“Events, dear boy, events," the premier replied. - Former, UK Premier, Harold Macmillan, when asked how his popular Tory Party could possibly lose the next election. With respect to the markets, “events” are funny things. In 2010-2011, events in Greece were deemed as critically important to world stability. For months, financial analysts followed every snippet of news that came out of Athens. The markets seemingly rose and fell on every news clip of daily mass gatherings and riots.
"Know what you own, and know why you own it." - Peter Lynch, Investor This month we will attempt to answer in a visual manner why we believe that large cap, U.S.-based, multi-national companies should remain a mainstay of a portfolio. In J.P. Morgan’s annual “Guide to the Markets” we noticed some key themes that further support our long-term thesis.
“In the short run, the market is a voting machine, but in the long run it is a weighing machine.” - Benjamin Graham This is really an odd quote. Voting on what? Weighing what? When Benjamin Graham penned this in 1949, stocks were barely above 1929 levels and post-Depression era America wasn’t much interested in the stock market. But understanding his insight would serve investors well in any era.
“A study of economics usually reveals that the best time to buy anything is last year.” - Author and comedian Marty Allen Two words—supply and demand—have dictated human enterprise for thousands of years. Many college graduates will recall these two words being drawn up on the chalk board on the first day of ECON 101 along with curves and other basics of economic theory. In our modern and complex worldwide economy, people win Nobel Prizes for developing intricate economic models and algorithms, but when it comes right down to it, supply and demand is the dynamic they are really talking about.
“The pessimist complains about the wind; the optimist expects it to change; the realist adjusts the sails.” - Author, William A. Ward If you are watching CNBC right now, you are likely hearing pundits making their case that the market is overvalued, undervalued or fairly-valued based on past bull market runs. Instead of participating in this conjecture, let’s change the conversation to look at the current state of blue-chip bond yields versus dividend yields. For illustrative purposes we will concentrate on one company, Cisco Systems and discuss the merits of CSCO debt and equity securities.
“Compound interest is the eighth wonder of the world.” - Albert Einstein As we type away this morning, the US government shutdown continues and there is wall-to-wall coverage on the “crisis” in Washington. And while we don’t want to minimize the impact on people’s lives, the fact is, this is the 18th government shutdown since 1976. Presidents Carter and Reagan each experienced six closures.
“Workin’ 9 to 5, What a way to make a livin’, Barely getting by, It’s all takin’, And no givin’.” - Dolly Parton singing “9 to 5.” Wal-Mart Workers Protest Over Minimum Wage in 15 US Cities McDonald’s Worker: Why I’m Striking New Jersey Worker Union Complains Recently Bankrupt Casino Using Too Many Part-Time Jobs For those of us who remember the 1970’s, the above recent headlines bring back a flood of memories...and no, I’m not referring to the rock band Meatloaf, Travolta poses, and debates over “Who shot JR?”
August 8, 2013 “Let’s go fly a kite, up to the highest height! Let’s go fly a kite and send it soaring!” -Banker, George Banks, singing in Mary Poppins It can’t be easy being the Chairman of the Federal Reserve. If you use the word “modest” instead of “moderate” the CNBC stock market mavens go apoplectic, Congress demands hearings, and blog writers compare you to some distant Fed Chairman during the Great Depression. As Harry Truman once quipped, “If you want a friend in Washington, get a dog.”
“When you are squeezed, what comes out is what is inside.” Wayne Dyer, American Self Help Author While Mr. Dyer clearly intended his quote to inspire individual character, the same sentiment could be applied to many Wall Street investment products....including the now ubiquitous Exchange Traded Funds (ETFs). ETF popularity has soared in recent years and the ETF concept enjoys almost “darling” status in many investment circles. And, what isn’t to like? Investors can target specific sectors, diversify easily, trade instantly, and avoid the higher costs of most mutual funds.
“God made the world round so we would never be able to see too far down the road.” Isak Dinesen, Danish writer and storyteller When Fed Chairman, Ben Bernanke, looked down the post-Lehman road in 2008, it is unlikely he saw the full spectrum of his actions in 2013. Analysts and historians will long debate whether he was right when he “stepped in” rather than letting the crisis run a more natural course. And, of course, the story is not yet done. The full measure of the zero interest rate policy (ZIRP), quantitative easing (QE), TARP, TALF, etc. won’t be known for years. What we do know, however, is that things are not the way they were….and putting debating points aside, we must invest with the hand we are currently dealt.