Have heard this from your broker or advisor? “The stock market is a discounting mechanism.” “That’s factored into the price.” “Investors know about that risk, so it is in the price.” I have been guilty of this myself in the past, but it is a poor use of language. It can misguide and confuse those who aren’t deeply familiar with financial markets. It is of course true that financial markets are a discounting mechanism, but asset prices only discount the risk of future events. They never fully discount the event until it happens. So if your broker tells you some future event is discounted in … [Read more...]
Nasdaq Missing the Boat: Part II
While the Nasdaq has nearly reached its all-time highs in nominal terms, when adjusted for inflation, the index has actually fallen in real value by 33.1% from its peak on 3/10/2000. Read Part I by clicking here. … [Read more...]
NASDAQ Missed the Boat
NASDAQ crossed 5,000 for the first time in 15 years. That’s a long-time to wait, especially if you’re not getting paid. Back in 2000, when it peaked, NASDAQ yielded one-tenth of the S&P 500 or 0.12%. Imagine investing for 15-years and getting paid. I’ll use a 4% yield as an example, which was hard to do but it was doable. 4% compounded over 15-years multiplies your money by 1.8x--$1million becomes $1.8 million. 15-years is a long-time—a big chunk of your retirement to get nothing. You can’t afford to miss the boat this time around. But it’s amazing how quickly … [Read more...]
Buying Panic in the Board Room
Wondering why stocks rose the most in over three years in February? Bloomberg reports that $104 billion in repurchases were announced last month—the most since TrimTabs Investment Research began tracking the data in 1995. You can read the full story here. The highlights are below. Even with 10-year Treasury yields holding below 2.1 percent, economic growth trailing forecasts and earnings estimates deteriorating, the stock market snapped back last month as companies announced an average of more than $5 billion in buybacks each day. That’s enough to cover about 2 percent of the value of shares … [Read more...]
Market Cap Indicator: Snapchat Edition
You can learn a lot about the valuation of a company by comparing it to the valuation of other companies. That is especially true in the land of social media stocks where revenues and earnings sometimes don’t exist. Snapchat, a social-media startup that only recently started generating revenue is valued at $19 billion. Don’t know what Snapchat does? Me either. According to Quartz, Snapchat allows users to share disappearing photos. Hmm…I guess that qualifies as innovation today. The table below comes from Quartz. It compares Snapchat’s market value to companies with similar market … [Read more...]
Trading Short-term Pleasure for Long-term Pain
Should you take investment advice from the mainstream internet (if I can coin a phrase)? Bloomberg posted an article on their website yesterday with the following headline: “Goldman Sachs Sees More Value Outside of ‘Stretched’ U.S. Stocks” Bearish views from Wall Street’s eternally bullish big banks are always of interest to me. Bearish views from Wall Street strategists are few and far between. Why? Being bearish on Wall Street is like opposing motherhood and apple pie. The big banks make more money when their clients are bullish. When investors are bearish fewer deals get done, fewer … [Read more...]
The Brady-Belichick Curse
This falls under the heading of correlation does note equal causation, but so what. It gives me a reason to write about football—and to put up a Dick Butkus video. If you are a Patriots fan, I have some bad news for you. Your team is in the Super Bowl, but that probably means your portfolio is headed into the tank. When the Patriots play in the Super bowl with Brady as the Quarterback and Belichick as the head coach, the stock market goes on to have a stinker of a year. Check out the numbers in the table below. Brady-Belichick Super Bowl appearances are a curse for investors. In the … [Read more...]
A Dismal Forecast
“Who are you gonna believe, me or your own lying eyes” Groucho Marx From Bloomberg on October 23, 2014: Caterpillar Climbs After Raising Forecast on Construction “Caterpillar Inc., the largest construction-equipment maker, climbed the most in more than eight months after topping analysts’ profit estimates for the third quarter and raising its full-year earnings forecast.” Fast forward three months. Yesterday, Caterpillar reported fourth quarter results that disappointed Wall Street. The company lowered its forecast for 2015 on the back of falling oil prices. CEO Doug Oberhelman said … [Read more...]
Raging Bull Turns Bearish
Well sort of. James Paulsen of Wells Capital Management, one of the most outspoken bulls of today’s bubble market is raising the red flag of caution. Why has Paulsen turned more bearish on the U.S. stock market? Based on a recent missive posted on his website it would appear Mr. Paulsen has fingered the biggest bubble (in a broad sense) in at least six decades as a risk to the market. As Mr. Paulsen rightly points out, the Median P/E of NYSE stocks is at a post-war record. That is saying something. This is the most expensive stock market in your investing lifetime. And it’s not just P/E … [Read more...]
Utilities Stocks on a Tear
The S&P 500 Utilities index has been on a tear. We have long favored utilities stocks at Young Research & Publishing. Last year when many investors were dumping utilities we were advocating new positions (see December 2013 Global Investment Strategy - subscription required). The consistent dividends, high-barriers to entry, and regulated returns have appeal for serious long-term investors. But the strength of the recent upleg might not be all roses and butterflies. The S&P 500 Utilities index is up a staggering 34% YTD making it the best performing sector in the index. Over half … [Read more...]
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