow economic growth by increasing the cost of borrowing for everything from mortgages to car loans.

Two-year U.S. Treasury yields , which track short-term interest-rate expectations, have risen to 1.16% from 0.73% at the end of last year - a 60% increase.

U.S. benchmark 10-year yields have gone up to about 1.8% from 1.5%, a 20% rise.

WHAT DOES AN INVERTED CURVE MEAN, AND WILL IT HAPPEN?

Some investors and strategists are starting to forecast a curve inversion could happen as soon as this year - an ominous sign.

The U.S. curve has inverted before each recession since 1955, with a recession following between six and 24 months later, according to a 2018 report by researchers at the Federal Reserve Bank of San Francisco. It offered a false signal just once in that time.

The last time the yield curve inverted was in 2019. The following year the United States entered a recession - albeit one caused by the global pandemic.

Strategists at Standard Chartered bank forecast the curve to be completely flat by mid-year and potentially invert by year-end. read more

Larry Fink, the chief executive of BlackRock, the world's biggest asset manager, has also warned about a possible curve inversion. read more

DOES THE WHOLE CURVE INVERT OR PARTS OF IT?

Traders typically watch the shape of the curve determined by comparing two-year and 10-year Treasury notes , because a yield curve inversion on that spread has anticipated previous recessions. That is currently flattening but not yet close to inversion.

But distortions can occur anywhere along the curve without inverting the entire curve.

On Friday, a less closely watched part of the curve inverted intraday , with the premium of U.S. Treasury 10-year notes over seven-year Treasuries going briefly into negative territory.

The 20-year/30-year spread has been negative since late October, though supply and demand technical factors may have contributed to that.

WHAT DOES THIS MEAN FOR THE REAL WORLD?

Aside from signals it may flash on the economy, the shape of the yield curve has ramifications for consumers and business.

When short-term rates increase, U.S. banks tend to raise their benchmark rates for a wide range of consumer and commercial loans, including small business loans and credit cards, making borrowing more expensive for consumers. Mortgage rates also rise.

When the yield curve steepens, banks are able to borrow money at lower interest rates and lend at higher interest rates. Conversely, when the curve is flatter they find their margins squeezed, which may deter lending."

MY COMMENT

As usual it will be the FED that determines........with their actions and words.......whether we end up in a recession as they raise rates. I am not saying they have the ability or power to control the economy.....I am saying that they TYPICALLY SCREW UP when trying to fight inflation and tank the economy. I am confident that as we get out of pandemic mode.....that we will see that the world wide default economic condition is DEFLATION. Same as it has been since the 2008/2009 near world wide banking and economic collapse.

 

A go-nowhere day for me today to start the week. I ended the day in the red with a minor loss. I also got beat by the SP500 by 0.17%.

We had a little late day weakness today......the markets are simply erratic lately. Tomorrow is a new day.

Speaking of what happened today.....and....the longer term. this thread has been going now since October of 2018. It covers per-pandemic and post-pandemic....going on four years now. If you read it and look at all the short term events and negative days, weeks and once in a while months.....it is an UGLY picture. But if you read it and look at the long term results and direction of the gains over that 3.5 years.........every year closed with a nice gain. That is one purpose of this thread....to contrast the day to day "stuff"......versus.....the longer term gains that are inevitable with long term investing.

 

I feel sorry for all those people that were not interested in buying a house......since....they valued EXPERIENCES more than things. Well NOW they are all in a frenzy to buy homes. Guess what......home prices are up by up to 100% compared to when they could have bought earlier in their life.....plus.....mortgage rates are now in the 3.9% to 4.2% range and going higher.

Homebuyer sentiment plummets to lowest level since May 2020

https://finance.yahoo.com/news/homebuyer-sentiment-plummets-170209087.html

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

"A record-low share of Americans believe it’s an opportune time to purchase a home, according to new data measuring homebuying sentiment, as affordability constraints limit opportunities for young buyers.

Only 1 in 4 respondents in Fannie Mae’s Home Purchase Sentiment Index released Monday reported it’s a good time to buy a home, with the overall index falling 2.4 points to 71.8 in January. That’s the lowest level since May 2020 and down 5.9 points compared with the same time last year.

The sharp drop in January reflects growing concerns from both homebuyers and sellers, particularly among younger adults. Overall, four of the six-component index measures took a negative turn, with home buying and home-selling conditions, job stability concerns, and mortgage rate outlook seeing the sharpest drops.

“Younger consumers – more so than other groups – expect home prices to rise even further, and they also reported a greater sense of macroeconomic pessimism,” said Doug Duncan, Fannie Mae’s senior vice president and chief economist, in a press statement. “While the younger respondents are typically the most optimistic about their future finances, this month their sense of optimism around their personal financial situation declined.”


Housing sentiment drifted lower among younger respondents, as many feel the pressure of tightening affordability and rising mortgage rates. (Credit: Fannie Mae)
There is good reason for concern among buyers. On top of increasing home values and limited housing supply that have put a strain on home affordability for some time, mortgage rates are now rising as more than 45 million millennials enter their prime first-time home buying ages of 26 to 35.

“All of this points back to the current lack of affordable housing stock,” Duncan said, “as younger generations appear to be feeling it particularly acutely and, absent an uptick in supply, may have their homeownership aspirations delayed.”

According to figures provided by Black Knight, homebuyers are facing a severe housing shortage as the U.S. registers a deficit of between 500,000 to 750,000 active listings compared to December 2017-2019 inventory levels.

Additionally, rock-bottom inventory levels accelerated home price growth in late 2021 and early 2021 — with the average home value increasing a record 0.84% last month.


(Credit: Black Knight)
That’s raised the monthly cost of housing for new buyers. For instance, the monthly principal and interest payment to purchase the average-priced home with 20% down reached an all-time high of $1,454, Black Knight found, up $350 — or 32% — from a year ago.

It now takes 25.8% of the median household income to make that payment on a 30-year mortgage, according to Black Knight, up from the 22.4% at the end of Q3 2021.

“Interest rate jumps in recent weeks have pushed us – and quite quickly – above the long-term, pre-Great Recession average payment-to-income ratio of 25%,” said Ben Graboske, Black Knight’s data and analytics president, in a statement. “Straight to the worst affordability levels since 2008.”

To buy lower rates, homebuyers are paying more in points to offset the recent rate jumps, according to Optimal Blue’s rate lock data, further tightening affordability for potential homebuyers, Graboske said.

Mortgage rates recently paused, after reaching the highest point in 22 months in mid-January. Although the rate for 30-year fixed mortgage remained little changed at 3.55% last week, this may not be the case for long.

A surprisingly good jobs report on Friday showed nearly half a million new payroll jobs in January, meaning the Federal Reserve may accelerate plans to raise interest rates to combat inflation, which is running at a 40-year high.

As a result, the 10-year Treasury yield – which fixed mortgage rates typically track – jumped.

“The 10-year Treasury bond yield is at the highest rate since the onset of the pandemic at 1.9%,” Lawrence Yun, chief economist for the National Association of Realtors, said in a statement. “Mortgage rates will follow this upward path as well.”"

MY COMMENT

For many areas of the country the ability of people to buy homes is NOT going to improve. They will have to do what many generations ahead of them have done......buy a lesser home.....buy in a worse neighborhood.....buy a fixer......pay more for less.

Life is all about opportunity.....especially financial opportunity. If you have the brains and vision to see it and grab it....you will do well. If not.....well.....muddle along as a victim of circumstances that you have no control over.

Our first house was a two bedroom, one small bath, HUD house foreclosure on the wrong side of the tracks. No dishwasher, no washer-dryer, linoleum countertops and floors. We bought under a no-money-down HUD program for first time buyers. It was definately NOT the house that we wanted....but it was all we could get. At least it was a solid house. It served its purpose.....it got us into the home ownership game. Over the four years that we lived there....prices and values went up.....but because we were in the game as homeowners we kept pace and on our next home we moved up to a nice Victorian with four bedrooms on the right side of the tracks.

Everyone has to start somewhere.....it is not where you start that matters..... but how you end up.

 

Here is how we ended the day.....not that it is a secret.

Stock market news live updates: Stocks erase earlier gains to end lower

https://finance.yahoo.com/news/stock-market-news-live-updates-february-7-2022-123603255.html

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


4:04 p.m. ET: Stocks erase earlier gains to end lower: S&P 500 drops 0.4%, Nasdaq declines by 0.6%

Here were the main moves in markets as of 4:04 p.m. ET:

• S&P 500 (^GSPC): -16.67 (-0.37%) to 4,483.86
  
  
• Dow (^DJI): +1.39 (+0.00%) to 35,091.13
  
  
• Nasdaq (^IXIC): -82.34 (-0.58%) to 14,015.67
  
  
• Crude (CL=F): -$0.94 (-1.02%) to $91.37 a barrel
  
  
• Gold (GC=F): +$14.80 (+0.82%) to $1,822.60 per ounce
  
  
• 10-year Treasury (^TNX): -1.4 bps to yield 1.9160%

12:16 p.m. ET: Meta Platforms shares slide for third straight day

Shares of Meta Platforms (FB) tracked toward a third consecutive day of declines, with the stock's cumulative drop over this period nearing 30%.

The stock has continued to slide in the aftermath of the company's disappointing quarterly outlook delivered last Wednesday afternoon. Meta Platforms said it expected to have first quarter sales come in between $27 billion and $29 billion, falling short of the $30.25 billion consensus analysts were expecting. Daily active users and monthly active users each also fell short of expectations for the fourth quarter.

Meta Platforms cited a combination of increased competition from other social media players like TikTok and Snap, and changes to Apple's iOS privacy system, for the disappointing results."

MY COMMENT

There were not really any market driver today other than....the same old same old.......the FED and general short term negativity. At least NO NEWS....is good news....at least for the longer term. We are all being victimized by the short term micro and day traders lately. In other words the professionals.

 

WELCOME to the board TraveelWC. We always need new posters or lurkers. Feel free to post your investing experiences, questions, or anything else that you are interested in. There are no cliques here.....everyone is welcome.

 

I posted this post about 3.5 years ago.......November 2018....I am posting it again....because it is the single best explanation of how I try to invest.

(From November 2018)

"THANKS..........AND............here is a GREAT ARTICLE. As I was reading this I was mentally yelling.....YES...YES. This article reflects my views on LONG TERM investing. My portfolio was ALL the BIG CAP, ICONIC, AMERICAN, DIVIDEND PAYING companies, all the big names PG, KO, GIS, MO, etc, etc. But about four or five years ago it became apparent that the millennial generation was starting to create a change in society, product preference, digital life, etc, etc. So I have modernized my portfolio into the current model that is previously in this thread.

BUT....this is a GREAT ARTICLE, the writing and the investing story and philosophy. So....I am posting the whole thing:

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

"The dominance of tech stocks has forced some of the best investing minds—including Warren Buffett himself—to reexamine their thinking. Who will adapt and survive?""

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

"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.

("VALUE 2.0") (I.......WXYZ have added this heading to the article)

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.”

("VALUE 3.0") ( I.....WXYZ have added this heading to the article)

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.”"

(I........WXYZ...... have moved the parts of the article below from the middle of the article so that it reads more cohesively)


"Value 3.0 Rules of the Road

Even in an economy transformed by technology, many of Warren Buffett’s principles of value investing apply. Here, some dos and dont’s.

Dos
■ Always look for a business with a clear-cut competitive advantage. If you can’t explain to your spouse what makes a company special as a long-term moneymaker, it probably isn’t. Amazon has a stranglehold on e-commerce; Google owns search; Sherwin-Williams, in which my fund owns a stake, dominates brick-and-mortar paint stores. What makes a company able to earn outsize profits over the next generation?

■ Try to find companies with a small market share, a huge addressable market, and a large competitive advantage. This was Warren Buffett’s recipe for success with Geico, a once-tiny auto insurer that sold directly to consumers rather than pay agents’ commissions. These traits may be present in GrubHub (pictured above), the first mover in the food-delivery market, which my fund also owns. It has an industry-leading market share yet still has less than a 1% share of all American restaurant meals consumed each year. Still TBD: whether consumers will continue to migrate away from in-restaurant dining, and whether Uber and Amazon will try to eat GrubHub’s lunch.

Don’ts
■ As Buffett has said, never confuse a growing industry with a profitable one. One cautionary tale from the 2000s: Vonage, a pioneer in routing phone calls over the Internet. Business exploded over the past decade, but so did competition. Profits for everyone imploded, and the big winner (as is so often the case) has been the consumer. Vonage’s stock has never gotten back to its $17/share IPO price.

■ Avoid businesses whose best days are behind them. This is true even if you’re paying a cheap price relative to current earnings or book value because, in the long run, underlying business quality trumps price. Exhibit A: Sears Holdings looked cheap all the way down until it declared bankruptcy earlier this fall. You can still buy a fractional interest in Sears’s future today for a very cheap price, by the way—36¢ a share, as of this writing."

MY COMMENT

The above basically sums up how I try to invest.

The above is why my TOTAL focus as a long term investor is........AMERICAN, DOMINANT, WORLD WIDE MARKETING, ICONIC, GREAT MANAGEMENT.....companies For a long time I have COMBINED what is called "VALUE 2.0" and VALUE 3.0".....above.....in my investing. This is why I own the cream of the crop of the Tech world......Tesla, Google, Microsoft, Nvidia and Apple. At the same time I continue to own companies that fit under the non-tech definitions of "VALUE 2.0" above.....Costco, Home Depot, Honeywell, Amazon. Amazon actually straddles the tech and non tech worlds with their retail operations and their Web Services businesses.

I consider the "Value 2.0" and "Value 3.0"....approach TOGETHER as a combination of VALUE and BIG CAP GROWTH investing. Since I tend to focus on DOMINANCE.....I dont use any of the hard and fast Fundamental value metrics.......as a hard and fast rule......in buying a stock. I do......however....... use Fundamentals as an investor. I dont buy any stock without going through at the minimum five to ten years of all the various Fundamental financial data for the company looking for RED FLAGS. I look at all the various lines in.......ALL.......of the financial reports for a company over the most recent 5-10 years for anything that seems to indicate an issue or trouble or success and long term potential. I try to look at the Fundamentals like someone would if they were negotiating to buy an ENTIRE business. I guess my approach comes in part from my background as a small business owner. I dont have to be a bean-counter......I can find sources on the internet that crunched all the various classic fundamental numbers.

I actually believe that Peter Lynch invested in much the same way that I do. (not that I am claiming to equal his genius as an investor and money manager) He was a classic......DOMINANT COMPANY....type investor.

I do not use or believe in Technical analysis.......for any that wonder.

Anyway just thought I would re-port this article since it is what I consider the best summary of how I approach and think about investing for the long term. I also see it as the best summary of how I have invested for my entire lifetime as an investor.....45+ years.

 

We have a....REALLY BIG.....problem going on in the employment, labor, jobs, markets right now and into the future.

This morning I heard the COW-GUY on the Varney morning business show. He was citing data from.......I believe NPR......that showed that 33MILLION workers have dropped out of the economy over the past year. In December of 2021 we lost 4.3MILLION workers and we are averaging a loss of 4MILLION a month. He made the point and I agree......that there is some thing very wrong and no one is talking about it and the data is a big mess. As he said.....how can we have nearly 11MILLION available jobs......about 6MILLION available workers ......and tens of millions having dropped out of the work force over less than a year........with millions continuing to drop out each month.

If you know who the COW-GUY is....my view is he is one of the MOST accurate and honest people that I see on any media with his opinions of the markets and the economy. Of course....until recently he was in the thick of it as a professional...long time.....commodity trader and commodity trading firm manager. In that job you have to live in REALITY......la-la land will not cut it.

The labor and employment data is totally DISTORTED and screwed up. We have NO clue what is going on or why. Perhaps it will straighten out over time.....perhaps not. In any event it appears that no one has a clue what is going on and everyone is afraid to talk about it.

 

Continuing the above topic.

From the Newmaverse: Older workers wonder where all those jobs are

https://finance.yahoo.com/news/from...onder-where-all-those-jobs-are-144744695.html

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

"When Noy Rigoni lost his welding job in 2019, he figured he’d have no trouble finding a new one. The job market in the Portland, Oregon, area, where he lives in the suburbs, was solid, plus, trade groups report a nationwide shortage of welders. But Rigoni has been unemployed almost nonstop since 2019. Jobless aid and federal stimulus helped, but with that money gone, Rigoni and his wife had no choice but to declare bankruptcy. They’re in danger of losing their house.

“I’m 60 years old,” Rigoni says. “I’ve worked on things from bicycle parts to nuclear reactor parts for 35 years. So you would think I would have no problem getting a job. But the few times I go in for a weld test, I do very well, but then I'm not hired. They give no reason why. I have no criminal record so the only other thing I can think of is it's my age.”

Many businesses say they’re desperate for workers, and overall, employers report nearly 11 million job openings nationwide, close to a record high. But the so-called labor shortage has several peculiarities. Some workers with the skills businesses supposedly need rarely get interviews, and wonder where in the world all those open jobs are. Others remain frustrated with inflexible work schedules and toxic culture, problems companies would presumably fix, if it were so hard to find and keep workers. Even some executives acknowledge that businesses aren’t paying as much attention to worker needs as they should be.

Older workers have an additional gripe. In January, after I wrote about household budgets that are getting tighter for a lot of people, many people wrote in to say ageism is a particular curse. “Everyone is overlooking us,” one man said. “Companies are not hiring a 60-year-old knowing they're close to retirement. And forget about a job at 60 if you don't have a degree!”

“If there’s so many jobs, why am I having a problem getting one?” asked another. “I’ve got 30+ years in the trades. I’ve got a strong customer service background. I’ve applied to more than 150 jobs in the last four months. Nothing. Today I turned 61. Is it my age?”

A survey of hiring managers by the employment nonprofit Generation found that most of them felt workers under 45 have the best skills and fit into corporate culture most easily. Yet older workers perform as well or better as younger ones in real-world scenarios. “Hiring managers have a negative view of 45+ job seekers,” the report concluded, “even though employers rate [them] highly.”

One problem is an automated hiring system that may inherently discriminate against people whose resumes aren’t optimized for the algorithms many companies use to sift through job applications. A 2021 Harvard Business School study claims there are 27 million “hidden workers” in the U.S. labor force who might have valuable skills, yet still go undiscovered in the typical corporate hiring process. They might have gaps in employment due to episodic family caregiving requirements, or lack the latest training in a particular specialty. Some simply don’t include the right buzzwords on their resumes, so software doesn’t identify them as viable candidates.

Yahoo Finance senior columnist and career expert Kerry Hannon says these types of barriers are most likely to affect workers 50 and older, in part because older workers are simply more likely to have had a career interruption. This may also explain the corporate ghosting that has become a dispiriting new phenomenon.

It's no secret that computers and hiring managers look for gaps and other unstated clues as part of an elimination process. Leah Deaver, a phlebotomist in Redding, Calif., only puts her most recent 10 years of work history on her resume, because she doesn’t want 30-plus years of work to hint at her age.

“I know they’ll see I’m 58 years old in an interview,” she says, “but it scares me to put the years of work on my resume.”

Deaver has changed careers several times to keep up with the times. After a corporate merger eliminated her phone company jobs in the 1990s, she went back to school and became a medical assistant in a doctor’s office. When the doctor sold the practice and replaced the staff, she got trained and licensed as a phlebotomist, a medical professional who draws blood, which the Labor Department identifies as a fast-growing field. Interviews have been scarce, however, and she's not sure if inexperience or age explain why.

There’s often little recourse for people who feel they’re victims of age discrimination. An unemployed paralegal in Oregon says she can’t get hired despite four decades of experience and “stellar references.” “Due to my age,” she says, “I do not even get my resume or application reviewed.” But it’s almost impossible to come up with the hard evidence necessary to prove discrimination.

“Many of the people running out of money,” the paralegal says, “are older workers who cannot get re-employed due to rampant ageism.” Some fed-up workers retire early, but for many that's not an option. Meanwhile, retirement savings dwindle."

MY COMMENT

YEP....this should be a big issue for business. They are just throwing an entire segment of......probably....the most qualified workers in the trash. I believe that this issue is worse now than ever before in our economy.

On the flip side is STEM workers from USA schools that have trouble getting jobs. We have filled the STEM jobs with MILLIONS of foreign workers to the point that many companies are just about ALL foreign workers controlled by foreign employment companies. A few years back I watched as an EXTREMELY qualified young Electrical Engineer with extensive computer background with a new Masters Degree in EE.......had a very difficult six months trying to find a job. On top of his qualifications was the fact that unlike many engineering types he was extremely personable and great with people.

Both ends of the employment system are totally screwed up......especially the STEM area for young American graduates and the job market for older workers with amazing skills. For those older workers business is just throwing away their extensive skills and experience......it counts for nothing.

 

I was talking to a Director at a big Insurance Company recently. He was telling me that their financial results were very dismal for the past quarters. They have been hit with massive numbers of death claims and are actually losing money. He also mentioned that out of his entire department of underwriting terms.......only one team made their numbers for the past year.

The death situation in his business is obvious. Underwriters put lots of policies in place with no awareness that the death data was going to be totally UPSET by the pandemic.

BUT.......the fact that this was the worst year for the underwriting teams......WTF. Well DUH......I did not mention to him....but for the past year or more your teams have been working from home. He would tell you...."they love it.....the entire company is practically working remote and it is going very well". "We might not ever go back to in-office work".

I say (to myself).....REALLY......look at the your team results for the past year that they have been working at home. If it was me I would consider that the most likely problem. In other word what is the......MOST OBVIOUS....difference over the past year. Of course....from what I see in the business world.....there is absolutely NO awareness of the issues that will come over the next 1-5 years with remote work and......ACTUAL RESULTS. There is a reason that all the big banks and other BIG businesses that have awareness of business culture, mentoring, training, learning on the job, etc, etc, etc.....REQUIRE being in an actual REAL office environment.

We are going to learn some very difficult lessons in the business world over the coming years.

 

Hi WEIGHT.

You are correct........that amazing pension is for law enforcement. You get 3.3% of final salary per year of service.....so at 30 years you are at 100% of final pay. Someone that starts at age 23.....could retire at age 53....with 100% pay for life.

From what you mention above....it looks like you are on your way to having a higher income in retirement than when you worked.

 

Hey Weight......if you dont mind. How has the growth in value of your sports cards been? Tell us about that collecting market. Are you collecting high value cards?

 

Oh yeah.....the markets. Well they seem to have gone all green for the moment. BUT...who cares about the markets...they will do whatever they want.

 

Hey Ragin

I dont do cards......but.....in general I would say buy the highest graded cards of the players that you are looking at. Quality, quality, quality. That is what I would look for in the cards in general. As to which players.....I cant help there.

 

I had a nice day today in the markets......and.....I paid absolutely ZERO attention. I was all green except for one holding. I also got in a beat on the SP500 by 0.24%. I am now back to positive for the week....so far.

 

How true.....especially for long term investors.

Why there's no need to fear a bear market

https://www.cnn.com/2022/02/06/investing/stocks-week-ahead/index.html

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

Stocks tumbled sharply in January and the market has remained choppy in February. There are worries globally about earnings, inflation, interest rates and Omicron. But some market experts think investors shouldn't be too concerned.

Why? Volatility is normal. And market corrections, defined as a 10% pullback from a recent high, are healthy and common occurrences during any bull market.

The Dow and S&P 500 briefly dipped into correction late last month before bouncing back. They are now within 5% to 7% of their record highs. The Nasdaq, which is loaded with tech companies, remains in a correction. It's about 14% below its peak.

Investors are undoubtedly on edge. The VIX (VIX), a measure of market volatility, is up more than 50% this year. And the CNN Business Fear & Greed Index, which looks at the VIX and six other gauges of market sentiment, is showing signs of Fear on Wall Street.

But a correction doesn't necessarily mean that an even worse pullback is coming. Few analysts are predicting a long, painful bear market ahead. That's when stocks drop more than 20% from recent highs.

"Corrections are a temporary setback for a long-term investment strategy, and about half of all corrections since 1966 have resolved themselves in less than five months," said James Solloway, chief market strategist at SEI's Investment Management Unit, in a report last month.

Solloway added that higher volatility does not mean there is a "high likelihood that we're heading toward a bear market or a recession in the near future."

"Ups and downs are a normal part of the investment cycle," he noted.

Even a portfolio manager who runs a fund that is hedged against big stock market swings isn't expecting a major drop anytime soon.

"This is a normal pullback," said Dan Cupkovic, manager of the Amplify BlackSwan Growth & Treasury Core (SWAN) exchange-traded fund.

Central banks have unnerved investors by signaling in recent weeks that they may hike interest rates more aggressively than expected in order to rein in rising inflation. But Cupkovic said that he expects inflation to cool off as the year progresses.
There should be "easy money for the next few years," he said.

Cupkovic also dismissed the argument that a bear market is overdue. That's because there was one two years ago, when stocks plummeted in March 2020 as the Covid-19 pandemic slammed the US economy. Before that, stocks had been soaring.
"It had been such a smooth ride for investors. Stocks went straight up. There was more complacency," he said. That's not the case now. The VIX is more than 60% above where it was trading at the end of 2019."

MY COMMENT

I am too lazy to go back and look....but I have the feeling that I posted this article before.

In any event....correction, what correction? Who cares. Yes....I am still negative for the year but I dont care.....that can change in the course of about a week or so.