Time to Be in Stocks?

Yesterday, we learned from Wall Street Journal reporter Brett Arends that this is the best time to invest in the stock market: 

“The best estimates argue that over the long term, stocks have beaten bonds, cash and deposits by an average of about 4 to 5 percentage points a year. Compounded over time, that has amounted to an enormous difference. After 30 years, someone who invested in stocks has often ended up with three times as much money as someone who kept it all in cash and bonds. 

Meanwhile, those gains have typically all come during the winter months. Peculiar, but apparently true. The most recent academic study, which has looked at stock markets around the world and went back in some cases more than 100 years, has found that winter has beaten summer pretty consistently in almost every country and almost every period.”

Point? 

If you want to do well with your investments, you will buy stocks… and buy them now. 

Arends goes further. He tells us how much of our money we should have in stocks. Citing the work of valuation expert Andrew Smithers, he concludes that… 

“…a long-term investor who wants an easy life should keep 80% of their money in stocks and 20% in short-term bonds or cash.”

But wait. Smithers believes stocks are very expensive now (as we do). And everybody knows you can’t make money by buying high and selling low. You have to do it the other way around. So, what do you do? 

“Buy foreign stocks,” says Arends. 

“Putting all this together: If history is any guide, you should log on to your online brokerage account today, or at least this week. And if you are trying to save for a retirement that is more than five years away, you should make sure that your portfolio is at least 60% allocated to global stocks, even if you’re nervous about the market, and more if you aren’t.”

Meanwhile, CNBC reports that this could turn out to be the worst time to buy stock in eight years: 

“Stocks with big buyback programs are struggling this year, and according to one technician, a similar lag has previously preceded two market crashes.” 

Out of the nine S&P 500 companies with the biggest buyback programs, four are down in stock price over the last year. Exxon Mobil, IBM, 21st Century Fox and Merck are all negative for the year, and Oracle and Intel are fighting to hold onto incremental gains.

Out of the nine S&P 500 companies with the biggest buyback programs, four are down in stock price over the last year. Exxon Mobil, IBM, 21st Century Fox and Merck are all negative for the year, and Oracle and Intel are fighting to hold onto incremental gains.

Strange as a $3 Bill

What to make of it? 

Nothing. These technical studies are entertaining. But they are useless from an investment point of view. The first focuses on the last 30 years. It tells us that people who bought and held stocks did very well. 

Well, big whoop! 

Thirty years ago stocks were cheap. They had a lot of room to go up. If they had been expensive when the period started, the gains would have almost certainly been more modest. 

In the second place, this period was extraordinary, unique, and as strange as a $3 bill. It was marked by the biggest rush of money and credit into the world’s asset markets in history – with an increase of $12 trillion in world foreign exchange reserves. 

Where was all this money going to go? 

Meanwhile, a new study by Patrick Artus at Natixis Research shows that almost none of the base money increases as a result of QE over the last seven years led to the kind of increase in money supply that boosts consumer prices and stirs economies. 

QE benefited Wall Street, not Main Street. 

Which is why the rich got so rich. And why real economies did not benefit. And why wages did not rise. And why the whole program was more larceny than monetary policy… 

…and why stock owners made so much money. 

Now, those stock market investors think they are geniuses. Analysts add the numbers and confirm it. Reporters give out the word… 

…and a whole new generation of investors believes it. They want to make money, too. What better way than to do what worked for their parents? Buy stocks! 

Alas, past performance is no guarantee of future results. The fix was in. And just because some lucky stiff made money in a rigged market over the last 30 years doesn’t mean you will now. 

Regards, 

Bill

Tech Insight

(Dairy of a Rogue Economist) Editor’s Note: We’ll soon be launching a new investment advisory, Exponential Tech Investor, to help you profit from game-changing innovations. Below, editor Jeff Brown identifies an exciting area of breakthrough technology.]

As you step through the portal, it’s dark and cool. You are in a research facility in the future in search of an alien life form. You can hear the hum of the machinery and cool air on your face. You have entered a virtual world created by a company called The Void. 

The Void has built the first of many virtual reality (VR) game facilities in Lindon, Utah. It is not experimental technology; in fact, you can go there today and experience its “beta” version for an early view of the future of VR. Full commercial deployments will begin early next year and additional facilities will open up. 

Before you say, “but these are just games,” think about this… The video-gaming industry will generate more than $110 billion in revenues this year… and VR is forecast to be a $30 billion business by 2020. 

It is not just about gaming either. Imagine learning in a virtual environment. What if you could see what a forest looks like through the eyes of a wolf? What if you could explore the ocean through the eyes of a dolphin? Or view an organism from the inside out? 

The applications for skills training are also immense. Training using VR is less expensive and allows the learner to avoid making mistakes in the real world. 

Believe it or not, real work will be conducted in a virtual world as well. With advances in network bandwidth, microprocessor power, and graphics processor speeds, people will telecommute to virtual offices, where they will work and interact with colleagues in a wholly digital world. 

Another interesting company that I am following is called High Fidelity. It was founded by Philip Rosedale, the original founder of Second Life. If you haven’t heard of Second Life, it was a fantastic technological and social experiment. It is a virtual world accessible via your computer that functions just as the real world does. Everyone has an “avatar” that represents who they want to be in this second life. 

Second Life launched in 2003. But technology has changed exponentially in the last 12 years. Today, High Fidelity is taking advantage of all of those advancements to create a completely new virtual world. Rosedale and many others believe that much of future education, work, and play will exist in virtual environments. 

P.S. If you want to be among the first to learn about my top picks for breakthrough tech stocks on the verge of huge gains, follow this link

While any approach to creating financial security must suit the values and needs of the individual, these are the Top 10 Wealth-Building Strategies that I believe will ensure that you can weather any storm life sends your way. 

1.Use the A-R-KTM Technique.

A.A is for Accumulating Assets. This may seem like a simple concept but in today’s challenging circumstances it is much too easy to spend everything you make and more.

B.R is for Retiring Debt. Debts aren’t called liabilities for nothing. You need to work towards reducing and eliminating debt when everyone else is focused on using every ounce of equity.

C.K is for Keeping Commitments. Once you make a commitment to yourself to apply the A-R-K TechniqueTM, you need to keep it! You build confidence in yourself and others this way.

…..continue reading 2 through 10 HERE

When you hear the term STYLE DRIFT, the first thing that might come to mind is that you’re dressed in last year’s fashions, or that you’ve made a fashion faux pas. However, STYLE DRIFT is a much more serious issue, it refers to a fund manager moving away from their stated objectives and can make the fund returns misleading. When you own something you haven’t actually intended on purchasing…. 

CLICK HERE to watch the video

The Evidence-Based Investor Video series is a service provided by Paul Philip and the team at Financial Wealth Builders Securities

One look at this 115 year chart of the Dow Industrials reveals that despite World Wars, Depressions and financial catastrophes, stocks have always produced outsized returns. Outsized returns for the very patient mind you, but outsized returns nonetheless. Take a look:

• The long-term, more than 100-year performance: Since 1900 (end-of-year 1899), through 2012, the average total return/year of the DJIA was approximately 9.4%  — 4.8% in price appreciation, plus approx 4.6% in dividends. 
• The average annual stock market return for the past twenty-five calendar years (since 1987) was 10.6% (7.9%, plus 2.7%)  The market was up over 40% before the October 19, “Black Monday,” crash. After a significant recovery, the Dow actually closed up 6% for the year. (For further time periods and statistics go to Observation HERE)

So even in an absolutely worst case scenario of an investor buying the index at the very peak of the Dow at 381 in 1929, that person would have been even index wise 25 years later and have well more than doubled (including dividends) long before the Dow hit its peak at 1000 in 1966.

In a better scenario you will get the likes of a quality stock buyer like Warren Buffet earning a 20% annual return over the period 1965 – 2012, a period that just happened to have one of the longest stretches of stock market underperformance between 1966 – 1983, not to mention the crashes of 1987 and 2008.

When you invest in stocks, you must know there will be periods when stock market returns will go negative, and you must accept the risk of occasional bear markets. But you do get paid for it through the “Equity Risk Premium. Or in other words you earn more in return for being willing to endure periods of loss. (Ed Note: Currently that premium is estimated be 5.5% over 30 year Treasury Bonds, or over the long term stocks will outperform Treasury Bonds by 5.5%)

Summary:

Over the long term at least, the return on stocks is greater than bonds. 

Current State of the Markets

The Central Banks zero (now minus zero) interest rates, stimulus from the ECB, China, Japan and directly and indirectly from the U.S. Federal Reserve will ultimately force equity prices higher. Nevertheless recent stock market gains lead me to believe that keeping 25% cash take advantage of any further selloffs is a good idea for now. Marc Leibovits recent advice is also very wise:

“eliminating long-term bonds from your portfolios, avoiding the most rate-sensitive sectors of the stock market, sticking only with the highest-rated stocks in powerful sectors experiencing their own private bull markets, and dabbling (gingerly) in the most beaten-down, dirt cheap stocks that already reflect a huge amount of pessimism.”

In my opinion some of those dirt cheap stocks definitely reside in the precious metals sector, and for those more cautious you can always use the options market to reduce your risk. 

Robert Zurrer

Autobiographical work reveals practical side of investing

Guy Spier is a “tremendous value investor” who has his his bachelor’s degree from Oxford and MBA from Harvard. Guy has written a book that is “the most untraditional book on investing you’re likely to run into.” called “The Education of a Value Investor: My Transformative Quest for Wealth, Wisdom and Enlightenment.”

Perhaps in a time where Value Investing has never been more important you can get an idea of Guy’s approach by reading the rest of the article HERE – Editor Money Talks