The Long Term Investor

LOL.......I am now back in touch.

You guys did a pretty good job holding up the markets this past week. Actually......the week seemed worse than it really was with a good number of negative days. BUT......ALL......the averages ended the week in the GREEN.

I did not pay any attention to the markets this past week while I was out of touch.....but I know my account value......when I just looked......is higher than when I started the week. I dont know all the dirty details of the past week......but ending with a higher account value is all I need to know. I made money....I dont care how or why.

For the PAST week

DOW year to date (-5.25%)
DOW for the week +0.24%

SP500 year to date (-14.57%)
SP500 for the week +1.13%

NASDAQ 100 year to date (-26.51%)
NASDAQ 100 for the week +2.03%

NASDAQ year to date (-26.74%)
NASDAQ for the week +2.09%

RUSSELL year to date (-15.70%)
RUSSELL for the week +1.27%

The DOW actually has a fighting chance to get to positive by year end......if we see a nice fat Santa rally. The SP500 has a slight chance for a positive 2022.....with a VERY FEROCIOUS......Santa rally.

We are now down to the......FINAL FOUR......weeks of 2022 for the markets. After all we have been through this year.....all I can say is.......WHATEVER.

 

This is true this year.......and any year. You have to take the bad with the good to make the BIG BUCKS over the long term. For me.....I prefer listed assets.

The Trouble in Conflating Illiquidity and Stability
If you want any degree of return, volatility is inescapable.

https://www.fisherinvestments.com/e...ouble-in-conflating-illiquidity-and-stability

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

"Notwithstanding November’s rally in stocks and bonds, publicly traded assets have had a rough ride this year. For many investors, it isn’t just the broader declines that sting, but the wild back-and-forth that adds to the emotional havoc. It is one thing to know that all of these swings tend to even out in the long run, rewarding those with the patience to stick it out. It is another to conjure the necessary discipline when stocks are up one week and down bigger the next—with pundits warning more pain is in store. Enter what seems to many like the holy grail: assets that aren’t publicly traded—seemingly insulated from near-term ups and downs yet still have long-term return potential. Think non-traded REITs, property, private equity funds, venture capital investments, hedge funds and the like. If you are a longtime MarketMinder reader, you might be familiar with our hatred of non-traded REITs, which generally reward brokers more than investors and have no identifiable edge over their listed counterparts, in our view. This article isn’t about that. Rather, we think it is important to understand unlisted assets’ lack of volatility is illusory.

Any asset, regardless of whether it is listed publicly, is worth only what others are willing to pay for it. That, always and everywhere, is the price. Publicly traded assets like stocks—or securities traded often over-the-counter, like US Treasurys and many corporate bonds—have near-countless price reference points. Anything that trades constantly has near-instant price quotes, making price volatility apparent to all who look.

Unlisted assets, on the surface, may seem different. Many unlisted funds—non-traded REITs, private equity funds, hedge funds, venture capital funds—report valuations at set intervals, perhaps quarterly or annually. Start-ups get valuations whenever they complete a round of fundraising, as in, venture capital firm X takes a Y% stake that values the company at $Z billion, with much of the calculation based on models, hype and guesswork. Property values are similarly fuzzy: Unless your house is on the market and receiving bids, estimates of its value probably rest on assumptions based on what similar neighbors have sold for. That may or may not match what you can actually receive, especially if you have to sell in a hurry or if the market has shifted.

This raises the key problem: Unlisted doesn’t mean stable. The inability to see prices changing moment by moment doesn’t mean prices aren’t shifting. It just means the asset is illiquid, making the price exceedingly difficult to discover at any one time. Consider a private fund that reports its net asset valuation quarterly. You will get four price reference points per year, creating the illusion of smoothness. But if you have to redeem or sell your holding in the interim (presuming there is a provision enabling you to do so, which isn’t a given), you may find the price diverging markedly from the most recent quote. If times are good you might—might—find it is higher. But if they aren’t, you may have to take a steep haircut, and the discounted price may not match reality.

A recent (and excellent) Sydney Morning Herald op-ed illustrates the problem well with an anecdote about an Australian start-up called Canva, whose investors wrote down its value this year as Tech stocks fell globally. But they broadly disagreed on what it was worth. “Various Canva investors wrote down their valuations by between 36 per cent and 60 per cent. Some were quicker to change their valuations than others. That matters in terms of the performance numbers the funds have reported but also the treatment of individual fund members. A member withdrawing their funds before the valuations changed would benefit, potentially (given how sizeable some funds exposures were to Canva) to the detriment of continuing or new members.” Meaning, those unfortunate enough to need (or choose) to redeem their holdings after that valuation would have taken a big and perhaps arbitrary hit, all because of the timing and methodology a fund manager chose to use. If you are dealing instead with listed assets, you take this arbitrariness out of the equation. You have price transparency.

Similar stories abound in the start-up world today, as a piece in the UK’s Telegraph documents. One famous, privately held Swedish buy-now-pay-later firm saw its valuation cut from £38 billion to £6 billion in a year. Another was valued at £28 billion in July 2021 and is now trading for half that over the counter.[ii] And don’t even get us started on FTX, BlockFi and the litany of troubled crypto firms. All of these feed into private equity and venture capital fund valuations. Investors who stay in these funds for the very long term might still do ok if the good investments outweigh the bad, but presuming there is minimal volatility on the way there is far out of step with reality.

We aren’t inherently against any of these investments (well, aside from non-traded REITs). But we think it is paramount for investors to understand what they are buying and whether that matches their presumptions and motivations. If you have an unlisted fund that reports its valuation quarterly, you get four points on a chart of annual performance. Any lines you draw from A to B to C to D will look smooth. What you don’t see are all the changes in the fund’s net asset value from day to day. Those still exist! Consider a stereotypical hedge fund, where the manager might make dozens of short-term trades per month. Some win big, some lose big, gaining or losing millions for the fund in an instant. But you don’t see that—all you see is the sum total of this activity every 90 days (or however often), which is sometimes the result of one really big, really awesome trade that offset a bunch of busts. That big trade is usually the stuff of legends. But it doesn’t erase the negativity—and fund value volatility—that preceded it. Just because you can’t see it, doesn’t mean it wasn’t there.

Always remember this simple truth: Return and risk go hand in hand, and risk often means volatility. No high-returning asset moves in a straight line, and that includes unlisted assets—you just can’t see the wiggles. Illiquid doesn’t mean non-volatile. It means hard to value and hard to sell. If you are considering unlisted or private assets, we think keeping those thoughts front of mind is critical.

MY COMMENT

There is no reason to chase returns in any market........and......there is no reason to chase unlisted or non-traditional investments trying to avoid the volatility. I will take volatility any day compared to obscure assets.

 

The KEY to investing success is the same simple rules and steps over and over and over. Do it long enough and you are talking......long term investing. The rules and concepts are ALWAYS simple. Which makes it nearly impossible for most human brains to accept and perform.

To make money, avoid these common mistakes

https://www.cnn.com/2022/12/01/success/investing-biases-behavioral-finance/index.html

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

"No matter how smart or well educated you are, and no matter how successful professionally, when it comes to investing you still might not make the best decisions.

That’s because you’re human, which means you’re hardwired to respond in certain ways that serve you well in many parts of your life, but tend to work against you when it comes to making smart investment decisions, according to psychologist Daniel Crosby, author of “The Behavioral Investor.”

“Not only is high intelligence not an insulation [against bad financial decisions], it might be a red flag,” Crosby said.

But here’s the thing: If you’re aware of your mediocrity when it comes to the markets, it can actually help you be a better investor.

Based on decades of leading behavioral research, Crosby said investors easily fall prey to four inherent biases.But when you’re mindful of them you can take steps to either mute their effect, or harness them to your financial advantage.

1. Ego bias

Everyone has an ego. It protects us in many ways, in part by creating a sense of confidence – and often overconfidence – in our own abilities and judgments.

“Ego gets us out of bed in the morning,” Crosby said.

Those who become very sure of themselves are more likely to be resilient and find professional success. “People who are overconfident are often happier and more likely to be successful business people and politicians. And [a strong] ego can buffer us against setbacks, disappointment and loss,” he said.

But when it comes to investing, too much self-confidence can cost you real money.

For example, Crosby said, most of us would rather find information that confirms what we already believe rather than seek out information that challenges our beliefs. He cited research showing that even when presented with facts that directly contradict what we believe, thanks to our ego, we may become even more entrenched in those faulty beliefs.

One way this might play out when you’re investing is that you may feel sure that a given company or new asset class – like crypto – will win the future. So you throw a disproportionately large amount of money at your can’t-lose-idea.

But research suggests cherry-picking what you believe to be future winners in place of investing in the broader market may hurt your returns in the long run. Crosbycited statistics showing how active stock fund management performedless well than passive indexing more than 80% of the time over five- and 10-year periods. And that’s before accounting for the higher fees an investor pays for actively managed funds.

2. Conservatism bias

Investing always involves risk. But people’s desire to stick with the familiar or take the adage “invest in what you know” too far can actually increase that risk.

Crosby used an example of someone who works in the tech industry, buys a home in a tech hub like San Francisco and invests primarily in tech stocks. The upshot: Her financial prospects will be disproportionately dependent on the health of the tech sector because she is devoting most of her time and money to it through her job, her property and her portfolio. When the tech sector takes a hit, she could get clobbered financially.

Another way investors often default to the familiar is to primarily invest in US stocks in the belief that non-US stocks are too risky.

3. Attention bias

Humans tend to pay disproportionate attention to bad news or high-drama, low-probability events (e.g., shark attacks or planes flying into buildings). Both can distort our perception of risk.

What’s more, information overload – whether from data or research or news – can lead to misguided decisions because too much information makes it hard to see the forest for the trees, Crosby noted.

4. Emotion bias

Our emotions and intuition can protect us in some difficult situations, or they can help guide us. For instance,you might finally picka good partner after years of dating others who were never quite right for you.

But they can also cause us to act rashly in the moment, and override what we normally know we should do.

Think donuts, Crosby suggested. You may have gotten all the nutritional counseling in the world, but under peak stress you will invariably reach for the powdered donuts, not the asparagus.

How emotion plays out in the markets can be costly. If your fear is activated, you can panic and sell at the wrong time. Or if you’re elated,your optimism may distort your sense of how much risk you’re really taking on with an investment.

Strategies to beat back our biases

Investors can seek to override their inherent biases in many ways, Crosby said.Among his suggested strategies:

Tune out the noise. Don’t check your investment accounts daily. Don’t fixate on every gyration in the market. Don’t drown yourself in metrics. And don’t let negative events disproportionately drive your investment decisions.

Have humility. You can’t predict the future. And you will never have perfect information to make a sure bet on a single stock or sector.

Diversify your holdings. Crosby put it this way in his book: “Diversification is … the embodiment of managing ego risk. [It]’s a concrete nod to the luck and uncertainty inherent in money management and an admission that the future is unknowable.”

For example, to counter so-called home bias in your investments, Crosby suggested you shouldn’t invest much more in domestic stocks than their percentage of the world market. Depending on how they’re measured, US equities represent anywhere from 45% to 60% of the global equity market. But average US investors typically have a much larger share of their equity holdings in US companies, and very little in foreign stocks.

Put a system in place. Automating your savings and investing across a diverse portfolio regardless of market conditions often works well. The same goes for automatically putting away a certain amount of savings for near-term goals and emergencies.

“It’s less about the perfect process and more about having a process,” Crosby said.

One example is the idea of “set it and forget it” with retirement savings. Employees who choose the option in their 401(k) plan to automatically increase their savings whenever they get a raise do better than if they have to make decisions every month about how much to save.

Use emotions to your financial advantage: One study Crosby cited showed that low-income parents were likely to save twice as much money when they had an envelope earmarked for savings that has a picture of their children on it.

Realize no investment is perfect. Many people get their exposure to the stock market through their 401(k)s, specifically through target date funds that their employers offer as the default investment."

MY COMMENT

The key for any long term investor is having a realistic and rational investment plan. One that you can stick with and achieve success over the long term....by compounding your gains.

Unfortunately any such plan......no matter how rational or reasonable.....requires the ability to avoid EMOTION......the investment killer........and stick with the plan in the bad years as well as the good. of course along the way when adjustments to your plan are needed you do so.

Basically I have followed the same type of CORE PORTFOLIO for many decades now. I focus on BIG CAP, ICONIC, etc, etc, companies. That is my thing and it works well for me.

 

We will soon be DONE with the FED for 2022. That might just clear the way for a few weeks of rally to year end. Emphasis on the word....."might".

Countdown begins to Fed's last meeting of 2022: What to know this week

https://finance.yahoo.com/news/coun...of-2022-what-to-know-this-week-163314201.html

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

"A parcel of economic data awaits Wall Street this week as investors inch closer to the Federal Reserve’s final rate-setting meeting this year.

New readings on the producer price index (PPI) – which measures inflation at the wholesale level – durable goods orders, and consumer sentiment lead the economic calendar in importance. Meanwhile, a few more earnings reports will close the curtain on third-quarter reporting season.

U.S. central bank officials are scheduled to convene Dec. 13-14 and expected to lift their benchmark interest rate by 50 basis points. Federal Reserve members have entered a blackout period ahead of the gathering, which limits public speaking engagements ahead of policy-setting meetings.

Data releases monitored most closely for Fed clues include the monthly jobs report, which blew expectations for November on Friday, and Consumer Price Index data – next out Dec. 13 – as they are two of the most comprehensive economic releases used by officials to set policy. Until the fresh CPI data comes out, a gauge of producer prices will give traders another look at where inflation is trending.

Economists surveyed by Bloomberg expect November’s PPI rose 0.2%, a climb on par with the prior month, while moderating to 7.1% from 8.0% on an annual basis over the period. Core PPI, which strips out the volatile food and energy components, is expected to have increased by the same monthly margin as the headline reading while slipping dropping from 5.8% to 6.7% year over year.

The inflation picture may have started to look different if the U.S. hadn't narrowly avoided a nationwide strike by railway workers, a stoppage that was expected to have devastated the economy and hit wholesalers particularly hard, after Congress hastily passed legislation to impose conditions from a tentative deal reached in September.

As things stands, the forecast of a 50-basis-point rate increase next week is shared by markets and Wall Street megabanks, and particularly after the view was largely affirmed by Fed Chair Jerome Powell on Wednesday during a speech in Washington D.C.

“Monetary policy affects the economy and inflation with uncertain lags, and the full effects of our rapid tightening so far are yet to be felt,” he said. “Thus, it makes sense to moderate the pace of our rate increases as we approach the level of restraint that will be sufficient to bring inflation down.”

Powell added that the “time for moderating the pace of rate increases may come as soon as the December meeting."

And while expectations for a downshift from the 0.75% hikes delivered over the past four meetings are largely priced in, investors now wonder how much longer the central bank’s tightening campaign will last, how high the federal funds rate will go, and how long it will stay there before any cuts.

Bank of America projects the terminal rate to reach a range of 5.00%-5.25%, a view many of its megabank peers share, though BofA Chief Economist Michael Gapen speculated in a call with reporters last week that the rate may go as high as 6% due to the tremendous momentum of the labor market.

“Risks to our outlook for Fed policy are skewed toward higher terminal rates given the persistent imbalance between labor supply and labor demand,” Bofa strategists led by Gapen stated in a note released Friday after November’s hot jobs report. “A slower pace of hikes seems appropriate from a risk management perspective, but strength in labor markets, in our view, likely means the Fed will have to lean in the direction of doing more, not less, to put inflation on a sustainable downward trajectory.”

With a slower pace and eventual pause on rates seemingly underway, Wall Street’s attention has turned to the longer term impacts of a higher rate environment on growth. In weekly commentary, Baird’s Ross Mayfield and Nicholas Bohnsack, president and head of portfolio strategy at Strategas, a Baird company, predicted that even if inflation continues a downtrend, the cost of getting levels from 4% to the Federal Reserve’s long-term price stability target of 2% becomes “increasingly higher.”

“It would likely come with some significant shakeout amongst businesses and the labor market,” they said in a note. “Ultimately, we think they’ll slow the pace at which they're raising rates and then take a long time to observe the landscape and the impact that may have.”

This view was shared by BlackRock Chief Executive Officer Larry Fink, who said at a conference last week that he’s confident inflation will come down — just not to the 2% level and amid a period of economic stagnation.

At the Dealbook Summit in New York on Wednesday, Fink expressed fears of waking up in a world of “2ish-3%” interest rates with “3-4%” inflation.

Elsewhere in the week ahead, an OPEC+ meeting this weekend will place energy markets into focus. The oil cartel agreed to maintain current production levels to assess the global oil market as uncertainty over China and Russia looms over the commodity. The U.S. joined the European Union, the Group of Seven nations, and Australia on Friday in capping the price of Russian oil at $60 a barrel.

On the earnings front, headliners set to round out the season include Campbell Soup (CPB), GameStop (GME), Broadcom (AVGO), Chewy (CHWY), lululemon athletica (LULU), and Oracle (ORCL).

While the third quarter has seen results that were largely better than feared, Wall Street strategists have warned of zero earnings growth ahead.


S&P 500 Bottom-up EPS estimates: Sept. 30-Nov.30 (Source: FactSet Research)
In October and November, analysts lowered earnings estimates on S&P 500 companies for the fourth quarter by a larger-than-average margin, according to data from FactSet Research. The bottom-up earnings per share estimate for Q4 decreased by 5.6% to $54.58 from $57.79 between September 30 to November 30.

“There's something to be said for the idea that inflation creates this money illusion, where the level of sales and profits remain elevated simply because prices are higher, especially relative to what might be considered a normal-sized drop in earnings associated with recession,” Mayfield and Bohnsack also said in their weekly note. “When you incorporate that, it looks like the economy's not being damaged as much.”

Consequently, they added, "what we're very focused on is corporate profit margins and the level of profitability, and there we have started to see some real acute pain across the landscape. We’d anticipate that earnings estimates keep moving lower as corporate guidance softens and costs continue to increase.”"

MY COMMENT

Last thing first......EARNINGS. They have done well. They have done better than all the so called experts expected.

No big shock there......we have been hearing the same old negative story line on earnings for TWO YEARS now. so right on cue....all the experts.....are now moving on to bad mouthing the 4th quarter earnings. So what......and....who cares.

As to the FED and INFLATION and jobs. YEP....everything is still way too hot for the FED. YES.....they are morons.....but....they are being screwed by the government. they are being hung out to dry by a government that is doing absolutely NOTHING to help them. In fact government is still spending like a drunken sailor with no end in sight. the bad news about this is that it is likely to PROLONG the high interest rates for perhaps 1-2 YEARS as the FED tries to wait out inflation and the hot jobs markets. Probably a FUTILE ACT.

 

Looking forward to my COSTCO stock to report on Thursday.

They got hammered one day this past week......down over 6%. Simply RIDICULOUS that an iconic and outstanding, mature, company like Costco loses 6% in one day. That is IRRATIONAL.