Alert! Time to buy the market at bargain prices?

 

We are entering interesting market developments. What are they?

1. One of the few market certainties is that it reverts to the mean. When asked what the market will do, J. P. Morgan who dominated Wall Street at the end of the 19th and the beginning of the 20th century said: “It will fluctuate.”

We have recently entered the longest bull market in history. It will revert.

2. Another of the few market (near) certainties is that an inverted yield curve forecasts a market drop. We have recently entered an inverted yield curve. The market will drop.

3. An escalation of trade tensions between the US and China will certainly result in a market pullback.

Of course, we don’t know when the market reversal will take place. The chart below shows that last week, there was a drop of nearly 5%, which is a good time to rebalance our portfolios.

But not yet! Just be ready.

Our members don’t need to care about market drops if we are positioned in line with the Monday Morning Millionaire Program philosophy.

That means:

1. We have a market/cash (or near cash) asset allocation position which is appropriate for our age and risk tolerance.

My personal asset/allocation is 50% exchange-traded fund(ETF)/50% Money Market.

2. The market part of our asset allocation is an ETF which parallels the S&P 500. SPY, VOO, IVV or RSP are suitable. There are thousands of other ETFs. We can ignore them.

3. We keep our powder dry by keeping our cash in a money market fund. TDB166 pays the most. (A little over 2%)

The Monday Morning Millionaire Program philosophy allows us to buy bargains when the market drops and to take profits when it rises. Markets down or markets up, either way, we take profitable action. And we sleep well.

 

 

Five minutes, exceptionally well spent

Today, we show (with permission) a highly informative video by Prof. Elroy Dimson, Visiting professor, Cambridge Judge Business School, and Emeritus Fellow, London Business School.  It will cost you less than five minutes of your time and influence you immeasurably in a positive way. Enjoy.

Milan 😃

P.S. There is a website doing excellent book reviews which enthusiastic readers will find useful. We can neither add to or improve on it. We will review books which that website does not, books which primarily are of historical interest for investors. In addition, we will review interesting and relevant academic papers, magazine and newspaper articles, interviews and videos.

The Speculation Blues. Lyrics by Mark T. Hebner

We will start all our reviews with the statement that there is a website doing excellent book reviews which enthusiastic readers will find useful. We can neither add to or improve on it. We will review books which that website does not, books which primarily are of historical interest for investors. In addition, we will review interesting and relevant academic papers, magazine and newspaper articles, interviews and videos.

Today, we note an example of a genre rarely seen in the financial literature — a poem.

Written by Mark T. Hebner on May 28, 2006, you can see it below (with permission).  The video version, complete with visuals and music, is totally charming and takes less than five minutes.  Monday Morning Millionaire Program members will find any of Hebner’s new film,  previous films and about 450 videos instructive and educational.

The Speculation Blues

 The lure of fast money
makes you think active
But the record proves
you’re better off Passive

Professors came to
a shocking conclusion
The active advantage
was just an illusion

The stock market gamble
can be an addiction
You’ll search, but won’t find
that winnin’ prediction

Traders devour the news
like a school of piranha
While the passive find peace
in a tradeless nirvana

The bets laid down
on predictin’ that news
Will surely bring on
the Speculation Blues

Instead of Morgan or Cramer
Barney or Lynch
You’re better off with Bogle
Fama or French

The wisdom of crowds
throughout the land
Will act like the force
of the invisible hand

Everyone knows
there ain’t no free lunch
But the pickers keep thinkin’
they can win from a hunch

Your broker’s out buyin’
himself a fine yacht
And you’re gettin’ nothin’
from the stocks that he bought

Stock gamblin’ can be
like drinkin’ that booze
Leavin’ you singin’
the Speculation Blues

So before investing
your hard earned green
Catch a good vibe
for the variance and the mean

The smart money man
is best served
By checkin’ out
how the bell is curved

For when it’s skinny
and the average is high
The trader can’t beat it
no matter how they try

A risk taker gots’ta know
his risk capacity
Then hang on for his payout
with true tenacity

While the passive relax
on a tropical cruise
The active are singin’
the Speculation Blues

Financial Market History: Reflections on the Past for Investors Today

I recently communicated with Professor Elroy Dimson of Cambridge asking for permission to use some of his published material and he directed me to the book the cover of which you see above. He is one of its editors.

It is a comprehensive reference book for investors, stock market historians, and academics. You can buy it for $40 from Amazon or get the Kindle version at no charge from Amazon.com, courtesy of CFA Research Foundation, University of Cambridge. (Not available from Amazon.ca) The book contains works from 22 financial experts who met on July 2015 at a workshop at the Cambridge Judge Business School. Search any financial subject — British, American, Japanese, Chinese, Indian markets, railroads, gold, bonds, stock market investing, higher risk investing — any economic subject and you will get an expert’s perspective stretching back 116 years!

Many seasoned investors have understood that learning from our financial past can be of significant benefit. The book is priceless. The ebook price is right.

 

 

How the economic machine works – a video by Ray Dalio

We will start all our reviews with the statement that there is a website doing excellent book reviews which enthusiastic readers will find useful. We can neither add to or improve on it. We will review books which that website does not, books which primarily are of historical interest for investors. In addition, we will review interesting and relevant academic papers, magazine and newspaper articles, interviews and videos.

Today’s review is an example.

Actually, it is more in the nature of a testimonial than a review. We recommend Ray Dalio’s video How the Economic Machine Works. We add our voice to those of Ben Bernanke (former chairman of the Federal Reserve), Paul Volker (another former chairman of the Federal Reserve), Andrew Ross Sorkin (Financial columnist for the New York Times), Larry Summers (economist and former president of Harvard), Bill Gates another equally significant individuals many of whom have been on the cover of Time magazine as the most influential people the year.

Follow the link below for what could well be the best half hour that you could spend this year on the subject of economic principles.

http://economicprinciples.org

The Battle for Investment Survival: Book Review

We will start all our reviews with the statement that there is a website doing excellent book reviews which enthusiastic readers will find useful. We can neither add to or improve on it. We will review books which that website does not, books which primarily are of historical interest for investors. In addition, we will review interesting and relevant academic papers, magazine and newspaper articles, interviews and videos.

Today’s review is an example.

Gerald M. Loeb, The Battle for Investment Survival, Simon and Schuster Inc., 630 Fifth Ave., New York, NY, 1935, 1936, 1937, 1943, 1952, 1953, 1954, 1955, 1956, 1957, 1965

First published over 80 years ago and still in print, Loeb’s book is widely praised by those who promote the idea that stock market investing is rocket science and who benefit from investors’ insecurities which they encourage. The first chapter after the introduction opens with the statement: “Nothing is more difficult I truly believe, than consistently and fairly profiting in Wall Street. I know of nothing harder to learn.”

In Loeb’s day, that was true. That was long before a self-directed (do-it-yourself) investor could earn decent returns by the simple, low-cost act of adopting the habits of highly effective investors. Investing today, the successful, self-directed investor could state: “Nothing is easier I truly believe, than consistently and fairly profiting in Wall Street. I know of nothing easier to learn.”  Admittedly, the preceding smacks of hyperbole but it is not far off.

Let us review the habits.

  1. Having an early, disciplined savings program
  2. Self-directed investing
  3. Buying the entire US market
  4. Buying and holding
  5. Buying low, selling high
  6. Avoiding complexity

Now, let us see how some of Loeb’s key recommendations square with these effective habits.

Concerning the first habit, he does talk about disciplined saving for use later in life and about the decreased purchasing power of savings because of inflation. He addresses the self-directed investor (habit number 2) in much of the book and does encourage having cash much of the time (habit number 6).

In Chapter 6, titled How to Invest for Capital Appreciation Loeb says: “It is far better to let cash lie idle than to buy just to “keep invested” or for “income.” In fact, it is really vital—and just this one point, in my opinion, represents one of the widest differences between the successful professional and the loss-taking amateur.”

That view is as relevant today as it was 80 years ago. Deciding on a personal asset allocation which requires a high percentage in cash, allows the self-directed investor to buy low, that is, to buy when the markets are below their mean.

However, much of the book deals with picking stocks and timing markets. Peer-reviewed, academic papers available today show that the odds are heavily stacked against this approach. A tiny percentage of investors can pick stocks and time markets effectively. By buying the entire American economy and holding it instead of picking stocks and timing markets, the self-directed investor gets better results over the long run, with little effort. No such papers were available in Loeb’s day nor could investors buy the entire economy by purchasing a market index exchange-traded fund.

The S&P 500 index is the most widely used benchmark for measuring portfolio performance. It was introduced in 1957, many years after Loeb’s heyday. Equaling it is no simple task. Most actively managed investment funds fail to match it let alone beat it. Loeb may have been one of the people who did, but we will never know.

In Chapter 14, titled The Importance of Correct Timing, Loeb states: “Cutting losses is the one and only rule of the markets that can be taught with the assurance that it is always the correct thing to do.”

Let us look at the chapter title, first. The successful, self-directed investor knows that correct market timing is not a realistic objective. Instead, the self-directed investor adopts habit number four which is to buy and hold. Additionally, cutting losses precludes habit number five which is buying low and selling high. The successful, self-directed investor does not pick stocks but invests in a US market index ETF which is a close approximation of the American economy. Cutting losses might be good advice for single stocks some of which “fall out of bed” and never recover.  Investors buying the entire US market will incur losses from time to time. The self-directed investor sees that as an opportunity to buy the market at bargain prices.

Loeb was a prolific writer publishing his views inThe Wall Street Journal, Barron’s and Investor Magazine.  He has been called “the most quoted man on Wall Street.” by Forbes magazine. Nevertheless, the book is not a useful guide to investing in today’s environment. However, it is an excellent example of nearly a century of stock market history and the changes in basic principles which have taken place alongside those which remain intact.