Focus on the long term

I was reminded of that today when a client called up and asked what return he could expect on his investments. I said we really can’t predict, but a long term average of 7% has historically been both attractive and doable, with discipline. We really can’t say what the future will bring. What does “discipline” mean? To some degree it means that we ignore the day to day noise and focus on long term realities....

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60% of a bag full of slow

The stock markets of the world appear to be impervious to every current geopolitical event, including the threat of nuclear terrorism and serial hurricanes, while a growing number of writers are shrieking that the end of the financial world is nigh. (Read the latest apocalyptic broadcast here.) Hmmm. I have my doubts, but there’s a lot of smoke in the air. Conditions being what they are, last week I moved 5% in many clients’ accounts from...

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I think I’ve figured this out.

The more missiles North Korea shoots over Japan without blowing anything up, the more investors think the Federal Reserve is likely to be cautious about raising rates, and thus the more they invest in stock markets. Absurd but there’s a logic to it. As someone said earlier this morning as a joke, perhaps the North Korean dictator has a brokerage account or a hedge fund, and he’s doing his part to boost profits. We are...

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Risk Happens Fast

As last night’s 8.2 magnitude earthquake in Mexico illustrates, risk happens fast. We are now conditioned to three beliefs: things will continue as they are today indefinitely, the Federal Reserve will always save us, and we’ll be able to dodge out of the way. Nine years ago today, that wasn’t the case. One of the largest investment banks, Lehman Brothers, was allowed to go bankrupt and default on its bonds. The stock market fell 25%...

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The stock markets of the world are apparently missile-proof.

Seriously. The North Koreans just shot missiles over Japan and global stock markets shrugged it off. Yet again we learn why we should stay at least partially invested. In the past few decades, central banks have changed the way investors perceive risk. Most people think now that central banks can rescue us from ANYTHING! As Hurricane Harvey (yet another non-event in the stock markets) rips its way through Texas and Louisiana, it’s worth pondering what...

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Are Small Stocks Leaving the Party?

The market for small stocks just turned negative for the year. That’s big news, and you aren’t likely to hear it elsewhere because it disrupts the narrative of a rising stock market. Why is it happening? This article provides more data to suggest stock market overvaluation. In this case, it’s the small stock markets, exemplified by the Russell 2000 Index. What’s more, this downturn is a divergence: the performance of the Russell 2000 Index is...

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Good thing we’re diversified.

We haven’t (yet) responded to recent market turbulence by altering our portfolios. We’ve simply been maintaining our current very diversified allocations, which aren’t fully invested in the U.S. stock markets. As I wrote in my last posting, long term holding is a very decent tactic. And right now we’re a little bit allocated towards safety. From this position, it’s OK to ride out short term news. However, this weekend’s blog on “Wolf Street” is interesting....

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The Ten Year Anniversary of the day the world changed.

Ten years ago today, French mega-bank BNP Paribas announced it couldn’t place a value on its US-created collateralized debt obligations, complex toxic “derivative” investments, and thus was suspending client withdrawals from the funds which held them. That was the first indication that the most gigantic financial panic since the Great Depression in 1929 was about to unfold. The world has changed a lot since then. But many of the same structural flaws remain, patched and...

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Everyone expects to be a winner (and all children will be above average)

I’m reposting this here from the Heisenberg Report. According to this study, essentially everyone thinks the stock markets will finish higher in one year. Such a high level of optimism is some kind of record. My guess is that we got here because EVERYONE expects the central banks to intervene forever. Having painted themselves into this particular social expectation corner, it’s going to be interesting to see what the central banks do next. Way back...

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A problem with reality

Is that sometimes it is so irrational. The financial markets are currently radiating “market bubble” and I’m reading a very well written quarterly update by the managers of the Forester Value Fund. It captures all the data which suggests that we are currently at market highs and we are at risk of a coming downturn in both the bond and stock arenas. But there’s a problem. Forester Value Fund TOTALLY ROCKED our stock market declines...

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