As to the "experts". Nobody Knows Anything, 2023 First Half Edition https://ritholtz.com/2023/06/nobody-knows-anything-2023-first-half-edition/ (BOLD is my opinion OR what I consider important content) "A quick note as the first half of 2023 draws to a close, shocking the locals with its intensity. Why? Because almost nobody saw this rally coming.1 As of this moment, the indices stand appreciably higher than where they were on January 1, 2023: The NASDAQ 100 is up >38%, the S&P 500 is up ~15.5%, and the Russell 2000 small cap index is up almost 7%. These numbers would make for a respectable year much less half that time. Consider these gains in light of yesterday’s discussion about belief systems and thought processes, Only this time, instead of referring to anti-vaxxers and insurrectionists, think about all you heard from the fund managers, economists, strategists, and assorted pundits who freely opined on where this market was going to go in 2023. Why were they so sure they knew what was going to happen? What were their sources? Their process? Did they consider the possibility that they might be wrong? More importantly, were you relying on these people to inform your investment views? With their recent track record fresh in your mind, will you still rely on them in the future? Having missed the huge rally, this same group of folk is now busy running around with their hair on fire, yelling about how unsustainable this move is — they seem to feel that stocks are too pricey, although one must wonder if they would feel the same way if they were participating in the rally, rather than shouting at it from the sidelines. Perhaps for a little context, we might consider these indices in a broader time frame than YTD: For example, looking back 2 years shows us that most of these 2023 year-to-date gains are simply a recovery of the 2022 drop, as rates rose and fears of a profit collapse unfolded. As the 2-year chart above shows, NASDAQ 100 is up >4%, the S&P 500 is up ~3.4%, and the Russell 2000 is off 18%; these are hardly reasons to celebrate. And yet, that is exactly what the past 2 years in the U.S. equity markets have gotten you. A rally off the lows looks very different in the context of recovery of a drawdown." MY COMMENT LOL.......the "experts". Of that bunch the ECONOMISTS are the worst. They all belong to some obtuse school of economic "theory"....which they follow and try to pigeonhole everything going on into. The stock and market experts are the next worst. They usually have some obvious BIAS....as a result of their own investing or the company they work for. You know it is pretty bad when some random guy siting there in Central Texas in his bathrobe, with the business TV on in the background......reading and scanning the financial news each day.....is able to do just as good a job of calling the daily and long term markets. At least here on Stockaholics........the stream of consciousness market calls and discussion.....are FREE.
Ok if you like the negative view......here is a good summary. It’s Getting a Lot Harder to Chase the Stock Rally From Here On https://finance.yahoo.com/news/getting-lot-harder-chase-stock-130000368.html (BOLD is my opinion OR what I consider important content) "That’s the chorus from many investors who are entering the second half of the year with double-digit stock gains already under their belts. Global equities have decoupled from a worsening economic backdrop after rising about 13% in 2023, prompting warnings from some of the world’s top money managers that chasing the rally from here on is a risky move. Growing corporate profit warnings are also driving home the message. “Resilience now is sowing the seeds for fragility down the line,” said Andrew McCaffery, global chief investment officer at Fidelity International. “The ‘best-flagged recession in history’ still isn’t upon us. But that recession will come when the lagged effects of policies eventually take hold.” Increasingly hawkish central-bank rhetoric and a slew of profit warnings are denting optimism of a soft economic landing, after an action-packed first half that included a US regional banking crisis and a $5 trillion tech bounce powered by the hype around artificial intelligence. “There’s maybe a nasty surprise in store for stock markets and credit markets in the second half of the year,” Joseph Little, global chief strategist at HSBC Asset Management, said by phone. That could stem from a “combination of the weaker fundamentals set against what is currently expected by market participants, which looks like an incredibly soft landing,” he added. FedEx Corp. to Siemens Energy AG and European chemical firms have cut or withdrawn outlooks, and there may be more woe in store as the earnings season kicks off in earnest in two weeks. Analysts are slashing profit forecasts globally, following a period of surprising resilience earlier this year. “I think for many sectors and many industries, this might be the last good quarter,” Luke Newman, a fund manager at Janus Henderson Investors, said by phone, noting that companies may struggle more to pass on cost increases to consumers now, compared with a year ago. Rising interest rates are likely to remain a key theme for the rest of the year. Expectations of a Federal Reserve rate cut have now been pushed out to 2024, while European Central Bank officials have said the hiking cycle is unlikely to end anytime soon. Almost 99% respondents in a Deutsche Bank AG survey of 400 market professionals said higher rates will likely lead to more global “accidents,” with most of them expecting the moves to bring fresh strain to financial markets. That spells trouble for the rate-sensitive tech sector, in particular, where valuations look rich after an AI-fueled surge. Investors and strategists are also concerned the concentration of this year’s market rally in a handful of megacap tech stocks means that bad news for the group could exacerbate declines for equity gauges overall. “There’s been an overreaction in the short run” in tech stocks on AI hype, Lode Devlaminck, managing director for global equities at Dupont Capital Management, said by phone. “I do think AI is a game changer for a lot of companies in terms of productivity gains. But looking forward, if we want the market to continue or to sustain the rally, it actually needs to broaden out because it’s too narrow right now.” Still, worsening conditions don’t necessarily mean stocks will fully reverse their 2023 gains. Historically, barring the Great Depression in 1929, the S&P 500 has had positive returns every single year when it has gained 10% or more in the first half. Thomas Schuessler, portfolio manager of DWS’s €21 billion dividend fund, sees no good reason to fully hold off from investing in stocks. “However, I don’t think that we can project the gains of the first six months onto the second half of the year,” he adds." One factor could exacerbate any moves to the downside in the second half of the year: low trading volume. While US equities entered bull territory in June, the run came amid thin market participation. The S&P 500 Composite Turnover Index shows a drop in volume every month in 2023 on a year-on-year basis. Along with the seasonal summer lull, that could accelerate a market correction if traders unwind bullish bets. Patrick Grewe, portfolio manager at Van Grunsteyn, expects a correction in overvalued stocks as rates rise. “A rock-solid conservative stance should also be maintained in the second half of the year,” he said. “In particular, trying to catch up with the market involves immense risks.”" MY COMMENT LOL......I dont agree with ANY of the above. This the a "kitchen sink" article. Throw everything against the wall and hope something sticks. In addition.....this is nothing more than a short sellers push article. A laundry list of the negative. Bullish bets by traders? Give me a break.....the bets that traders are making are massively to the short side of the markets. In addition.....as a long term investor.....there is NOTHING in the above article that I invest based on with the exception of EARNINGS. Low volume markets, interest rates, expert calls on earnings, the economic backdrop, calls for a recession, the concentrated rally, some unknown nasty surprise......etc, etc, etc.....is ALL irrelevant to me as a long term investor. Every category above is nothing more than market gossip and speculation. Totally irrelevant to investing. This article is a NEGATIVE LITANY of items that people think about and rely on.....FOOLISHLY.
The market today is as DULL and BORING and low energy as you would expect for a short day in a short week. I am basically UNCHANGED....although I have five stocks UP and five stocks DOWN today.
This is about the ONLY item of interest today.......to me as a follower of business and capitalism. US Manufacturing Activity Shrinks by Most in Three Years https://finance.yahoo.com/news/us-manufacturing-activity-shrinks-most-142737300.html (BOLD is my opinion OR what i consider important content) "(Bloomberg) — US factory activity contracted for an eighth month in June, slipping to the weakest level in more than three years as production, employment and input prices retreated. The Institute for Supply Management’s manufacturing gauge fell to 46, the weakest since May 2020, from 46.9 a month earlier, according to data released Monday. The current stretch of readings below 50, which indicates shrinking activity, is the longest since 2008-2009. The reading was also worse than all but one estimate in a Bloomberg survey of economists. The decline in the ISM production gauge, which also fell to the lowest level since May 2020, suggests demand for merchandise remains weak. The index of new orders contracted for a 10th straight month and order backlogs shrank, which may help explain a pullback in a measure of manufacturing employment. The ISM gauge retreated to a three-month low and, at 48.1, indicates fewer producers adding to payrolls. Many Americans continue to limit their spending on merchandise as they rotate to services and experiences. Others are simply tightening their belts as still-high inflation takes a toll on their incomes. Eleven industries reported shrinking activity in June, led by plastics and rubber products, wood products and textile mills. Select ISM Industry Comments “Customer orders have definitely slowed down. Our company thought the second half of 2023 would be better than the first half, but this doesn’t seem to be the case.” — Chemical Products “Maintaining a strong order backlog. Continue to struggle with hiring hourly factory workers and finding qualified management candidates — higher turnover than desired. Pricing has stabilized, but labor costs remain high.” — Primary Metals “The slowing US economy is causing the business forecast to be revised/reduced for the remainder of 2023. Customers are less inclined to purchase far in advance.” — Computer and Electronic Products “Orders and business are steady with a healthy backlog, but new prospective orders seem to be getting pushed back into 2024.” — Machinery At the same time, recent government data has shown business demand for equipment is still healthy and, if sustained, could provide some support for manufacturers. “Demand remains weak, production is slowing due to lack of work, and suppliers have capacity,” Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee, said in a statement. “Panelists’ companies reduced production and began using layoffs to manage head counts, to a greater extent than in prior months, amid mixed sentiment about when significant growth will return.” Shrinking Inventory The ISM gauge of customer stockpiles shrank at the fastest pace since October, while the index of factory inventories dropped to the lowest level since 2014. Producers are also finding relief in declining commodities prices. The group’s index of prices paid for materials slid to 41.8, the lowest this year. The report corroborates other data showing a struggling manufacturing sector. Regional surveys from the Federal Reserve banks of Dallas, Richmond and Philadelphia all painted a pessimistic picture." MY COMMENT Very negative....but....probably a good contrary indicator for investors going forward. An indicator that the economy is NOT overheating. As a long term investor and a fan of the current BULL MARKET.....I actually like this data. Looks like the glut issues with inventory are resolving nicely.
Of course those pundits and experts are going to continue the henny penny narrative. What choice do they have but to dig in and hope that they are not wrong once again. Even if they end up right about even a tiny part of it, what would I do differently in my plan? Nothing. Maybe even mostly right about it....Nothing. Of course most long term investors are not their target audience either. It does provide a bit of entertainment though.
As we start the second half of 2023.......here is where I am with my LONG TERM portfolio: "AS USUAL.........HERE is my current PORTFOLIO MODEL. I am once again posting my PORTFOLIO MODEL. My initial criteria to start the process to consider a business are.......BIG CAP, AMERICAN, DIVIDEND PAYING, GREAT MANAGEMENT, ICONIC PRODUCT, WORLD WIDE LEADER IN THEIR FIELD, LONG TERM HORIZON, etc, etc, etc. PORTFOLIO MODEL "Here is my "PORTFOLIO MODEL" for all accounts managed which is the basis for MUCH of my discussion in this thread. I am re-posting this since I often talk in this thread about my portfolio model. My custom in the past on this sort of thread was to re-post my portfolio model every once in a while since I will tend to talk about it once in a while. I "manage" six portfolios for various family including a trust. ALL are set up in this fashion. If I was starting this portfolio today, lets say with $200,000. I would put half the money into the stock side of the portfolio, with an equal amount going into each stock. The other half of the money would go into the fund side of the portfolio, with an equal amount going into each fund. As is my long time custom, I would than let the portfolio run as it wished with NO re-balancing, in other words, I would let the winners run. Over the LONG TERM of investing in this style (at least in my actual portfolios), the stock side seems to reach and settle in at about 60% of the total portfolio and the fund side at about 40% of the total portfolio over time. That is a GOOD THING since it tells me that my stock picks are generally beating the funds over the longer term. AND....since the funds in the account generally meet or beat the SP500, that is a VERY good thing. As mentioned in a post in this thread, I include the funds in the portfolio as a counter-balance to my investing BIAS and stock picking BIAS and to add a top active management fund that often beats the SP500 (Fidelity Contra Fund) and a SP500 Index Fund to get broad exposure to the best 500 companies in AMERICAN business and economy. The funds also give me broad diversification as a counter-balance to my very concentrated 10 stock portfolio.At the same time the funds double and triple up on my individual stock holdings............that I consider the BEST individual businesses in the WORLD. STOCKS: Alphabet Inc Amazon Apple Costco Home Depot Honeywell Microsoft Nike Nvidia Tesla MUTUAL FUNDS: SP500 Index Fund Fidelity Contra Fund CAUTION: This is a moderate aggressive to aggressive portfolio on the stock side with the small concentration of stocks and the mix of stocks that I hold and with the concentration of big name tech stocks. Especially for my age group. (73). So for anyone considering this sort of portfolio, be careful and consider your risk tolerance and where you are in your life and financial needs. I am able to do this sort of portfolio since my stock market account is NOT needed for my retirement income AND I have a fairly HIGH RISK TOLERANCE. In addition I am a fully invested, all the time, LONG TERM investor. (LONG TERM meaning many years, 5, 10, 20, years or more)" MY COMMENT This portfolio is HIGHLY CONCENTRATED on the big cap side of things. OBVIOUSLY between the funds and my ten stock holdings there is MUCH doubling and tripling up on the stocks. THAT is INTENTIONAL. I strongly subscribe to the view of Buffett and some others that TOO MUCH diversification kills returns. I do NOT believe in the current diversification FAD that most people seem to now follow.......or think they are following. I DO NOT do bonds and think the current level of bonds held by younger investors.....those under age 50.....is extremely foolish.I DO NOT do market timing or Technical Analysis."
One reason why I often post about all the short term "stuff".......and....all the various predictions and opinions from the experts is because the emphasis today in on.......TRADING. You RARELY even see the word INVESTING anymore. Everything is all about "trading" and everything you see every day is......mostly...... about the short term. SO.....I try to throw shade on the short term "stuff" any chance I get. For this thread my focus is two things: 1. ANY article I can find that is about LONG TERM INVESTING. 2. ANY article I can find that counteracts all the emphasis on short term trading......for long term people. I have no issue with trading......short term or otherwise.......but.....that is a very different animal from long term investing. You would not know that from much of what is put out there today. I find it UNFORTUNATE that the media no longer seems to differentiate between "trading" and "investing".
Looks like the big averages are now all positive for the short day today. I expect they will all end in the green.
You know I have to agree. I really have no issue with others that may trade or do short term moves. It all goes back to our discussion the other day about people doing things differently and for reasons of their own choosing. I have always been more geared to long term investing. I like to select companies that I want to "own" for the long term. It is easier for me and allows me time to evaluate and make decisions if needed. Surely, I will never "catch lightning in a bottle", but I have been okay with that for a long, long time. Doing it this way has literally paid off over a period of time. It matches my plan and goals and is pretty easy to manage as well.
Not bad for a half days work as they say. The index are in the green and some other holdings out there didn't do too bad either it appears.
I had a very MILD gain today. My big winner of course was TSLA. My other four winners were.....COST, NVDA, HON, and GOOGL. My other five stocks were in the red. I did get beat by the SP500 today by 0.02%. No doubt......a very low volume very low volatility day for the markets.
I am liking the PROBABILITIES for the rest of this year. Blistering stock returns this year make the case for a strong second half https://finance.yahoo.com/news/blis...-case-for-a-strong-second-half-134828867.html (BOLD is my opinion OR what I consider important content) "Stocks made little noise during a holiday-shortened session on Monday. Investors will return for a full trading day Wednesday with a focus still firmly on how the second half of 2023 will unfold. And folks would be forgiven for expecting some bearish mean reversion in the months ahead. But after slicing and dicing the outsized returns from the first and second quarters, our work shows the tape clearly showing history is with the bulls. Looking back over the prior 95 years of history for the S&P 500 (^GSPC), in 61 years returns in the first half were positive. In 28 years — or nearly half the time — the index posted double-digit percentage gains, including this year which saw the index rise 16% to start the year. And in these years, the second half returned, on average, 6% with a win rate of 75% and an average Sharpe ratio of 0.87. The median return after these years was a more robust 9.7%. S&P 500 Returns After 10% Surge in First Half of Year Looking only at the first six-month returns following a year of negative results — which includes this year — improves the odds. In those ten years, the average second-half return was 9.8%, the median return 11.5%, the win rate at 80%, and an enviable average Sharpe ratio of 1.82. Of course, this does suggest that mean reversion is alive and well, but on an annual rather than semi-annual timeframe. The nuanced results for the S&P 500 presented here are a bit different than those we found for the Nasdaq Composite (^IXIC), which appears to have an aversion to results that are simply "too good." With the S&P 500, we didn't find significant edges to be found by filtering for the total number of positive days or total days above the 10-day moving average. Nevertheless, the bottom line for investors is that the strength we've seen so far this year tends to beget more strength. At least when it comes to the S&P 500. Seasonal tailwinds can account for up to a third of an instrument's returns, meaning the ultimate direction for major indices are still overwhelmingly based on the fundamentals du jour. Accordingly, we'll still be tracking the Fed's favorite economic reports and second-quarter earnings this month with bated breath. But those who ignore history, in markets or otherwise, do so at their own peril." MY COMMENT Sounds good to me.....but.....I dont rely on this sort of data as an investor. I simply stay fully invested all the time for the long term. That is the GUTS of my plan. It has worked for my lifetime......and....I expect it will continue to work going forward. (at least until some change kills off stock investing for the masses) I CELEBRATE articles like this.....but I dont rely on them being true. For me investing is ALL about PROBABILITY......and.....we will not know if this year follows some of the past similar years till the year is over. The PRIMARY factor for the rest of this year will be.....EARNINGS.
The basics of genetic based, human, brain behavior, investing roadblocks. Getting your money right: How to avoid emotional investing CNBC Select’s resident financial advisor points out some common emotional pitfalls with investing. https://www.cnbc.com/select/how-to-avoid-emotional-investing/ (BOLD is my opinion OR what I consider important content) "Dear Kristin, I am a relatively new investor and am realizing that I’ve become rather emotional when it comes to making decisions about my portfolio. I know that’s probably not ideal when managing my money. I am hoping you can walk me through these emotions and help me come up with some better tools so I can make better investment choices. Signed, Nervous in Nashville Hi Nervous! This is one of my favorite topics because we get to talk about feelings and money! It shouldn’t be a surprise that when we make choices about our money (something that is incredibly complicated and emotional for many people), some weird stuff bubbles to the surface. There are all types of emotional pitfalls when it comes to investing. No one likes to lose money, right? But investing money is a risk we need to take and with that risk comes the fear of loss. Conversely, making money is fun! But when is it the right time to proceed more cautiously? Entire books have been written on behavioral finance, but let’s look at some of the more common problems investors face. Fear and greed index In my opinion, the fear and greed index is one of the more fascinating concepts in investing. It’s a tool to gauge investor sentiment by quantifying the prevailing emotions of fear and greed among investors (which in turn influences market behavior). The index typically ranges from 0 to 100, with different versions and methodologies used by various providers. A reading closer to 0 suggests extreme fear(think March of 2020 when Covid restrictions were taking effect), indicating that investors are pessimistic and may be more likely to sell or avoid investing. On the other hand, a reading closer to 100 indicates extreme greed (think peak bitcoin mania), suggesting that investors are optimistic and may be more inclined to buy or invest aggressively. People create a fear and greed index out of several variables, including market volatility, trading volume, put/call options ratio, the breadth of market advances or declines, and various technical indicators. By analyzing these inputs, the index attempts to quantify the level of fear or greed present in the market at a given time. I’ve always used this index as a contrarian indicator. For example, if the index shows a high level of greed, it usually signals a potential market top, suggesting that investors should exercise caution (sell, reduce risk or stop buying). Conversely, a low level of greed in the index might indicate excessive pessimism, potentially presenting buying opportunities. Cognitive Bias Cognitive bias is when an investor exhibits overconfidence, believing they have superior knowledge or skills in picking stocks. If you follow equity markets, you will recall a period during the pandemic where, after the initial fear that the world would collapse, equity markets had a stellar run unlike anything I had ever seen. During this time, (April 2020 to early 2022) the S&P 500 rallied over 100%. You could buy any stock, crypto coin, NFT, house, art, or baseball card and the value would go up. Everyone felt invincible. In fact, many clients and friends started giving me hot stock tips. I vividly remember a conversation with someone who, with a straight face, told me that her boyfriend was “really good at stocks”. Turns out, he wasn’t. He was simply being influenced by cognitive bias. This bias can lead investors to make overly optimistic predictions and take on excessive risks. It’s not a safe place to be when investing. Herd Mentality Herd mentality is the tendency of the individual to follow the actions and decisions of the larger group. With investing, it can lead us down some dark paths that end in asset bubbles and market crashes. That’s because the investor is not buying the asset because of its underlying fundamentals, and are instead buying it because they are imitating others. For example, do you remember NFTs? There was a period of time when I couldn’t go anywhere without someone wanting to talk about how NFTs were the future and I must “get involved” (I didn’t). This overexuberance for NFTs was caused by herd mentality and it led to an extremely destructive asset bubble burst. Confirmation Bias Whenever I am really upset about something, I call my best friend, tell her the entire story and then wait for her to validate my anger. I call her because I know that she will tell me that I am “right”. This is a good example of confirmation bias. In terms of investing, confirmation bias often looks like this: I love this company XYZ. I buy the stock and then I surround myself with research, articles and conversations about how great XYZ is. When faced with a potential negative view of the stock, I immediately shut it down, don’t read it or vehemently try to deny the data that I have been presented with. In this example, my confirmation bias has led me to make investment decisions based on a selective interpretation of information that supports my preconceived notion about XYZ. I have overlooked valuable counterarguments, contrary data, and critical perspectives that could provide me with an unbiased analysis of the investment opportunity. Get educated All of these concepts are important to understand when making investment decisions so you can avoid them. Ideally, when you make an investment decision, it is informed, well-researched and risk appropriate. If you find that something feels over-exuberant or frothy, it probably is. Remember that it is best to make investment decisions with a long-term growth horizon so you are less inclined to trade in and out of ideas when they don’t show results immediately. Also remember, if someone presents you with something that is too good to be true, it probably is. Your best defense against letting your emotions lead you to a bad investment is education. CNBC Select has ranked the best brokers for zero-commission trading, and E*TRADE stood out for its extensive educational resources including webinars and dashboards. If you like to invest using a robo-advisor, (which is a more hands-off experience that can help take your emotions out of the equation) Wealthfront offers advice on how to invest for college planning, retirement and more. Finally, if you are overwhelmed, confused or simply don’t feel equipped to make your own investment decisions, you should hire a financial advisor. " MY COMMENT Want to see the basis of nearly ALL bad investing habits and behavior......search for and read up on the massive amount of literature on the psychological and emotional behaviors that impact investors. I am lucky......my basic personality......is to be EXTREMELY CLINICAL and to NOT care at all about what the crowd is doing. This has served me well as an investor. But like all personality traits......I take the good with the bad.
The INSANITY of the experts. Over the past 2-4 weeks I have seen many reports of TSLA being downgraded by various rating services and experts. NOW......we see the recent HUGE delivery numbers.......and yesterday......I see a bunch of analysts and rating experts raising their projections for TSLA. This stuff is the ULTIMATE investor CHAFF. It is meaningless to the actual performance of the company. BEWARE analyst and expert ratings. Wait for the REAL NUMBERS. NOTHING else matters. Investing is NOT a popularity contest. It is not belonging to a High School CLIQUE. It is not about going along with the crowd or being one of the synthetic mean girls. No matter what you "feel"......as an investor you are on your own. You are an army of one. It is you......and no one else....doing the right thing for the financial future and security of yourself and your family.
As usual, some excellent posts and guidance above. It is all about finding that comfort level with what you are doing and your plan. It will be the foundation to build from, but it must be what works for you. So many times I think the simple basics get lost in a complex world of investing. There are more "distractions" today than there have ever been. Build your plan with a good foundation, set some rules and guardrails for yourself, and review it from time to time. Make it yours. Have a wonderful 4th of July this evening and celebrate FREEDOM.
A little reality.....for the long term. What Is the Average Stock Market Return? The stock market has built wealth for generations. What has it returned over the long term? https://money.usnews.com/investing/articles/what-is-the-average-stock-market-return (BOLD is my opinion OR what I consider important content) "The economy and stock market are unpredictable, and investors are not putting much weight on a macro environment where a possible recession could depress earnings across different sectors. Conflicting views on the timing of such an upcoming recession are prevalent. The Federal Reserve recently paused rate hikes at its June meeting, and though it has expressed the likelihood of more rate hikes in the future, its interpretations of the economy at the next meeting in July may impact investor sentiment. This year's equity rally was primarily driven by the tech sector, leaving questions about whether the bull market is mostly a temporary momentum shift initiated by the readjustment of a previously depressed tech sector combined with an interest in artificial intelligence, or whether it is a sustainable growth vehicle to jump on. Amidst the complicated and often conflicting data, many investors rely on the fact that the stock market has historically proven itself dependable, and that sticking with the market during its ups and downs is a good way to achieve sustainable returns in the long run. In this piece, we will investigate the average stock market return of different stock indexes over time. And we will scrutinize an oft-repeated phrase: "Past performance is no guarantee of future results." Average Stock Market Return Over the Last 30 Years Over the last 30 years through June 29, the Nasdaq Composite index, which contains over 3,700 stocks listed on the Nasdaq stock exchange, has returned a cumulative total return, which includes dividends, of 1,839%. Since 1983, it has yielded 4,198%, and in the last decade, it gained 299%. The Nasdaq has an average annualized return of 10.4% for the past 30 years. On the other hand, the S&P 500 – an index that tracks 500 leading companies listed on U.S. stock exchanges – gained a cumulative 875% over the last 30 years. Since 1983, it gained about 2,538%, and in the last 10 years, it increased by 174%. The S&P's annualized average return for the past 30 years is 7.9%. From the time it adopted 500 stocks into the index in 1957 through June 29, 2023 it has an average total return of 7.2% annualized, including reinvested dividends What Accounts for the Difference? The historically superior performance of the Nasdaq is due to its higher weighting of the fast-growing technology sector. This sector makes up over half of the Nasdaq index. On the other hand, S&P Global Inc. (ticker: SPGI), which maintains the S&P 500 index, reports that technology makes up 28% of its weighting. And indeed, one popular measure of the tech sector, the Vanguard Information Technology Index Fund ETF (VGT), returned about 944% since it began trading in 2004. By comparison, the S&P 500 returned about 288% and the Nasdaq about 558% over the same period. Some of the disparities between the Nasdaq and the S&P 500 also result from the impact of small- and mid-cap stocks, since the S&P 500 does not include this range of market capitalization with a higher growth potential. Past Performance Is No Guarantee of Future Results You've probably heard this phrase if you've ever researched how to invest. But is looking back in time useful for investors? William Sharpe, who won the 1990 Nobel Prize in economic sciences, put a finer point on the concept: "While results vary from asset class to asset class and from time period to time period, experience suggests that for predicting future values, historical data appear to be quite useful with respect to standard deviations, reasonably useful for correlations, and virtually useless for expected returns." The fundamental idea behind Professor Sharpe's description is that past performance helps determine how risky an investment is and how it moves with other investments. However, it is of little use when trying to figure out where a stock's price will be in the future. Other methods, such as value investing, may have other analyses that are more commonly accepted as methods of predicting whether returns will generally be higher in the future or not. However, these methods rely on the fundamentals of the business and not its stock price. The best thing that we can do is to analyze past volatility and correlation of stocks to construct well-diversified portfolios. A well-diversified portfolio is constructed of assets that will, ideally, balance out each other's movements. Another popular tool to gauge the return relative to the risk of a portfolio is the Sharpe ratio, which divides a portfolio's excess returns over a safe investment by its standard deviation. A higher ratio, therefore, corresponds with a better investment as it implies that one can obtain higher returns without significant additional risk. With that being said, a risk to the Sharpe ratio is that it can be manipulated by using long histories of returns, which will decrease the standard deviation of returns. Alternative Investments With all that being said, the popularity of equities and bonds in portfolios means that many investors end up investing in alternative assets, such as real estate or commodities, that can provide diversification. And while many of these alternative investments have historically inferior returns compared to equities, it is important to remember that past performance does not guarantee future results, and there are times when alternatives do outperform equity markets. Furthermore, alternatives are historically uncorrelated with equities and so their arguably greater value is in providing diversification for a portfolio. Real Estate Many real estate investors will focus on a few select projects. However, that doesn't mean that real estate investing isn't available to anyone other than the wealthy. For instance, the Vanguard Real Estate Index Fund Admiral Shares (VGSLX) has a cumulative total return of 426% since it began trading in late 2001. The S&P 500's return was 291% during the same period, including reinvested dividends. This type of alternative investment's value also comes from its ability to diversify your portfolio. Real estate tends to be less volatile than equity investments because its value is tied to a tangible asset and so it is less affected by the business cycle. Commodities While commodities may not be the best growth investments, they can be a great way to hedge against inflation, since inflation is in part driven by the increased price of commodities. Furthermore, commodities are another great way to diversify a portfolio. Funds like the Abrdn Bloomberg All Commodity Longer Dated Strategy K-1 Free ETF (BCD), which has gained a cumulative 50.5% since its inception in 2017, can be a worthwhile investment for investors who care less about aggressive growth and more about diversification and hedging against large swings. Private Equity While private equity is largely associated with the ultra-wealthy, the qualifications for investing in it are accessible to a surprisingly large portion of the U.S. population. About 10% of households in the U.S. were accredited investors in 2020. Stephen Nesbitt, CEO and chief investment officer of Cliffwater, describes the outsized returns of these investments: "Over a 21-year time period ending June 30, 2021, private equity allocations by state pensions produced an 11% net-of-fee annualized return, exceeding by 4.1 (percentage points) the 6.9% annualized return that otherwise would have been earned by investing in public stocks."" MY COMMENT I like the concept above about using past returns and the make up of the vehicle reporting the returns to evaluate and determine RISK. I am NOT a fan of commodities for the average investor. As to real estate......it is individual....some people are cut out for it others are not. A friend and I dabbled in a couple of rental homes many years ago. We lasted for a couple of years before selling for a minimal profit. It was just not for me.....drove me crazy. On the other hand I have seen some people that have done very well as real estate investors. Stocks and funds WILL give positive returns over most ten year time spans. BUT.....there is no guarantee. I see the KEY as investing for the very long term.....40-50 years. For the average person there is not much that will beat investing in a long term index like the SP500 or the NASDAQ. My personal preference is still the SP500 since by investing in the largest (greatest) PROVEN companies in the USA....it emphasizes QUALITY, quality, quality. Of course....the main thing is to DO SOMETHING. Find out what works for you and do it over, and over, and over, for as long as it works.
When I first saw this headline I thought it said.....BAD BREATH. ‘Bad Breadth’ is the latest ridiculous reason naysayers insist stocks are doomed https://nypost.com/2023/07/02/bad-b...us-reason-naysayers-insist-stocks-are-doomed/ (BOLD is my opinion OR what I consider important content) "Look this bull market in the mouth, and it seems like four out of five doctors will tell you it’s got a classic, open-and-shut case of “bad breadth.” Stocks have rallied for the past nine months despite aggressive rate hikes and widespread recession fears. But the boom isn’t sufficiently broad, the naysayers insist. Instead, it looks narrow, hollow and fragile. Accordingly, these would-be physicians of finance would like to see the gains demonstrate more breadth – that is, markedly more stocks doing well versus badly. Sounds reasonable, right? In fact, this diagnosis reeks of quackery. And I’d like to explain why this is important for your financial health. Stepping back, it’s only logical that the boom we’ve got now is slow-breadth. In a slow-growth economy with widespread recession fears, investors seek highest-quality, all-weather growth — and should pay up for it. Safety rises, on average, with size. Few huge, high-quality growth firms exist. So breadth shrinks, but markets rise. Some swear we’re in the throes of AI froth. I’m skeptical that artificial intelligence can be as big and grow as fast as many hope. Still, few of these leading stocks have any real and significant revenue or cost savings coming from AI in the next five years — and don’t claim to. The data — almost always when a very small percent of stocks are leading the market stocks — are markedly higher 6, 12, and 24 months later as “breadth” broadens. Bad “breadth” comes early and low and is bullish. No, this rise is all about the highest quality, most assured growth, not the fastest “maybe” growth. And means the biggest of the big, selling at high valuations and getting higher. That’s mostly tech, but also Europe’s luxury goods leaders. So yes, there’s no denying it – the recent breadth has indeed been bad. The thing is, bad breadth is actually bullish. We’ve already seen the market drop quickly and dramatically. On top of that, we’re still awash in bearish sentiment. As previously discussed in this column, this widespread doom and gloom – whether it’s the Fed, the Ukraine invasion, or the latest banking crisis – is actually bullish for stocks. This is what we call fear of a false factor. False fear is always hurting prices in a given moment, setting the stage for spring-loaded gains. Bad breadth is the latest such false fear – and it screams that this mega-cap-led surge has legs — maybe not this week or this month, but fully through 2023. Breadth has been invoked by bearish analysts since the early 1900s, when “advance/decline” lines were popular trend tellers. They believed “top-heavy” markets with few stellar stars topple when those few leaders lose luster. The legend lives like some horrible halitosis – but again, falsely. At January’s end, more than 60% of S&P 500 stocks outperformed the index over the prior year. By May 31, however, just 34.3% were outperforming — the fastest plunge on record since reliable breadth data started in 1965. Likewise, the percent of S&P 500 constituents closing above their 200-day moving average fell below 15% last June and September — only the eighth and ninth such occurrences since 1990. The four times breadth has collapsed super fast, like now, have led to super bull markets 6, 12, and 24 months later three times and ditto for 12, and 24 months the fourth — all bullish. Scary, right? On the contrary: Throughout the middling and longer periods that matter to most investors, imploding breadth is historically ultra-bullish. Of three other breadth swoons approaching 2023’s record size, one in 1969 came mid-bear-market – and soon before a 32-month bull market erupted, delivering 74% gains. The others came during early bull cycle corrections: in 1984, three years before stocks peaked, and in 2003, just months into a five-year bull market. Similarly, extreme low percentages of stocks eclipsing their 200-day moving averages precede booms,not busts. Take the seven deep troughs before 2022’s. Three months later, stocks were higher 86% of the time. Ditto for returns 6 and 12 months out. Median S&P 500 returns three months later were 10.6%. After 6 months, 18.1%. A year? 25.4%. Breadth can stink for years in rising markets. In late 1996 as a Forbes columnist, I urged buying the biggest 50 stocks. By April 1997, I narrowed that to 35 as stocks climbed. In early 1999, I narrowed to the 25 largest. Another year of great gains remained — four big, bull-market, bad-breadth years. How long will this bad breadth linger? Until optimism overcomes skepticism. It is just more of the “pessimism of disbelief” that I’ve harped upon in this column for most of the past year. Check to see you might suffer from this doom-and-gloom affliction yourself, and if so, get rid of it. Yes, this is partly about confidence. Those who stick with the market are going to do great. So please: Don’t worry about bad breadth." MY COMMENT There is always some data point or other reason to worry about the markets. There is always some reason to not invest. There is always some reason to not trust a rally or a bull market. I prefer to sidestep all of that thinking and analysis and simply stay invested ALL THE TIME. This little article and the one above illustrate one thing that I try to emphasize in my portfolio....QUALITY. I want to own the best possible companies that fit my personality and investing goals. I basically want to own the best and most successful companies in the world. That is what I care about as an investor.
It has been a slow and dull day today....supposedly....because everyone is waiting for the FED minutes to be released this afternoon. If this is true.....big if....I dont know what anyone expects will be in those minutes. There is NOTHING that the FED can say that we have not seen and heard at least a thousand times over the past year. AND.....lets look at reality.....the FED is done. Whether they do no more hikes or one or two more.....they are done. They are NO LONGER RELEVANT.
