Here are the charts and themes that tell the story of the first six months of 2021… I. The Beginning of the End of Covid-19 The scourge known as Covid-19 started the year at its most prevalent level to date. But the bad news wouldn’t last long. Things were about to change, and change for […]
“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 […]
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 […]
What are high yield bonds? I don’t mean the textbook definition (corporate bonds with a credit rating below BBB), but how they actually behave in terms of risk and return. To explore this, let’s address some common questions surrounding the asset class also known as “junk bonds”… Question #1: Do High Yield Bonds Act More […]
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 […]
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 […]
For 40 years (1980-2019), bond investors in the US earned a rate of return that outpaced inflation, and often by a wide margin: In the 1980s, 10-year yields moved from 10.4% down to 7.8%, and bond investors earned an annualized real return of 6.6%. In the 1990s, 10-year yields moved from 7.8% down to 6.3%, […]
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? […]
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 […]
There is one definition of inflation that seems most applicable to today… “Too much money chasing too few goods.” We are seeing the impact of trillions of dollars in stimulus money chasing a limited supply of goods almost everywhere you look… Financial Asset Price Inflation -Stock prices are at record highs, up 50-80% in the […]
“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 […]
Momentum and Mean Reversion. The two most powerful forces in markets. Momentum dictates that what has done the best in the past will continue to do the best and Mean Reversion just the opposite – where what is done the worst will eventually do the best, reverting back to its mean. That both can be […]
Gold has been having a tough time of late, down 20% from its high last August. With government debt going through the roof and the Fed maintaining the easiest monetary policy in history, many investors are confused by the move lower. This was supposed to be the perfect environment for Gold. So why is it […]
What a difference a year makes. On March 16, 2020, I wrote the following in a post entitled “When All News is Bad News”… “The Volatility Index (VIX), also known as the “fear index,” ended today at 82.69. Since its inception in 1990 it has never had a higher close… When all news is bad […]
Back in January, I outlined 6 secular investing trends that were showing signs of a major reversal… Long Duration over Short Duration and Flattening Yield Curve. Large Caps over Small Caps. Stocks over Commodities. US over International. Growth over Value. Tech over Everything. Since then, the reversal of these major trends have continued, and in […]
If market participants are correct, higher prices are coming, with inflation expectations surging to their highest levels in over 12 years.1 When most investors read the word “inflation” they immediately think of Gold, as conventional wisdom states that there is no better hedge against rising prices. Is this true? Let’s take a look… Since 1975 […]
No one likes losing money, but hearing about others getting rich in an investment you have no exposure to is simply unbearable, making the fear of missing out (fomo) more painful for many than anything else. This is a fear that builds and builds until the un-invested can’t stand it any longer, jumping in and […]
When investors think about risk, 2008 is usually the first thing that comes to mind. And for good reason. It was the worst year that most investors alive today have ever experienced. With dividends included, the S&P 500 lost 37% in 2008, its largest decline since 1931 (during the Great Depression). Since the end of […]
The most significant investing trends over the last 10 years can be summarized as follows… Large Caps over Small Caps. US over International. Growth over Value. Tech over Everything. Long Duration over Short Duration (Yields Falling, Curve Flattening). Stocks over Commodities. When Covid-19 first hit the US last February and March, all of these pre-existing […]
Every bull market has a company that captures the hearts and minds of its investors. Today that company – more than any other – is Tesla. At a market cap of $834 billion, it recently surpassed Facebook to become the 5th largest company in the US. A year ago it had a market cap of […]
Here are the charts and themes that tell the story of 2020… I. The World Before Covid It’s hard to remember, but there was a time when where no one was talking about Covid-19. 2020 started off the same way 2019 ended: with record highs across the board. The only nagging concern was the ongoing […]
1) Be humble or the markets will eventually find a way to humble you. Having more confidence is a good thing in many areas of life. Markets, however, are not one of them. More confident investors tend to trade more and take on undue risk, leading to worse performance. If you were overconfident entering 2020, by the […]
These are the returns from major asset classes over the last 10 years… What stands out? A few things: 1) Bitcoin, with an annualized return of over 200%, is in a different stratosphere. Bitcoin was trading at just 30 cents 10 years ago. Few had ever heard of it and fewer still owned it. This […]
Over the last 20 years, long-term bonds have outperformed stocks (350% vs. 284%). Needless to say, this outcome will come as a surprise to many… (Note: in this post I’m using the S&P 500 Index Fund (VFINX) as the proxy for “stocks” and the Vanguard Long-Term Investment Grade Bond Fund (VWESX) as the proxy for […]
Snowflake’s price to sales ratio just hit 245 (using TTM sales of $490 million). With a current market cap of $120 billion, this begs the question: has there ever been a company in history as large as Snowflake with a higher valuation? I don’t believe so. Back in the dot-com mania, Cisco briefly hit a […]