Category: Equities


When Cash Is King

Cash is king. At least for the moment. In the first quarter of 2022, short-term Treasury bills finished marginally higher (+0.03%) while both the 10-Year Treasury bond (-6.64%) and the S&P 500 (-4.95%) declined. The greatest fear among many investors is that this trend will continue. Is this a rational fear? How often has cash […]

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Is a Low Unemployment Rate Bullish for Stocks?

The US Unemployment Rate moved down to 3.6% in March, its lowest level since the start of the pandemic and well below the historical average of 5.75%. If you asked most people, they would probably say this is a bullish sign, where a strong economy is good news for the stock market. But is this […]

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The Inverted Yield Curve Omen

There are few things investors fear more than an inverted yield curve (the relatively uncommon situation where short-term yields are higher than longer-term yields). Why? Because it tends to be a pretty good indicator of future economic weakness. Case in point: the last 6 recessions in the US were all preceded by an inverted curve. […]

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A Checklist for Corrections

The markets are volatile, the news is bad, and the value of your portfolio is going down. You’re afraid things may get worse and you want to do something about it. This is a perfectly normal reaction. When faced with something painful, we look for ways to ease the pain. While such a response serves […]

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Will a Single Rate Hike Kill the Bull Market?

Note: view my video on this topic here. Stocks are down and the Fed is expected to hike rates for the first time in years. Many are worried that we are heading straight for a bear market. Which begs the following question: has there ever been a 20% stock market decline in advance of or […]

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The Price of Admission in Stocks

Note: watch a video of this post here. When investors think about risk, it’s the extremes that immediately come to mind… 1929 (Great Depression) 1987 (Black Monday Crash) 2000 (Dot-Com Bubble) 2008 (Financial Crisis) 2020 (Pandemic Crash) The commonality: fear, panic, and catastrophic losses. While these periods are all front and center in our minds, […]

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Are You Investing or Merely Speculating?

“Whether you’re excited or nervous when your favorite asset falls in price marks whether you’re investing or merely speculating.” – Naval Ravikant (Founder of AngelList) Are you investing or merely speculating? Naval Ravikant had an interesting take on this most important of questions. The deciding factor: whether you’re “excited” or “nervous” to see your investment going […]

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2021: The Year in Charts

Here are the charts and themes that tell the story of 2021… I. The Free Money Effect In the first few months of 2021, hundreds of millions of Americans (the vast majority whom had never lost a job during the pandemic) received two more tax-free stimulus checks, setting the stage for one of the greatest […]

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How to Avoid Another Lost Decade

US equity valuations are high. How high? The CAPE Ratio on the S&P 500 just crossed above 40. When was last time we saw a CAPE ratio above 40? September 2000. What happened after that? The “lost decade” for investors. The S&P 500 declined 15% over the next 10 years, with two significant drawdowns in […]

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Investors Are Behaving as if the Future Has Already Happened

Rivian ($RIVN) went public last week in one of the largest IPOs ever, raising $12 billion and ending its first day of trading at a market cap of $87 billion. Only a week later, its market cap has surged to $149 billion, higher than both General Motors ($GM) and Ford ($F). Why is that surprising? […]

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The Stock Market Is Not the Economy

US economic growth contracted 2.3% in 2020, the worst year for the economy since 2008. Did that hurt the stock market? Not at all. The S&P 500 gained 18%, well above its historical average return of 10%. 2020 wasn’t the first time we’ve seen a higher stock market in spite of an economic downturn. The […]

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Reaching for Returns

7.5%. That’s been the annual return assumption of pension funds for decades. What mix of assets is required to generate such a return? The answer to that question has changed dramatically over the past 40 years. Let’s take a closer look… January 1981 In 1981, short-term Treasury bills were yielding over 15%, near their highest […]

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How the “Buy the Dip” Generation Came to Be

“Buy the dip.” This has been the mantra for an entire generation of investors. Why? Because we are creatures of habit, and during the last 12 years the best habit you could possibly have had as an investor was to stop worrying and simply “buy the dip.” The fact that dips were often followed in […]

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Expectations Are Everything

This is a story about expectations. But first, I want you to read about Company A and Company B… Company A had revenues of $66.81 billion over the last year and net income of $7.14 billion. It was founded in 1912 and has 114,000 employees. Company B had revenues of $851 million over the last […]

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Where Greatness Lies

Investors today are experiencing one of the calmest markets in history: The S&P 500 has posted a positive return in each of the last 7 months (February – August), and has done so with bond-like volatility (5.2% vs. 5.2% historical average for the Bloomberg Barclays Aggregate). This is lower than over 98% of historical periods […]

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When Valuation Matters

“But valuation doesn’t matter anymore.” You’ve probably heard that statement in some form or fashion over the last year as we’ve witnessed a rolling series of manias in markets like never before. And indeed it is true – at least in the moment. During a parabolic advance, sentiment and herd behavior easily trump valuation and […]

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Home Bias and the Best Time to Diversify

“Invest in what you know.” A common piece of advice that’s often taken to heart. Familiarity breeds comfort, and the more comfortable you with an investment, the more likely you are to own it. Which is another way of saying that our feelings and emotions are the primary drivers of our investment decisions, not data […]

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The Ultimate Superpower in Investing

Here’s a list of the top 30 stocks in the S&P 500 over the past 30 years… What stands out? The unfathomable returns, a product of time and the magic of compounding. What’s lost in this graphic, however, are the many periods of excruciating pain that anyone invested in these companies would have experienced. When […]

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A Guide to Moving from Cash to Investments

This is a story many of you will be familiar with. You have money to invest that’s been sitting in cash, either from the sale of a business, a recent inheritance, or built-up savings. This is money you don’t expect to need or access for more than 20 years, if ever. You know that cash […]

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Do Low Interest Rates Justify High Valuations?

You’ve heard the story before: Equity valuations are high… Interest rates are low…. Therefore, high valuations are “justified” by lower interest rates. Why? Some say it’s because stocks are simply the present value of their future cash flows. And lower interest rates (r) in the denominator of that equation should result in a higher present value, and […]

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What Can You Do About High Valuations?

Valuations in the US are high, exceeding all prior periods in history with the exception of the dot-com bubble (March 1998 to December 2000).1 The long-run implications of higher valuations? Lower future returns and higher volatility/drawdowns, on average (see recent post). The natural question that follows: what, if anything, can an investor do about this? […]

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Stocks, Bonds, and Higher Inflation

US inflation expectations continue to rise, now at their highest levels since 2008. If higher inflation is coming (see here for some signs), many investors are wondering how that will impact their portfolio. Let’s take a look at how stocks and bonds have performed historically under various levels of inflation… If we segment calendar year […]

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When a Rising Tide Lifts All Boats

Don’t miss our latest insights. Sign up here for our free newsletter… 96.8% of stocks in the S&P 500 are above their 200-day moving average. This is the highest percentage ever. When this many stocks are participating in a rising market, many consider it a sign of strength (“good breadth”) and a bullish indicator for […]

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The Most Important Rule in Investing

“Rule No. 1: Never lose money. Rule No. 2: Never forget rule No. 1.” – Warren Buffett With all due respect to Warren Buffett, the most important rule in investing is not anything close to “never lose money.” In fact, the entire notion is absurd. Anyone who has ever invested in the history of the […]

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