The Long Term Investor

This little article is perfect for the current short term situation we are experiencing.

Zeikel’s Rules

https://thereformedbroker.com/2022/03/08/zeikels-rules/

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

"It’s 1994 and the Thundering Herd is in an absolute uproar. Merrill Lynch’s fabled brokerage salesforce is furious about the recent performance of all the closed-end bond funds they had sold their clients. Fed Chairman Alan Greenspan had shocked the market with a series of rate hikes and bonds had gotten slaughtered.

Closed-end funds were the vehicle of choice through which retail investors got their exposure to the bond market. They bought these portfolios in a wrapper that traded on the New York Stock Exchange for either a slight premium or discount to that portfolio’s NAV or true value. Brokers loved selling closed-ends to their clients because these funds would often pay above-market yields by utilizing leverage and some riskier positions baked into the pie. Not to mention the selling concession a broker could earn from selling the initial public offering – an inside commission built into the share price that clients didn’t even see. Everybody wins.

But not that spring. It was a nightmare. Customers were mad, which makes the brokers mad, which scares the “home office” folks into feeling like they need to do something – anything – to relieve the pressure. “Let’s just shut down the whole thing,” you can imagine them saying. According to the guy who oversaw Merrill Lynch’s municipal bond funds, there was talk of exiting the business entirely. But Arthur Zeikel, President of Merrill Lynch’s asset management business, said “No, this is no time to panic.” He stuck to his guns. Within a year, these funds had fully recovered.

You may have heard the name Arthur Zeikel late last year when he passed away at the age of 89. There was a Wall Street Journal obituary and anyone who worked in the brokerage or asset management business on Wall Street in the 80’s or 90’s remembered him. After spending some time at Dreyfus and Oppenheimer, Merrill Lynch brought him in to take its tiny asset management business to the next level. The year was 1976, investors had been chased out of stocks by the raging volatility of the prior years and cash management was the hottest retail product within the firm. Moving investor capital out of cash and into stocks and bonds wouldn’t be seen as the obvious win it turned out to have been for at least a decade. The 1970’s were an inhospitable time for risk-taking investors and no one was particularly interested in long-only mutual funds.

This apathy probably gave Zeikel the cover he needed to experiment. It bought him time to nurture the talent of his portfolio managers. He was given free rein to innovate and create new funds, focusing on the basic principals of value investing. As the 1980’s bull market took off and interest rates fell, his asset management products were a hit with Merrill’s nationwide salesforce. Zeikel cultivated relationships with the big players in all the branches – that’s how you excel in asset management: Distribution is everything.

In 1999, Zeikel’s value discipline had fallen out of favor as the Nasdaq’s growth stocks were booming and the investing public became captivated by the siren song of Janus and Munder and Firsthand and a new class of fearless fund families that charged headlong into the bubble. He was replaced by outsiders who were brought in to put Merrill back in the hunt. The new guys went all in just as the dot com bubble was peaking. You know how it went from there. By 2001, as the asset management industry looked inward with shame and embarrassment, a task force was being convened to determine how so many analysts and fund managers could have led their investors astray. Arthur Zeikel came out of retirement to chair this task force.

By 2006 the Merrill Lynch asset management unit he’d built was sold to BlackRock for $9.5 billion worth of stock, giving Merrill a 50% stake in the combined company. They would eventually sell this stake back to BlackRock by 2011 during the financial crisis. The sale of this unit would become the foundation for what is now the largest asset manager in the world – with almost $10 trillion under management, including the descendants of those bond funds that had been at the center of the controversy during their moment of poor performance in the mid-1990’s.

If you ask people who worked with him, they’d say that Arthur Zeikel’s strong suit was that he never gave up on a portfolio manager going through a rough patch. He understood that sometimes sound investment strategies go out of favor. In the obituaries after his passing this December, this quality of his was noted. As was the fact that he was way ahead of his time in terms of incorporating the behavioral aspect of investing into his work. In times like these, when the bombs are falling and the new 52-week low list is littered with blue chip stocks, your behavior becomes the only thing you can control.

Sometime in 1995, Arthur Zeikel published some investing advice to his daughter Jill. He had written it shortly after enduring the closed-end bond fund revolt as Merrill’s Executive Vice President of the Asset Management Group. He was 63 years old, having spent almost four full decades on The Street. I share it with you now because there’s a timelessness here that I believe makes it entirely apropos of the current situation we find ourselves in. I hope it helps you. – Josh

From: Arthur Zeikel (Father)

To: Jill Anne Zeikel (Daughter)

Date: Oct. 17, 1994

Re: Managing Your Own Portfolio

Personal portfolio management is not a competitive sport. It is, instead, an important individualized effort to achieve some predetermined financial goal by balancing one’s risk-tolerance level with the desire to enhance capital wealth. Good investment management practices are complex and time consuming, requiring discipline, patience, and consistency of application. Too many investors fail to follow some simple, time-tested tenets that improve the odds of achieving success and, at the same time, reduce the anxiety naturally associated with an uncertain undertaking.

I hope the following advice will help:

A fool and his money are soon parted. Investment capital becomes a perishable commodity if not handled properly. Be serious. Pay attention to your financial affairs. Take an active, intensive interest. If you don’t, why should anyone else?

There is no free lunch. Risk and return are interrelated. Set reasonable objectives using history as a guide. All returns relate to inflation. Better to be safe than sorry. Never up, never in. Most investors underestimate the stress of a high-risk portfolio on the way down.

Don’t put all your eggs in one basket. Diversify. Asset allocation determines the rate of return. Stocks beat bonds over time.

Never overreach for yield. Remember, leverage works both ways. More money has been lost searching for yield than at the point of a gun (Ray DeVoe).

Spend interest, never principal, If at all possible, take out less than comes in. Then a portfolio grows in value and lasts forever. The other way around, it can be diminished quite rapidly.

You cannot eat relative performance. Measure results on a total return, portfolio basis against your own objectives, not someone else’s.

Don’t be afraid to take a loss. Mistakes are part of the game. The cost price of a security is a matter of historical insignificance, of interest only to the IRS. Averaging down, which is different from dollar cost averaging, means the first decision was a mistake. It is a technique used to avoid admitting a mistake or to recover a loss against the odds. When in doubt, get out. The first loss is not only the best but is also usually the smallest.

Watch out for fads. Hula hoops and bowling alleys (among others) didn’t last. There are no permanent shortages (or oversupplies). Every trend creates its own countervailing force. Expect the unexpected.

Act. Make decisions. No amount of information can remove all uncertainty. Have confidence in your moves. Better to be approximately right than precisely wrong.

Take the long view. Don’t panic under short-term transitory developments. Stick to your plan. Prevent emotion from overtaking reason. Market timing generally doesn’t work. Recognize the rhythm of events.

Remember the value of common sense. No system works all of the time. History is a guide, not a template.


This is all you really need to know.

Love, Dad"

MY COMMENT

If you wanted to sum up long term investing in one short document....the letter above is it. It covers ALL the basic general rules of investing. If you apply the above.....along with realistic and rational stock picking or the use of broad Index Funds like the SP500. You WILL win the financial war over the longer term and WILL provide financial success for your family.

 

Times like we have been going through for the past 2.5 months provide a good and valuable lesson for investors. The current market conditions are probably the worst since 2009....especially if they continue for a while....which they will. Over the past 12 years investors got complacent. New investors that started within that 12 year span have NEVER experienced any sort of NASTY market. The end result....overconfidence, ego, emphasis on short term trading, extreme risk taking with no realization of the danger, etc, etc, etc.

SO.....what is happening now is a good thing. It is a lesson in REALITY for investors that have never invested prior to the past 12 years. it is a typical NASTY correction and has the potential to end up in a BEAR MARKET and/or a recession.

This little event is a wake up call for investors. First......long term means LONG TERM. In hot markets it is absolutely typical to see investors mentally lower, and lower, and lower, their definition of long term. People put money at risk that is going to be needed in 6 months, or a year, etc.

The most important lesson that I am sure some people are learning right now is that LONG TERM.......actually.....means 5-7 YEARS minimum. An important basis for long term investing success is to give your investments the benefit of TIME to recover from the NASTY short term events that are often the NORM.

Another lesson.....the markets are NOT a CASINO. It is not a game. It is real money and the markets can and WILL go down. This is NORMAL. Expect it and plan for it.

If the current issues continue for some time.....and I expect that they will for at least another 3-9 months.......the market will GRIND you down. This will be a very good test of the ability of investors to weather a bad investing environment caused by outside factors. NOW....will be the time for investors to see if they really do have the GUTS they thought they had.

As for me.......I continue to be fully invested for the long term as usual.

 

NOW.......today.....we are seeing the markets recover some of the losses from the open at the moment. AND.....Amazon is up nicely on the split news. Where we go from here.....today....who knows. We might end the day in the green....or....the red may grow.

Does it really matter......NO. What matters is when I look back at my account in 5-7 years and see my results.

 

One last comment for now........if you ARE actually a long term investor and find yourself obsessively checking your account and starting to fret over the day to day markets and the economy. Just step back, turn off the TV, and ignore what is going on......just live your life.......focus on family, work, kids, etc.. Trust in the power of long term investing and the power of compounding.

 

How could I hate you Zukodany.

Actually......... since I have totally divorced my retirement income from my stock account and am a long term investor for life....I dont care about corrections or bear markets. I just sit through them.

I do like to watch the psychological aspects of the markets play out day by day as well as all the CRAZY and WEIRD investor behavior.

I STILL consider corrections and bear markets as opportunities to reinvest dividends at a cheap price. I emailed a couple of family members just a few days ago to remind them that they are getting a great price and cheap shares for their $1000 that they automatically invest every month and that those shares will skyrocket in value in the future.

For anyone with a long term horizon or money that is not needed.........it does not matter.

 

I was thinking about you grrudeau88 this morning. I thought you must be doing pretty well today with the market being down.

 

I will take it. I was in the red but had an extremely minimal loss today. I was saved by the big gain in Amazon and two other non-tech holdings....Costco and Home Depot. One of those red days that is STILL a moral victory. I also manage to beat the SP500 today by .10%.

All in all a good day considering. Looking forward to how we end the week tomorrow. My wild ass guess.......the indexes will end the day tomorrow in the GREEN.

 

I filled up with gas yesterday. The price here in Central Texas......$3.79. A blessing compared to most of the country.

 

I find this little article very IRONIC.

Zillow quits home-flipping business, cites inability to forecast prices
Termination of ‘iBuying’ comes after company said it was halting new home purchases for rest of 2021

https://www.foxbusiness.com/real-es...g-business-cites-inability-to-forecast-prices

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

"Real-estate firm Zillow Group Inc. is exiting from the home-flipping business, saying Tuesday that its algorithmic+ model to buy and sell homes rapidly doesn’t work as planned.

The firm’s termination of its tech-enabled home-flipping business, known as "iBuying," follows Zillow’s announcement about two weeks ago that it was halting all new home purchases for the rest of the year. At the time, Zillow pointed to labor and supply shortages for its inability to renovate and flip houses fast enough.

In a statement Tuesday, Chief Executive Rich Barton said Zillow had failed to predict the pace of home-price appreciation accurately, marking an end to a venture the company once said could generate $20 billion a year. Instead, the company said it now plans to cut 25% of its workforce.

"We’ve determined the unpredictability in forecasting home prices far exceeds what we anticipated and continuing to scale Zillow Offers would result in too much earnings and balance-sheet volatility," Barton said.

Zillow and other tech-powered house flippers, known as iBuyers, purchase homes, renovate them and then try to sell them quickly, making money on transaction fees and home-price appreciation. Zillow used an algorithm to make home price estimates, called the "Zestimate," and determine what it would pay home sellers.

Real-estate firm Zillow Group Inc. is exiting from the home-flipping business, saying Tuesday that its algorithmic+ model to buy and sell homes rapidly doesn’t work as planned. (Zillow) (Zillow)

Ultralow mortgage-interest rates and a need for more space to work from home have driven robust home-buying demand in the past year and a half. Prices have climbed sharply in almost every corner of the U.S.

"It feels like this would be a hard time to lose money buying and selling houses," said Benjamin Keys, professor of real estate at the Wharton School of the University of Pennsylvania. "This is a time frame where prices have gone up in a lot of places, dramatically."

In recent months, sky-high prices have forced out some buyers, and the market has showed signs of cooling off, as many economists expected. The median existing-home sales price rose 13.3% in September from a year earlier—still unusually robust, though down from 23.6% year-over-year price growth in May, according to the National Association of Realtors.

Even this gradual tapering in price growth flummoxed Zillow’s algorithm, leading the company to pull the plug on the venture.

Zillow’s class C share price was down 10% on Tuesday, falling before the company announced after the market closed that it would end home flipping. Shares continued to slide in after-hours trading.

The move represents a big hit to Zillow’s top line. Home-flipping was the company’s largest source of revenue, but it has never turned a profit.

Zillow, which released earnings Tuesday, said its home-flipping business, Zillow Offers, lost $381 million last quarter, as measured by adjusted earnings before interest, taxes, depreciation and amortization. That resulted in a combined adjusted Ebitda loss of $169 million across all of Zillow.

Zillow has an inventory of about 9,800 homes across the United States that it is currently shopping to investors. Additionally, there are another 8,200 homes in contract it has agreed to buy. The company expects to lose somewhere between 5% and 7% on these homes, the company said.

Starting in the summer, competitors such as OpenDoor and Offerpad began to pull back from home purchases in one of the biggest home-flipping markets, Phoenix, as the red-hot pandemic market began to cool.

But Zillow accelerated, according to an analysis of sales records by real-estate tech researcher Mike DelPrete, scholar-in-residence at the University of Colorado, Boulder. Zillow also paid significantly more than those competitors for each home it purchased, buying homes priced $65,000 above the median on average, according to DelPrete’s analysis.

By October, the company had listed 250 Phoenix homes at a median-price discount of 6.2% below what it had paid for them. DelPrete called Zillow’s price blunder a catastrophic failure.

A wider look at Zillow’s national performance by analysts at KeyBanc Capital Markets found it had listed 66% of homes at prices below what it had paid for them, with an average discount of 4.5%.

"The fact that Zillow can’t make it work shouldn’t be the final death knell for iBuying," DelPrete said. "The other companies are making improvements, and Zillow’s not. They’re still losing lots of money."

Zillow said it expects that the wind-down of its home-flipping outfit will take several quarters."

MY COMMENT

A classic case of buy high and sell low. Well I guess the old Zestimate......used by everyone to see what their house is worth.....has been shown to NOT work. Bummer.

How IRONIC that a company that lives from telling everyone in the world what their house is worth.......can NOT manage to buy and sell homes using their Zestimate algorithm to value homes. An EPIC failure to perform.

 

Sounds good gtrudeau88. If it was me I think I would hold onto that EQT for a while also.

 

As an investor and if I was in management at some company.....this would not make me feel all warm and fuzzy.

SEC’s Gensler aims to be ‘transformational’ Wall Street cop
Sen. Elizabeth Warren and SEC Chair Gensler have developed close relationship sources say

https://www.foxbusiness.com/markets/secs-gensler-aims-to-be-transformational-wall-street-cop

"Wall Street executives are scrambling to figure out if Securities and Exchange Commission Chair Gary Gensler is serious about imposing new "woke" disclosure mandates on companies. And the answer they’re getting is a resounding "yes."

FOX Business has learned that top c-suite officials from the big banks have been setting up meetings with the relatively new chairman of the SEC in recent weeks to get a better idea of his agenda as head of Wall Street’s top cop.

Gensler was nominated by Democratic President Biden for the post and was confirmed by the Senate in April. People who have met with him say he hasn't yet fully moved into his office at the commission's Washington, DC headquarters. They say he is still largely working from his home in nearby Baltimore.

From his home office, however, Gensler is plotting to be a "transformational" SEC chair, according to Wall Street executives who know him. His top priority, he has signaled to these people: significant changes in what corporations must disclose to the public that reflect certain political, environmental and social goals an increasing number of investors are demanding.

Gensler is also telling executives that he will not ignore the traditional parts of his job and will be looking to enhance protections for small investors who have flooded the market in recent years, embracing risky financial products on a scale not seen since the dot-com bubble of the late 1990s.

"He's worried about small investors getting ripped off, but the highest priority will be the new disclosure rules that appeal to the environment and issues like that," said one c-suite executive who asked not to be named.

An SEC spokesman had no comment.

Gensler, well-known and mostly well regarded among the Wall Street elite given his long years as a banker at the prestigious investment house Goldman Sachs and later while serving in various government finance-related roles including chairman of the Commodity Futures Trading Commission under former President Obama.

His politics have transformed over the years from a left-of-center liberal on financial issues to someone who now embraces progressive edicts from the likes of Democratic Massachusetts Senator Elizabeth Warren, a fierce critic of corporate America. Wall Street executives say Gensler is so close to Warren he often confers with her on policy issues. A spokesman for Warren didn't return a call for comment.

Gensler's political beliefs are said to be at the center of his new – and according to some observers radical agenda – as SEC chair. He wants to impose new disclosure rules sometime before the end of the year that will force companies to go beyond alerting investors about financial issues that can materially impact their holdings. That will mean corporations will have to disclose issues about their carbon footprint, board-room diversity and other non-financial issues. It's unclear what exactly Gensler will be asking in terms of these new disclosures, but Wall Street executives say he is telling people he and his staff will provide details by the fall.

The disclosures will certainly draw criticism from some corporate executives and GOP politicians who believe Gensler is overstepping his role as a regulator of markets by embracing progressive political issues.

But Gensler appears undeterred. "He is really serious about this stuff that probably comes right from Elizabeth Warren’s office," said one attorney who deals with major corporations on their dealings with the SEC. The attorney said Gensler will pass the rules through a party-line vote since Democrats outnumber Republican commissioners 3-to-2.

Other issues Gensler will focus on are those he believes involve more typical Wall Street abuse of small investors. He's said to be worried that there's not enough disclosure when retail investors buy shares of Special Purpose Acquisition Companies or SPACs. This is a new way a company can go public by being acquired by a shell company that buys several different ventures. Gensler is worried that small investors who buy shares at initial public offering are getting crushed with fees that aren't levied on big investors who sponsored the product.

One particular concern in the SPAC space for Gensler is the so-called celebrity SPAC where movie stars and professional athletes lend their names to the SPAC even though they have no investment expertise, these people add.

Also on his list, as previously reported by FOX Business, the issues of payment for order flow and the gamification of trading. Payment for order flow is the system that allows small investors to trade for free or at a low cost through discount brokerages. Brokers sell their order flow, or buy and sell orders, to other financial firms to match the orders. The financial firms make money on the bid-and-ask spread and by handling so many trades even fractions of a penny could add up to enormous profits.

The SEC chairman is worried the system gives financial firms matching the orders--like Citadel Securities and Virtu Financial--an unfair information advantage in the markets. One option he has discussed: Forcing discount brokers to send more of their trades to public exchanges where there is more transparency.

Gensler appears to be still grappling with how to regulate the so-called gamification of trading, where discount brokers appear to lure unsophisticated investors to their platform through gimmicks and incentives without properly disclosing the risks involved in trading. Wall Street executives say clues to how Gensler will regulate gamification might be found in the upcoming IPO documents for trading app Robinhood, which has been in negotiations with the SEC about becoming a public company via its private filing.

Robinhood, which offers trading with no fees, is planning to come public later this summer; its IPO document known as an S-1 will be publicly released imminentl"

MY COMMENT

I agree with the tightening of SPACS and the issue of gamification and payment for order flow.

The rest of this stuff.......is NOT the governments business and they should stay out. Just leave it to individual companies to do the woke stuff how they choose. This is how it should be in a free market capitalistic country. If a company chooses to go woke....that is their choice. If not....that is their choice too. It is hard enough being in business without having to LURCH AROUND every time there is a change in an election.

But.....I am a Libertarian.

 

SO....we have our first INDEX that has hit BEAR MARKET levels. Time will tell if it turns out to be a real and significant bear market or just a short term HINT of a bear market.

Nasdaq 100 Slides Into First Bear Market Since 2020

https://finance.yahoo.com/news/nasdaq-100-futures-point-first-033535686.html

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


"(Bloomberg) -- The Nasdaq 100 Index fell into a bear market for the first time since the pandemic as investors exit risk assets following Russia’s invasion of Ukraine.

The technology-heavy index shed as much as 3.3% by 9:31 a.m. in New York, pushing it into bear-market territory, which is measured as a decline of 20% or more for a stock index from a recent high. Russian forces attacked targets across Ukraine after President Vladimir Putin ordered an operation to demilitarize the country, prompting a threat of further “severe sanctions” on Moscow and sending markets tumbling around the world. The S&P 500 index dropped 2.4%, pushing the benchmark index deeper into a correction.

Among the Nasdaq 100’s most notable movers, Apple Inc. fell 4.6%, Microsoft Corp. dropped 2.9%, Amazon.com Inc. shed 3.2%, and Google Parent Alphabet dropped 2.6%. Meta Platforms Inc. sank 2.3%; the Facebook parent has underperformed for months, and the day’s slide will bring it around a 50% drawdown from a September peak.

The invasion is the latest risk to hit markets, following growing expectations for a rise in interest rates and persistent inflation, factors that have largely hit high-growth names.

“We’re not at a point where you can just jump in because everything is so cheap; it is extremely hard to call a bottom, and the geopolitical risk makes it even harder,” said Ivana Delevska, chief investment officer of SPEAR Invest.

The Nasdaq 100 has dropped 21% since notching its Nov. 19 closing record amid skyrocketing inflation, disappointing earnings and the prospect of conflict. Companies on the index have lost about $3.1 trillion in market capitalization so far this year as investors grapple with a double whammy for the sector in rising interest rates, which chip away at the value of future earnings, and slowing growth.

Yields have soared on the prospect that the Federal Reserve will start withdrawing the massive monetary stimulus that has supported the U.S. financial system since the pandemic hit. Policymakers are fighting the largest consumer price spikes in a generation, but investors are dumping tech and growth stocks, whose valuations ballooned during the pandemic, as borrowing costs rise.

“Growth stocks had gotten incredibly loved and overvalued,” Eric Diton, president and managing director of The Wealth Alliance, said. “There was a feeling of intense speculation like with the tech bubble.”

Problems have been brewing since the start of the year with more than a third of the stocks in the Nasdaq 100, which represents the exchange’s largest non-financial companies, down at least 50% from their 52-week highs by just the second week of January. Meanwhile, the percentage of stocks on the Nasdaq Composite that set new 52-week highs stood at just 1% on Wednesday.

The broader Nasdaq Composite Index also fell into bear territory, but some strategists said the selloff could have gone too far.

“The weakness in U.S. markets seems the most overdone with this move being sentiment- rather than economically-driven,” said Altaf Kassam, EMEA head of investment strategy and research at State Street Global Advisors. “The moves are inspiring us to add a little risk in a measured way. However, we are tempering this addition to risk with some tail risk hedges, notably in long duration U.S. Treasuries and VIX futures.”

Wild Swings

Big Tech has experienced the wildest volatility swings in recent weeks since the pandemic shuttered the U.S. economy in 2020. At one point this month, Facebook parent Meta Platforms posted the worst one-day drop in market value in stock-market history while Amazon.com posted the biggest single-day gain in market capitalization in U.S. history.

Shares of smaller, fast-growing tech companies have been especially hurt by concerns that they would be more vulnerable to tighter monetary policy since they are more reliant on capital markets for financing rather than incredible riches that have helped some founders skyrocket to the moon.

U.S. tech companies may face further pain as investors swap growth stocks for energy, financials and other cyclical shares that historically have benefited from improving economic growth and higher rates. The shifts likely represent a rebalancing away from the atypical conditions that have persisted for more than a decade and helped create a cadre of trillion-dollar companies dominating stock indexes."

MY COMMENT

I am sure we will bounce in and out of bear market territory for a while. The ultimate question is.......do we settle into a long and sustained bear market or is this just a short term blip.

At least investors that have never seen a bear market.....might....have a chance to experience their first one of many. I say first of many since anyone that is a young investor WILL experience a number of bear markets over their investing life. This is simply a normal part of stock and fund investing.

 

UP,UP,......and AWAY.........TO INFINITY AND BEYOND

Whoops.....sorry. I saw all the green to start the day today and got all excited and carried away. My excitement made me combine Superman and Buzz Lightyear.

OR

Perhaps I was subconsciously flying along in a balloon with the 5th Dimension. Lets hope the lyrics define the markets today.

"Would you like to ride in my beautiful balloon. Would you like to ride in my beautiful balloon. We could float among the stars together, you and I. For we can fly we can fly. Up, up and away. My beautiful, my beautiful balloon. The world's a nicer place in my beautiful balloon."

OR

I retreat.....mentally.....to my beautiful balloon when the markets are nasty and down and just float above it all....detached from the carnage.

Whatever.

Damn......the NASDAQ just turned red.

 

Here is a little article relevant to investing in a war environment.

Don’t panic—here’s how stocks historically perform during wars

https://www.riskhedge.com/outplacem...-stocks-historically-perform-during-wars1/rcm

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

"Last week, I was part of a private discussion with Marko Papic…

If you don’t know the name, few people on earth are as qualified to talk about how the war in Ukraine will affect stocks as Marko.

He’s been studying geopolitics and markets for more than a decade. He wrote the book Geopolitical Alpha: An Investment Framework for Predicting the Future.

During the discussion, he said, “You should just buy every time there is a geopolitical conflict. There’s only 1 out of around 80 events where this isn’t the case.”

That assertion shocked me…

With the war in Ukraine raging on, I wanted to take it a step further, so you know exactly what to expect during these volatile times.

My team and I looked at over 50 major geopolitical and warlike events since the 1950s…

And more importantly, what happened to stocks during each time.

Here’s what we found:

• US stocks tend to fall at the outbreak of war… and then almost always recover quickly from these plunges.

Specifically, our research found stocks typically drop around 10% in the days following the start of conflict.

But one year after the onset of the war, they gain 11%, on average.

In other words, if history holds true, the current weakness in stocks will be short-lived.

Let’s look at some examples…

Here’s how the S&P 500 fared during the first Gulf War in the early 1990s.



Here’s US stocks a decade later during the second Gulf War…



US stocks followed this pattern the last time conflict broke out between the Ukraine and Russia in 2014.

• When the guns start firing… get out your shopping lists.

Look, I’m not downplaying this war.

It’s going to take a sad toll on millions of people.

But this is an investment letter. We’re here to make money.

And the facts are clear: The absolute worst thing you can do is panic and sell.

Of course… there’s always a chance that markets won’t follow historical patterns.

What if this war isn’t like the others?

What if it defies the odds and crashes the stock market?

It’s a valid concern... but it fails to see the big picture.

Because it fails to acknowledge that many areas of the stock market have already crashed.

Did you know that more Nasdaq stocks have sunk to yearly lows today than at any point in the last 20+ years?

That includes the ‘08 meltdown.

And even the dot-com crash.

So investors looking for a stock market crash might want to look in the rearview mirror.

There are dozens of crappy businesses with little or no revenues listed on the Nasdaq. Those stocks deserve to go to zero.

But quality stocks have gotten caught up in the sell-off too.

Long-time RiskHedge readers know the semiconductor industry (computer chips) is one of my top sectors to bet on for the next decade. Chip giants Nvidia (NVDA) and Taiwan Semiconductor Manufacturing Company (TSM) just reported record earnings and a strong outlook for 2022.

But despite their businesses firing on all cylinders… these stocks have fallen 20%–30% in the past few months. So this is an opportunity to buy top chip companies at a big discount.

• It can be scary investing during a war.

It feels more natural to hit the sell button.

But history has shown us time and time again that you want to buy during these times.

So what type of stocks do you buy?

The short answer: High-quality businesses, as we discussed last Monday.

• I’ll leave you with one final piece of advice.

It’s terrible what’s unfolding in Ukraine. I wish it wasn’t happening. But it’s okay to sympathize with what’s happening without being consumed by it.

This will be the most televised war in history. The images and videos aren’t coming from major news outlets... They’re uploaded by normal everyday folks with smartphones.

It’s tempting to watch the horrors of war… and click on every video about Ukraine popping up.

Instead, I urge you to put the phone or laptop away and spend some time with your family. Do something fun together.

I promise your partner and kids will thank you for it."

MY COMMENT

Some really good advice at the end of this little article. I do agree with the content about investing and wars. BUT....investors do need to factor in the other conditions that currently ALL exist together......war, inflation, the FED and rate increases, a distorted economy due to Covid, and an incompetent government.

Myself......in spite of the above factors.....I intend to simply do NOTHING.

 

This is a short article but I like it.

150 YEARS OF HISTORIC YIELDS FOR THE SP 500

https://politicalcalculations.blogs...f-historic-yields-for-s-500.html#.Yitt1N9MHVo

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

"With over 95% of the earnings data for the fourth quarter of 2021 now reported, we thought it might be a good time to visualize the historic yields for the S&P 500 (Index: SPX). The following chart presents the trailing year earnings and dividend yields for the index over the past 150 years, from January 1871 through December 2021.


For December 2021, we find the earnings yield for the S&P 500 is 4.70%, which places it within the middle of the range it has fallen during the past thirty years. The index' dividend yield however is 1.46%, which comes within a few tenths of a percent from its all-time low recorded at the peak of the Dot-Com Bubble in August 2000.

At this point in 2022, both measures of the relative valuation of the S&P 500 have risen as the value of the index has fallen throughout the year to date.

MY COMMENT

Fun to look at long term data. I suspect that the changes over the past 40 years show above are mostly due to the type of companies reflected in the Index as well as changes in the business bass of our economy.