Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.
Retail investors love to come in at the top. Buy, buy, buy - and take on more risk, (cluelessly)! Next comes the "Santa Clause rally", which should be the cherry on top for this mechanical runup.
Reply to @JoeNoEskimo: One of the nice things about Ted's often succinct posts is that the headline often says a great deal. The story here is as old as time. Buying during heady markets probably feeds our appetite for instant gratification. What you buy today will likely be higher a week or a month from now.
But, if you look at how big corporations (Boeing for example) invest, they're looking-out ten, twenty or more years in product development and sales. They're willing to accept poor performance - or even losses - over multi-year periods in return for longer term profitability. Probably a bad analogy. But the point is: patience is a virtue in most endeavors, including investing. It you loaded up on equities a year ago, you should be happy. It you loaded up five years ago, you should be ecstatic.
Reply to @hank: Yes, and I am one of many who missed this runup. I failed to see that the Fed would carry out their stimulus over many years. But it never felt right to me, and it still doesn't. To buy in now feels like a sin, even if long-term cash flow projections are always "positive".
Of course, that doesn't mean Ted won't have another double-digit gain next year. Sometimes its best just be "optimistic", roll with the prop job, and let the Fed take you there.
Reply to @Ted: In part because unlike about 99% here you tend to be more of a concentrated investor and don't hold 1001 funds. You also don't hold any groupthink funds. Congrats on the great year. Let's hope it's even better on 12/31/13.
Indeed, the equity markets have been double-digit generous to us so far this year. Given the historical December record boosted with the Santa Claus rally, I anticipate that these overly generous rewards will be slightly enhanced at year’s end. Regardless, it will be a memorable investor’s year.
Many respected market forecasters are becoming a bit more skeptical, some even pessimistic, about near-term prospects. Some of that skepticism is grounded in the belief that a few market indicators are shattering all-time high valuations or are crossing remarkable absolute even numbers. That numerical mysticism is sheer nonsense.
Remember that market gurus make successful forecasts slightly less than half the time. Since the markets can only go up or down, a fair coin toss would easily match the historical record of these unfortunate experts who are coerced into the realm of soothsayers.
It is not that these experts are not smart, well informed players; it is just that the Market is so complex with its unknown and non-linear feedback loops that accurate predicting is often compromised. That’s especially so when records and landmark numbers enter the emotional thought process.
These high-water mark numbers that seem to influence investors do not likely influence private business investment decisions. Eventually stock prices reflect business activity and profits. National landmark numbers are meaningless to business folks and entrepreneurs when they are making their investment decisions. So I’m more sanguine about market upcoming profits than the current band of dismal forecasters. I believe in making lemonade out of lemons.
What are the source lemons for my projection? The most fundamental factors that drive economic expansion are population growth rate and productivity growth rate. Demographics demonstrate the population aspects and GDP per capita growth data is a fair measure of productivity gain.
The US census data shows that our annual birth rate per woman hovers around the 2.1 value needed for population sustainability. With the entire world actively seeking to enter the USA, perpetual immigration augments a rising national population growth rate. Typically, that factor is responsible for one-third of our increasing prosperity.
The other accountable two-thirds is contributed by our productivity enhancements. As measured by our GDP per capita growth rate, recent data shows that the USA is delivering a GDP per capita growth rate in the plus 3 % neighborhood. That level is within the historical nominal range. Things aren’t great, but they aren’t so bad either.
Additionally, inflation seems under control, and Janet Yellen will work to keep it at those record lows. One fly in the ointment is that investor optimism is rising. I do not like that factor and consider it only a minor negative because sometimes the mob is on target and displays their “Wisdom of the Crowds”. This just might be one such instance.
In any case, I’ll take the optimistic side of the coin toss. I choose to make lemonade from lemons.
However, as the year ends, I’ll take my mandatory minimum withdrawals from my IRAs. I will make all those withdrawals from the equity parts of my portfolio. It is not that I fear a market meltdown, but my primary consideration is a rebalancing action. That segment of my portfolios has risen to a somewhat troublesome fraction. I remain a conservative, long time horizon investor.
I’m sure all this detail is more than you ever wanted to know. But some of the thoughts here might serve to guide or trigger your year end portfolio adjustments and reallocations. Have a Happy Holiday season everyone.
Comments
Retail investors love to come in at the top. Buy, buy, buy - and take on more risk, (cluelessly)! Next comes the "Santa Clause rally", which should be the cherry on top for this mechanical runup.
Regards,
Ted
But, if you look at how big corporations (Boeing for example) invest, they're looking-out ten, twenty or more years in product development and sales. They're willing to accept poor performance - or even losses - over multi-year periods in return for longer term profitability. Probably a bad analogy. But the point is: patience is a virtue in most endeavors, including investing. It you loaded up on equities a year ago, you should be happy. It you loaded up five years ago, you should be ecstatic.
Of course, that doesn't mean Ted won't have another double-digit gain next year. Sometimes its best just be "optimistic", roll with the prop job, and let the Fed take you there.
Regards,
Ted
Indeed, the equity markets have been double-digit generous to us so far this year. Given the historical December record boosted with the Santa Claus rally, I anticipate that these overly generous rewards will be slightly enhanced at year’s end. Regardless, it will be a memorable investor’s year.
Many respected market forecasters are becoming a bit more skeptical, some even pessimistic, about near-term prospects. Some of that skepticism is grounded in the belief that a few market indicators are shattering all-time high valuations or are crossing remarkable absolute even numbers. That numerical mysticism is sheer nonsense.
Remember that market gurus make successful forecasts slightly less than half the time. Since the markets can only go up or down, a fair coin toss would easily match the historical record of these unfortunate experts who are coerced into the realm of soothsayers.
It is not that these experts are not smart, well informed players; it is just that the Market is so complex with its unknown and non-linear feedback loops that accurate predicting is often compromised. That’s especially so when records and landmark numbers enter the emotional thought process.
These high-water mark numbers that seem to influence investors do not likely influence private business investment decisions. Eventually stock prices reflect business activity and profits. National landmark numbers are meaningless to business folks and entrepreneurs when they are making their investment decisions. So I’m more sanguine about market upcoming profits than the current band of dismal forecasters. I believe in making lemonade out of lemons.
What are the source lemons for my projection? The most fundamental factors that drive economic expansion are population growth rate and productivity growth rate. Demographics demonstrate the population aspects and GDP per capita growth data is a fair measure of productivity gain.
The US census data shows that our annual birth rate per woman hovers around the 2.1 value needed for population sustainability. With the entire world actively seeking to enter the USA, perpetual immigration augments a rising national population growth rate. Typically, that factor is responsible for one-third of our increasing prosperity.
The other accountable two-thirds is contributed by our productivity enhancements. As measured by our GDP per capita growth rate, recent data shows that the USA is delivering a GDP per capita growth rate in the plus 3 % neighborhood. That level is within the historical nominal range. Things aren’t great, but they aren’t so bad either.
Additionally, inflation seems under control, and Janet Yellen will work to keep it at those record lows. One fly in the ointment is that investor optimism is rising. I do not like that factor and consider it only a minor negative because sometimes the mob is on target and displays their “Wisdom of the Crowds”. This just might be one such instance.
In any case, I’ll take the optimistic side of the coin toss. I choose to make lemonade from lemons.
However, as the year ends, I’ll take my mandatory minimum withdrawals from my IRAs. I will make all those withdrawals from the equity parts of my portfolio. It is not that I fear a market meltdown, but my primary consideration is a rebalancing action. That segment of my portfolios has risen to a somewhat troublesome fraction. I remain a conservative, long time horizon investor.
I’m sure all this detail is more than you ever wanted to know. But some of the thoughts here might serve to guide or trigger your year end portfolio adjustments and reallocations. Have a Happy Holiday season everyone.
Best Wishes.