Investing 102

[Sieg]

FWIW: A market perspective client letter from a fund manager I deal with:

As you are aware the past three months have been very difficult for stocks. Given the current environment, we thought it would be helpful for us to share some of our thoughts on these recent market developments.

In early to mid-August, we were reminded that stock market corrections can occur quickly. Global markets retraced most or all of the year-to-date gains and volatility increased significantly. Then September came and although many of the underlying market currents didn’t change, the headline indices regained some of that lost ground. A small group of large stocks (Amazon, Google, Netflix, Facebook, and Chipotle Mexican Grill, to name a few) which have outsized effects on the indices, drove a significant portion of the recovery. Unfortunately, in order to match or exceed this type of index performance, an investor would have to make a few, highly concentrated bets. Our preference remains on running well-diversified portfolios, which are not rewarded in these types of environments.

Many studies on the historical and current divergence between growth and value oriented investing arrive at a similar end point: value-based investing has historically produced superior returns. But we are currently in a period in which markets have flocked toward growth. As the accompanying graphic shows, the year-to-date performance (through Sept. 24, 2015) of several Russell® indices reinforces the current situation. Consistently, across market capitalizations, the growth category returns are essentially flat while the general (core) returns are negative and the value category returns are more negative, still.

Not surprisingly, uncertainty remains the only certainty at this time. Market participants continue to weigh the potential effects of an eventual decision by the Federal Reserve to raise the benchmark interest rate, the collapse of commodity prices, global economic health and market valuations. Third quarter earnings, a key component of the past six year bull market, are expected to be less robust than last year. Currently, it appears that this is a temporary issue, but is one that warrants close attention. Ultimately, we expect these higher levels of market volatility to remain in the near to intermediate term. Importantly, it is in this market environment in which stock picking is rewarded.

Believers in mean reversion, like us, expect the environment to eventually return to normal. More important is that we maintain our value discipline. We have been through these type of markets before. In the short term, they are painful, but in the long term our clients have been well served by staying the course.

[GregWeld]

You'll learn a lot more about yourself - and investing in general when the markets are poop -- than you ever will when the market just goes up every day.

You'll learn about time. Remember that money you were saving and "didn't need" for awhile (2 or 3 years perhaps).... You'll learn about diversity, and how one or two names in your portfolio are the only thing keeping you somewhat afloat... You'll come to understand why earning some money on your money is really important when the growth of the share price IS NOT there... You'll find you look at your portfolio a lot less in bad markets... this is especially true if you own great names... You'll come to understand all my "gambling" statements if that's what you've done...

And when it snaps (or crawls) back... you'll think how lucky (smart) you were to have been acquiring more shares all along the twisty, winding, route the market takes.

[ErikLS2]

Originally Posted by GregWeld

You'll learn a lot more about yourself - and investing in general when the markets are poop -- than you ever will when the market just goes up every day.

You'll learn about time. Remember that money you were saving and "didn't need" for awhile (2 or 3 years perhaps).... You'll learn about diversity, and how one or two names in your portfolio are the only thing keeping you somewhat afloat... You'll come to understand why earning some money on your money is really important when the growth of the share price IS NOT there... You'll find you look at your portfolio a lot less in bad markets... this is especially true if you own great names... You'll come to understand all my "gambling" statements if that's what you've done...

And when it snaps (or crawls) back... you'll think how lucky (smart) you were to have been acquiring more shares all along the twisty, winding, route the market takes.

One of your best yet!

[GregWeld]

Crazy damn market... I have no words other than just to stick with it. NASDAQ UP over 100 points! WTF.... Crazy.

Here's the only thing I can say - do what I do - pick your names (the best ones!) don't get squirrelly... just buy when you are ready. Close your eyes and ride the wave.

Worst quarter in 4 years. Now you know what a ****ty market is like. Sometimes it's like this for a few years!! Stomach it - weather it - don't try to time it - just keep on investing. It ALWAYS gets better. The losers are the ones that bail.

[Sieg]

It will be interesting to see how the market reacts to the Putin tomorrow.

[ErikLS2]

What about what Carl Icahn said today? I think it's a bit extreme but he's no dummy either.

[GregWeld]

Originally Posted by ErikLS2

What about what Carl Icahn said today? I think it's a bit extreme but he's no dummy either.

Erik --- I totally agree with you that Icahn is... well... an icon. I listen to him - and I pay attention. But here's where I usually go... "the market" is just so much bigger than "anyone" including the federal government. Typically the market reacts as a "group think" mechanism. Nobody is buying - everyone is buying...

What we're dealing with is group think - on China - on the rest of the world... nobody really knows what these economies are going to affect here or on US companies. We are dealing with a FED rate hike, or not. We don't know the affect of what that is going to do. We have a collapse in the oil industry... just when the US was looking to become a major oil producer and possibly even an exporter. Where's that going to shake out.

Here's the deal in the market. Lower oil prices -- bad for some - great for many... are you in the right ones? If you're in to oil - you're getting killed (I am ) - if you're into autos - you might be looking like a hero (more sales - more big profitable truck sales etc). Retail sales should look good in the fourth quarter because the consumer has more money in their pocket from the lower prices...

If you're invested into anything that is "international".... Caterpillar... etc... you're DOA... But would you really be afraid to be invested or buying more (CAT)?? This is one of the worlds premier companies. When Europe and China come back on line - you'll look like a hero owing CAT long term.

My point - same point I've always made -- buy the very best the world has to offer - get a decent dividend - buy more as you can when the world appears to be going dark. That is how you make money. Long term is not one quarter... it's time to build your portfolio not shrink it. Grow a set. You'll be happy with the result.

[ironworks]

Originally Posted by GregWeld

Crazy damn market... I have no words other than just to stick with it. NASDAQ UP over 100 points! WTF.... Crazy.

Here's the only thing I can say - do what I do - pick your names (the best ones!) don't get squirrelly... just buy when you are ready. Close your eyes and ride the wave.

Worst quarter in 4 years. Now you know what a ****ty market is like. Sometimes it's like this for a few years!! Stomach it - weather it - don't try to time it - just keep on investing. It ALWAYS gets better. The losers are the ones that bail.

That's good. I'm tired of seeing red every day. Then a big green day and then small red numbers for a week or 2.