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Investment Research Since 1978

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Archives for December 2018

Does this Explain the Bear Market in Stocks?

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Stocks had their worst Christmas Eve on record. The S&P 500 was down 2.71% narrowly avoiding the accepted definition of a bear market (20% drop based on closing prices). However, on an intra-day basis the index did indeed fall into a bear market. The losses in stocks have been swift as they often are in a bear market. Since hitting a high on September 20th, the S&P 500 is down 19.8%. With unemployment at some of the lowest levels on record, economic growth running in excess of 3%, profit growth getting a big boost from the corporate tax-cut, and interest rates still at historically … [Read more...]

Will Vanguard GNMA be Up in 2019?

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You know, it has been a good year-end advance for Vanguard GNMA. Which is why, if investors can take away one thing from 2018, it’s that they should never allow predictions to run their money. Because, if you recall, it was at this time last year when everyone was predicting higher interest rates for 2018. And because of that (not you of course) many soured on Vanguard GNMA and bonds all together, hence removing a most powerful counterbalancing force in their portfolio. Not a good move as it turns out. Predicting the direction of interest rates is about as useful as predicting the … [Read more...]

Is Manhattan Real Estate the Canary in the Coal Mine?

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November saw a big drop in Manhattan real estate prices. Prices for real estate fluctuate of course, but the drop was the biggest since February of 2009. Is it an anomaly, or a canary in a coal mine? Justina Vasquez reports on the price drop in Bloomberg, writing: Prospective Manhattan home buyers had plenty of options in November, and their wallets were thankful for it. The average price of condos, co-ops, townhouses and single-family homes on the market dropped 3.3 percent from a year earlier to $1.1 million, according to the November 2018 StreetEasy Market Reports released Wednesday. … [Read more...]

What is the Path Forward for Big Food?

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Conagra's purchase of Pinnacle Foods is getting some criticism as the acquirer is slowing down shipments of Pinnacle's frozen foods. Annie Gasparro reports for The Wall Street Journal: Conagra Brands Inc. CAG -8.26% is losing momentum in the freezer aisle, calling into question its recent $8.2 billion purchase of Pinnacle Foods. Pinnacle’s Birds Eye vegetables and Hungry Man dinners have lost space in recent months. Conagra, which acquired Pinnacle in October, said Thursday that it was working to stop shipments of some new Pinnacle products that seemed unlikely to sell. “Pinnacle is … [Read more...]

The Winning Investment Technique Used by Queen Elizabeth I

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Two years ago I told readers the story of John Maynard Keynes' lectures on compound interest in the late 20s. Keynes told the story then of Queen Elizabeth I and her impetuous and insightful use of compounding to build the British Empire. I wrote: Compound Interest, the Foundation of an Empire In a series of lectures and papers in 1928, John Maynard Keynes traced England’s success from the late 16th century, starting with a treasure Francis Drake had stolen from the Spaniards in 1580. Keynes was writing at the height of the British Empire, and he chalked England’s success up to … [Read more...]

Why We Favor Laddering Bonds

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Yesterday I asked readers Do You Know this about Vanguard Wellington and Wellesley Funds? I explained that we have not soured on the funds, but that their effective maturities are longer than we'd like. I also wrote that at Young Research we recommend laddering bonds. One of the reasons we favor laddering bonds is to help strip-out interest rate risk. When you own a bond outright you have control over your holding period. Duration measures a bond’s sensitivity to interest rates. For example, a bond with a 15-year duration will decline by 15 percent with every one percent increase in … [Read more...]

Can Amazon Get Groceries Right?

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Amazon is working hard to make its purchase of Whole Foods pay off, but it turns out translating groceries in ecommerce is more difficult than many imagined. Spencer Soper reports for Bloomberg: Amazon.com Inc. continues to struggle in the $840 billion grocery market, more than a year after it spooked the industry with the $13.7 billion acquisition of Whole Foods. The number of Amazon Prime members who shop for groceries at least once a month declined in 2018 compared with 2017, according to the results of an annual consumer survey released Wednesday by UBS analysts. The drop was … [Read more...]

Your Questions, My Answers: Custodial Accounts and Gifts to Minors

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Considering a monetary gift for your grand-kids for Christmas? They will certainly be happy, but you should read through this piece I wrote back on November 16, 2018 first.  Your Question: My mother is planning on gifting my children some money this year. Since there is enough in their 529 accounts, I thought I would open custodial accounts for them to take care of this money, and start them on the road to retirement saving and learning about investing. In your opinion, is a custodial account the best option in this situation and if so, is Fidelity a good place to do it? My Answer: Yes. I … [Read more...]

Do You Know this about Vanguard Wellington and Wellesley Funds?

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As you know our concerns about Vanguard continue to mount. Yesterday, a reader wrote: “[Dick] used to be big on Wellington and Wellesley, given their longevity and resistance to tail risk over time. Also, it seemed to me that Wellington Management's fixed income expertise would be an asset in this part of the cycle. I'm wondering why he has soured on these funds.” The quick answer is no we have not soured on Wellington and Wellesley with two distinctions. First, Vanguard has nothing to do with the management of Wellington and Wellesley. Vanguard has outsourced those management … [Read more...]