A Slight Paradigm Shift

It seems like the theme to this weeks posts have been along the lines of realizing that US equities are still not looking so hot but that there is opportunity in certain foreign markets and themes. This is obviously a long running thread here that I believe is becoming increasingly more important. On one of the posts there was a comment left that reasonably noted the difficulty in beating the market further noting that most people don’t have the time that is probably needed for what I’m talking about. As far as the time needed that is no doubt an issue for many people especially 401k participants. However if you take the time to read stock market blogs then chances are you have more time available than most other people either as a function of circumstance, interest or both. While this assures nothing it is a chance. To the idea of beating the market, this is maybe where the paradigm needs to shift a little. Forgetting about the notion of beating anything the more important goal should be having enough money when you need it. If someone had the foresight in 2000 to realize that the S&P 500 would go down for the decade then one way or another they would have avoided long exposure and maybe even gone short. Armed with that knowledge the simple act of avoidance, maybe staying in the money market would have “beaten the market.” If money market rates averaged 2% for the decade (I don’t know what the average over the ten years was) then yes this hypothetical investor would have beaten the...

A Slight Paradigm Shift

It seems like the theme to this weeks posts have been along the lines of realizing that US equities are still not looking so hot but that there is opportunity in certain foreign markets and themes. This is obviously a long running thread here that I believe is becoming increasingly more important. On one of the posts there was a comment left that reasonably noted the difficulty in beating the market further noting that most people don’t have the time that is probably needed for what I’m talking about. As far as the time needed that is no doubt an issue for many people especially 401k participants. However if you take the time to read stock market blogs then chances are you have more time available than most other people either as a function of circumstance, interest or both. While this assures nothing it is a chance. To the idea of beating the market, this is maybe where the paradigm needs to shift a little. Forgetting about the notion of beating anything the more important goal should be having enough money when you need it. If someone had the foresight in 2000 to realize that the S&P 500 would go down for the decade then one way or another they would have avoided long exposure and maybe even gone short. Armed with that knowledge the simple act of avoidance, maybe staying in the money market would have “beaten the market.” If money market rates averaged 2% for the decade (I don’t know what the average over the ten years was) then yes this hypothetical investor would have beaten the...

PIMCO:Markets Telling Investors To Drop Dead

Toward the end of Bill Gross’ latest is the following; In the meantime, they are faced with 2.5% yielding bonds and stocks staring straight into new normal real growth rates of 2% or less. There is no 8% there for pension funds. There are no stocks for the long run at 12% returns. And the most likely consequence of stimulative government policies that strain to get us there will be a declining dollar and a lower standard of living. Stan Druckenmiller is leaving, and with good reason. A future of low investment returns, and a heap of trouble for those expecting more, is what lies ahead. If we were watching television one of the anchors might say “wow, now I’m depressed” which is of course is the completely wrong way to come at this. Market results and market predictions should not trigger any emotional response. Most of the time the market goes up and sometimes it goes down and the thing is the vast majority of market participants realize this (it might make sense to distinguish market participants from 401k participants). Another reason not to be depressed, besides it being illogical (if you even agree with Gross) is that what he is writing about has already happened. He mentioned 2% growth rates, well for the last ten years stocks have had negative growth rates (so to speak). The first time the SPX touched 1147 (yesterday’s close) was in July 1998. As far as 8% pension returns, that obviously is a huge obstacle with very little visibility for 8% being reliable anytime soon–you probably read that pensions cannot reduce their...

PIMCO:Markets Telling Investors To Drop Dead

Toward the end of Bill Gross’ latest is the following; In the meantime, they are faced with 2.5% yielding bonds and stocks staring straight into new normal real growth rates of 2% or less. There is no 8% there for pension funds. There are no stocks for the long run at 12% returns. And the most likely consequence of stimulative government policies that strain to get us there will be a declining dollar and a lower standard of living. Stan Druckenmiller is leaving, and with good reason. A future of low investment returns, and a heap of trouble for those expecting more, is what lies ahead. If we were watching television one of the anchors might say “wow, now I’m depressed” which is of course is the completely wrong way to come at this. Market results and market predictions should not trigger any emotional response. Most of the time the market goes up and sometimes it goes down and the thing is the vast majority of market participants realize this (it might make sense to distinguish market participants from 401k participants). Another reason not to be depressed, besides it being illogical (if you even agree with Gross) is that what he is writing about has already happened. He mentioned 2% growth rates, well for the last ten years stocks have had negative growth rates (so to speak). The first time the SPX touched 1147 (yesterday’s close) was in July 1998. As far as 8% pension returns, that obviously is a huge obstacle with very little visibility for 8% being reliable anytime soon–you probably read that pensions cannot reduce their...

Definitely A Challenging Time To Be An Investor

Yesterday I had an email exchange with someone in another part of the business and he concluded the thread by noting that it is “definitely a challenging time to be an investor.” There are challenges but of course that is always the case. The current set of challenges go back before New Century went bust. There were indications of trouble brewing in the US from early in the last decade. I certainly had no inkling of the magnitude of what was coming but markets and stats warned of some sort of trouble. From the equity market, the financial sector grew larger than 20% of the S&P 500 Index (this is less reliable in smaller foreign markets). Socially there were countless TV shows about house flipping. Stat-wise it was clear banks were taking on more risk, it was clear people were taking more risk buying multiple homes, no down payments, mortgage equity extractions and so on. Some of the behaviors were repeated from just a few years earlier. I remember a couple of different stock market TV series; I don’t remember the names of the shows but there was one on Fox with Giancarlo Esposito. Just as day trading and internet stocks became all encompassing social phenomena so too did house flipping and condo speculation. I don’t think this is the case with treasuries and gold but if you think it is the same then you should take some action. The challenges now are immense. It is far from an original thought to think that no one in charge knows what to do. To paraphrase someone; business don’t need more...