The Long Term Investor

Oh yes....the markets. Mild gains so far.....but....I see a lot of potential for a good close today.

SHOW ME THE MONEY.

 

I am surprised that the markets are doing as well as they are.....basically FLAT....considering this item.

10-year Treasury yield hits highest level since November

https://www.cnbc.com/2023/02/28/tre...tly-to-close-out-bumper-month-for-yields.html

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

"U.S. Treasury yields were little changed on Tuesday to cap off a month of sharp gains, as traders weighed the prospects of tighter for longer monetary policy.

The yield on the benchmark 10-year Treasury note was last lower by 1 basis point at 3.912%. Earlier, it touched a high of 3.983%, its highest level since Nov. 10. Meanwhile, the yield on the 30-year Treasury bondr ose less than 1 basis point to 3.922%.

The 2-year yield climbed slightly to 4.801% after reaching its highest level since November on Monday. Yields move inversely to prices.

Treasurys
TICKER COMPANY YIELD CHANGE %CHANGE
US1M
U.S. 1 Month Treasury 4.598 -0.019 0
US3M
U.S. 3 Month Treasury 4.857 -0.02 0
US6M
U.S. 6 Month Treasury 5.135 -0.011 0
US1Y
U.S. 1 Year Treasury 5.013 -0.017 0
US2Y
U.S. 2 Year Treasury 4.793 0 0
US10Y
U.S. 10 Year Treasury 3.904 -0.018 0
US30Y
U.S. 30 Year Treasury 3.912 -0.007 0

Tuesday marks the final day of trading in February. The 10-year Treasury yield has advanced more than 50 basis points for the month, and the 2-year yield has gained more than 70 basis points.

Those gains come as traders increasingly bet on Federal Reserve rates staying higher for longer, as recent data points to persistent inflation. The core personal consumption expenditures price index rose 4.7% in January from the year-earlier period, beating expectations. The overall PCE index advanced 5.4% year over year, also more than expected.

“Notably, current yields are meaningfully higher than where they stood in mid-January. As a result, Treasuries and other conservative assets currently offer investors competitive returns for less risk compared to stocks,” said Ameriprise chief market strategist Anthony Saglimbene.

“On the margin, stocks are seeing increased competition from bonds and money market funds this month. We believe this dynamic is contributing to the outflows seen across equity funds in February."

MY COMMENT

For treasuries to be competitive with stocks the yield would need to be about 10% for me. Even than I would not be interested unless they were 30 year.

We are actually having a good day in the markets considering this info.

 

I was pretty FLAT today with four stocks UP and six stocks down at the close. The markets showed real weakness during the final 15-20 minutes. I was in the.....minimal....red today considering. I was able to get in a TINY beat on the SP500 by 0.07%.

Basically a do nothing day when it all came to a close. I am still green for the week.....not that it is being a real exciting week. Some times it is nice to have an old fashoned "normal" week.

 

Done with February.......and....I still have nice gains year to date.....ok.

Dow closes more than 200 points lower Tuesday, major averages end February with losses: Live updates

https://www.cnbc.com/2023/02/27/stock-futures-live-update-open-to-close.html

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

"The major averages fell on Tuesday to round out a tough month for the stock market.

The Dow Jones Industrial Average fell about 234.11 points, or 0.7% to 32,654.98. The S&P 500 shed 0.3% to end the day at 3,969.69, and the Nasdaq Composite closed 0.1% lower at 11,455.54.

Despite a solid start to the year, all of the major indexes posted their second negative month in three. The Dow ended 4.19% lower for the month and has dipped 1.48% year to date. The S&P 500 and Nasdaq Composite lost about 2.61% and 1.11% in February, respectively, but are still higher year-to-date.

Those losses came after a strong start to the year for stocks; the S&P 500 rallied more than 6% in January. However, a sharp jump in Treasury yields this month dented investor sentiment for stocks, as traders feared that higher Federal Reserve rates would remain in place for longer.

On Tuesday the benchmark 10-year U.S. Treasury note hit its highest level since November.

“Most investors are expecting the 10-year note to vault over 4%, I see 4% as a ceiling in yields [that] will help equites recover in March,” said Jeff Kilburg, KKM Financial founder and CEO. “This February flip should be selectively bought.”

“Inflation is abating, it’s just not a straight line down from the June CPI 9.1% print,” he added. “February was an intentional Fed-driven back pedal to the FOMO by under allocated equity investors we witnessed in January.”

MY COMMENT

Ok.....no big deal....sounds like a normal market to me. I dont understand why the writer would reference the past three months. Why lump in December of 2022 with 2023 results. This is the sort of negative "stuff" that writers do that drives me crazy.

 

Even with all the recent NEGATIVITY.....I am still +7.58% year to date as of the close today. Thus, I am WELL ABOVE the +3.40% of the SP 500 year to date.

I assume that many that post and read here are doing the same......and....are nicely UP for the year so far. A significant positive difference compared to the start of 2022. We have a lot of year ahead of us.....with, no doubt.....much bad and much good. In other words......a normal market.

 

Actually 3% is a great return for a couple of months Emmett. At this point in the year gains are not very relevant.....but.....it is nice to have them versus the alternative....... losses.

 

A typical open today. No doubt the Ten Year Treasury yield is weighing on the ability of the markets to go UP the way they want to.

Stock market news today: Stocks waver after key manufacturing data

https://finance.yahoo.com/news/stock-market-news-live-updates-march-1-2023-124448484.html

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

"U.S. stocks wavered Wednesday morning to start March as key manufacturing data came in better-than-expected.

The S&P 500 (^GSPC) neared the flatline, while the Dow Jones Industrial Average (^DJI) edged up 0.1%. Contracts on the technology-heavy Nasdaq Composite (^IXIC) ticked upward by 0.06%.

Stocks had pointed toward a rebound early Wednesday after better-than-expected factory and services activity in China signaled the country's “rapid near-term rebound” in February, said Andrew Tyler, head of the US Market Intelligence team at JP Morgan.

The yield on the benchmark 10-year U.S. Treasury note moved upward to 3.96% Wednesday morning. Crude oil traded weaker, with U.S. benchmark WTI down at $77.03 a barrel.

On the economic data side, S&P Global Manufacturing PMI for the US was revised lower to 47.3 in February, up from 46.9 in January.

Stocks fell Tuesday, rounding out the last day of a volatile month of February on Wall Street. According to JP Morgan’s trading desk, February’s month-end rebalance drove some weakness in equities and strength in bonds Tuesday afternoon. In addition, Goldman Sachs' (GS) investor day featured a 3.8% selloff for the stock as the bank considers alternatives for its struggling consumer platforms business.

“After the recent strategic missteps, this update is clearly more evolution than revolution,” JPM financial sector specialist James Goulbourne wrote in a note on Tuesday, “with profitability in the ancillary Platform Solutions business, rather than deeper expense cuts in core business (what the market really wanted), combined with declining balance sheet exposure expected to drive returns higher.”

With February in the rearview, the S&P 500 is now up 3.4% this year, according to data from Bespoke Investment Group. Mega-caps have been a massive driver of the index moves. That said, 20 of the largest stocks in the S&P 500 have accounted for most of the index’s gains.

Now, as the calendar turns, March historically sees the S&P 500’s gains in the second half of the month, Bespoke Investment Group noted.

The path of the Federal Reserve's rate hikes remains in focus for investors. In his first public speech since taking office last month, Chicago Fed President Austan Goolsbee said on Tuesday it would be a “danger and a mistake for policy makers to rely too heavily on market reactions” and emphasized the importance to “supplement these traditional data with observations on the ground from the real economy.”

However, Goolsbee, who will be a voter at this year’s policy-setting Federal Open Market Committee meeting, didn’t comment on monetary policy.

Since last year, the Fed has sharply raised rates in an effort to cool inflation. But inflation remains sticky. Policymakers will be releasing new projections after the central bank’s March 21-22 meeting.

On the housing front, mortgage rates are moving upward, pushing buyers to the sidelines as the spring housing market is underway. Both purchase and refinance applications slumped last week, according to the Mortgage Bankers Association’s seasonally adjusted index. Volume of purchase applications hit a 28-year low, down 44% from a year ago."

MY COMMENT

Nothing new today......again. The obsessive focus on the Ten Year Yield is of course......IDIOCY......but that is how it is. It makes no difference that the current rate is in the extreme low end of the range for the past 50-60 years.

As is typical in the modern markets.....we have a market that is composed ot two distinct groups. First is the traders.....the short term people that control the total day to day media focus. The second group is the long term investors, the 401K money, the silent majority of investors......who are ignored by the click happy media.

The day to day stuff....irrelevant. The long term stuff......reality.

 

My preferred.........no sweat and no hassle.....investment for the long term, a simple SP500 ETF. In my view the single best investment for the majority of investors today. Here is some info regarding passive versus active funds.

Active Funds Continue to Fall Short of Their Passive Peers
Investors should focus on long-term signals and costs when picking their spots, based on the latest Active/Passive Barometer.

https://www.morningstar.com/article...continue-to-fall-short-of-their-passive-peers

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

"Brutal market performance in 2022 reignited the narrative that active funds can better navigate market turmoil than passive peers. Despite an uptick in success rates by U.S. stock-pickers, the latest evidence debunks these claims yet again. As Warren Buffett once said, “only when the tide goes out do you discover who’s been swimming naked.” In 2022, it turned out that active bond and real estate funds were caught skinny-dipping.

Of the nearly 3,000 active funds included in our analysis, only 43% survived and outperformed their average passive peer in 2022. We further analyze these findings in the year-end 2022 installment of the Morningstar Active/Passive Barometer, a semiannual report that measures the performance of U.S. active funds against passive peers in their respective Morningstar Categories. The Active/Passive Barometer spans nearly 8,400 unique funds that accounted for approximately $15.7 trillion in assets, or about 65% of the U.S. fund market, at the end of 2022. The full report can be found here.

Most Active Managers Have Failed to Capitalize on Volatility

When viewed as a whole, active funds had less than a coin flip’s chance of surviving and outperforming their average passive peer in 2022, although results varied widely across asset classes and categories. For example, U.S. stock-pickers handled volatility much better than foreign-stock funds. The former cohort outgained its average passive peer 49% of the time in 2022, while only 34% of the latter group succeeded.

Overall, active bond funds had a rough year, with just 30% besting their average index peer last year. The one-year success rate for active managers across the three fixed-income categories dropped 42 percentage points from their mark in 2021. Active managers had a tougher time in corporate bonds (23% success rate) than intermediate core bonds (38%). Exhibit 1 details the year-over-year change in success rate by category from 2021 and 2022.



But one year isn’t a sufficient time horizon from which to draw conclusions. Success rates can fluctuate wildly from year to year, depending on what’s going on in the markets and how that reflects on the actively managed portfolios as well as in the passive funds that we measure them against. For example, many active bond funds tend to take more credit risk than their index peers. Their success rates tend to rise when this risk is rewarded and fall when credit spreads widen, as they did last year.

Longer horizons provide stronger signals that investors can incorporate into their selection processes. In general, actively managed funds have failed to survive and beat their benchmarks, especially over longer time horizons. Only one out of every four active funds topped the average of their passive rivals over the 10-year period ended December 2022.

But success rates vary across categories. Long-term success rates were generally higher among bond, real estate, and foreign-stock funds, where active management may hold the upper hand. Investors can use this data to identify areas of the market where they have better odds of picking winning active funds.



Sizing Relative Performance of Passive and Active Investing

Success rates alone only tell half the story. The other half is the prospective payoff for choosing a winning fund and the penalty for picking a loser. The Active/Passive Barometer provides this information by plotting of the distribution of 10-year excess returns for surviving active funds versus the average of their passive peers.

Much like success rates, these distributions vary widely across categories. In the case of U.S. large-cap funds, the distributions skew negative. This paints a bleak picture for active funds in these categories. They have low long-term success rates, while penalties are high for picking a loser (per the negatively skewed distribution).

The opposite tends to be true of fixed-income, real estate, and certain foreign-stock categories, where long-term success rates have generally been higher and excess returns among surviving active managers skewed positive over the past decade. Exhibits 3 and 4 show the distributions of excess returns for surviving active funds from the large-blend and diversified emerging-markets categories.





Costs Matter for Both Passive and Active Strategies

The signal that rings loud and clear in this dataset is that fees matter. The cheapest funds succeeded more than twice as often as the priciest ones (36% success rate versus 16%) over the 10-year period through 2022. This not only reflects cost advantages but also differences in survival, as 67% of the cheapest funds survived, whereas 59% of the most expensive did so.

If there’s one near certainty for investors, it is “you get what you don’t pay for,” as the Vanguard’s late founder Jack Bogle said."

MY COMMENT

The data just about always comes out the same when comparing active versus passive investing. The typical "professional" fund manager just can NOT beat the SP500 or their passive peer.

BUT.....the myth of the amazing fund manager continues. Much of this is simply driven by GREED on the part of customers. They think they are smart and will pick the one fund that will BOOM and make them rich. This is simply investor arrogance.

It is very difficult for an investor to simply give in and recognize that a passive index like the SP500 is superior to the vast majority of human managers.

As to costs.....the passive fund universe totally kicks ass on the active managers. For any investor investing in an index like the SP500 I prefer an ETF......they generate a lower tax bill due to the way they do their capital gains and distributions.

 

AND.....to continue with the theme above.

Striving for investing perfection usually leads to disappointment

https://www.evidenceinvestor.com/striving-for-investing-perfection-usually-leads-to-disappointment/

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

"We don’t seek an “above-average” partner to spend life with. We aren’t pining for our kids to earn straight B’s in school. Nobody dreams of driving a Honda minivan. In these and so many other aspects of life we’re conditioned not to settle for good, but to strive for perfection.

It’s therefore no surprise that many of us apply that same mindset to investing. We seek to find the best-performing stocks or funds; to unerringly time our trades; to optimise our asset mix to our preferences and circumstances.

But whereas the pursuit of excellence in other realms can yield rewards — a fulfilling life and career, for instance — in investing it often translates to lots of transactions, higher cost, greater complexity, and, ultimately, disappointment.

Here, I’ll walk through a handful of examples where it pays not to make the perfect the enemy of the good in investing.

1. Investing versus saving

Many of us embark on investing in hopes we’ll score huge gains and coast to a comfortable lifestyle and secure retirement. The reality is that saving, especially in the early years, is far more important to our long-term financial wellness and security than investment performance.

If you don’t tuck enough away and manage to beat the indexes for a few years, that could end up being a Pyrrhic victory — you’ve cleared one hurdle on the more difficult path you’ve chosen, one steeply pitched and strewn with obstacles. A healthy savings rate clears the way, even if it doesn’t earn one bragging rights the way a high-performing investment can.

2. Choosing versus diversifying

It’s only natural to conclude that successful investing is a matter of making a series of good choices. After all, that’s kind of how life works, where prudent decisions about education, family, and career tend to confer long-term benefits.

Investing doesn’t punish prudence — far from it. But it’s different in that the more choices we face ourselves with, the more we can put our plans at risk. Why? Some of the most difficult investment decisions we’ll face come at times of duress or uncertainty, when we might succumb to impulse, panic selling, or buying for fear of missing out.

Diversifying across assets is, by definition, imperfect. We’re forgoing the best return we could theoretically achieve. But we’re also taking a big risk off the table: us. That is, by widely diversifying, we face ourselves with fewer choices about what to buy, what to sell, how much, and when. And with that, we mitigate the risk of making rash choices that lead to poor outcomes.

We can find evidence of that in research we’ve done examining the difference between funds’ reported returns and the average returns investors actually earned in those funds, that gap owing to mistimed purchases and sales. What we found is that the gap tended to be narrowest among more widely diversified allocation funds, meaning investors were capturing more of the funds’ returns.




3. Trading versus rebalancing

Diversification only gets us part of the way. There’s also the matter of ensuring that our asset allocation fits our risk/reward objectives. In an ideal world, we’d ratchet our asset exposures up and down in anticipating market gyrations, bagging gains and sidestepping losses. The world doesn’t work that way, though, as the dismal record of tactical allocation mutual funds well attests: Not a single tactical fund beat a simple 60% U.S. stocks/40% U.S. bonds portfolio over the trailing 10 years ended Jan. 31, 2023.




Rebalancing isn’t going to shield us from losses or maximise our gains. But by routinising risk management, it should keep us out of the kind of trouble that could present a real threat to our longer-term financial security—that is, when we make sweeping changes to our asset allocation, permanently locking in losses or forgoing gains in the process.

4. Alpha versus indexing

We know there are ten-bagger stocks and market-beating active funds to be had. But it’s also true that few if any of us will have the foresight to invest in them beforehand when it counts. Why? There are far fewer of these opportunities than one would think. Indeed, research has found that nearly all stocks and most fund managers underperform their indexes over longer time horizons.





Those long odds notwithstanding, some of us will press on anyway, believing we can zip from one outperforming security to the next before trouble sets in. Yet, higher costs and tax consequences are likely to bog down any excess returns we’re improbably able to eke out.

Indexing offers no more than the market return before fees, and in that sense it’s truly average. But when “average” handily exceeds what nearly all of us can reasonably expect to earn from active management after fees and taxes, it’s a no-brainer.

5. Yield versus total return

In an ideal world, we’d own a basket of assets that throw off more than enough income to meet our needs and we’d reinvest the rest. This is especially enticing to retirees who are loath to dip into their savings to maintain their standard of living, instead seeking to offset spending with current investment income.

But for all its allure, investing for yield can be a trap. To obtain it, we might have to lock up our capital or subject ourselves to higher risk of loss from default, prepayment, or interest-rate movements. Or we might find the yield has been cranked higher through use of leverage, which risks big losses in the event borrowing costs rise or the underlying investments sell off.

A case in point is an exchange-traded fund called Strategy Shares Nasdaq 7Handl ETF HNDL, which aims to maintain a 7% annual yield by investing in a mix of stocks and bonds while employing generous dollops of leverage. The ETF has more or less made good on delivering the yield advertised (albeit with some returns of capital sprinkled in along the way), but it also experienced wrenching downturns along the way, the downside of using borrowed money to goose its income payouts.







Investing for total return, in contrast, allows us to achieve a healthier balance of risk and return. We can pair income-producing assets like bonds with stocks, thereby lessening our exposure to credit and interest-rate risk and unlocking potential upside through capital appreciation. This can also boast greater tax efficiency, as less of the return stream is taxed at ordinary income tax rates, capital gains can be deferred, and there are opportunities to harvest losses to offset income and gains.

6. Building versus buying

It can be appealing to build a portfolio brick by brick: some stocks here, some bond ETFs there, and perhaps an alternatives strategy or two on the side for good measure. We’re our own architect and contractor, constructing our well-laid plans.

For some this approach will work just fine, provided there are clear guidelines around the roles these different holdings play and we avoid tinkering or otherwise straying from the plan. For many others, though, it’s the investing equivalent of too clever by half: a theoretically cohesive portfolio whose complexity drives us to distraction and ultimately leads to bad choices that foil our plans.

For those prone to distraction or who simply don’t have the time, it’s often better to buy than build: Invest in a single diversified holding like a target-date or target-risk fund. These strategies are no less diversified than a portfolio that’s been built one holding at a time. But with fewer moving parts, they’re less likely to jangle nerves. And given their mechanised rebalancing, these funds allow us to sit back and watch, so long as they continue to fit with our plans.

Conclusion

Investing can be confounding because it doesn’t bend to our will the way the world at large might. Try as we might to invest in the best stocks or funds, or build a portfolio that exquisitely balances risk and reward, the end product might be something we can’t succeed with.

Investors are usually better off keeping things simple and within their control, by saving, widely diversifying, and keeping costs low, while regularly rebalancing and focusing on total return — not yield alone. The approach isn’t theoretically perfect, but the reality of investing is that theoretical perfection is usually unattainable or more trouble than it’s worth. The perfect investment plan is the one that’s good in practice."

MY COMMENT

YES......as usual the simple route is the best. For most people the more you can remove human behavior and emotion from investing the better. That includes removing the human "professional manager" from the equation. The best way to achieve this is simple Index ETF investing.

Of course.....it goes against all human nature to do this. As humans we are programed to swing for the fences and go for the gold.

 

When I post materials like the above it makes me think back over my investing life.

I have been EXTREMELY FORTUNATE to be able to actually catch lightning a few times. My investment and ride along with Peter Lynch in the Magellan fund. My investment in MSFT (1000 shares) in 1990 and the crazy ride that stock gave me till about 2001/2002 as it split and split and split. The LUCK to be in the Northwest and happen to recognize and ride along with young companies like Starbucks, Nike, Home Depot and Costco.

Al of these events in the past........along with my investing style and personality.......have allowed me to achieve a VERY long term investing result between 14% and 15% average return.

I was lucky to be a business owner of a very successful small business till age 49 which produced enough income for me to put big bucks into the markets.

All of these events plus my inherent investing style allowed me to do extremely well. BUT.....I have often thought.....could I do this again? If I lost everything would I be able to start over and achieve the same result? I dont know. I would hate to have to try.

I do strongly agree with the thinking that investing is one of the few human endeavors where achieving the average.....puts you on the WINNERS STAND.....when it is all said and done.

 

You know how I post.....often....about how the FED is going to end up between 5.5% and 6% when the rate increases are over in the next six months.

Fed seen likely to raise policy rate above 5.5% by September

https://www.reuters.com/markets/rat...policy-rate-above-55-by-september-2023-03-01/

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

"March 1 (Reuters) - Traders of futures tied to the Federal Reserve's policy rate added to bets on Wednesday that the U.S. central bank will raise its benchmark rate to a range of 5.5%-5.75% by September, as a widely-followed report signaled some upward price pressures in manufacturing last month.

The rate-futures contracts currently are pricing in a high likelihood of interest-rate hikes at each of the Fed's next several meetings, and a receding chance of any rate cuts later this year."

MY COMMENT

If they raise the rates by 0.25% over the next three meetings they will be in that 5.5% to 6% range. This is where I see us headed over the short term.

BUT.....this does not mean they will achieve their inflation goal of 2%.

I dont think they will get anywhere near this level of inflation. First this is NOT a realistic goal...it should be 3-4%. Second....they are never going to be able to successfully fight the continued out of control government spending and economic stimulus.

Unfortunately for investors.....I see no change to their current thinking that they need to CONSTANTLY TRASH the markets as part of their strategy.

 

We continue to WAFFLE today in the markets. Still in the red...but the markets continue to make little runs....trying to get positive. Where we end at the close is very opaque at the moment.....as usual.

As usual.....it is a waste of time to obsess over the short term markets, events and conditions.

 

LOL...the short term market gods....are ANGRY with me today.

I just looked at my account and I have NINE stocks down and only ONE up. My single green stock at the moment is HON.

In addition.......I have SEVEN stocks that currently are losing between 1% and 3% for the day so far.

BUMMER.