Words of Wisdom for Every Investor

The first weekend of March is one that we look forward to each year. It is the one time of the year where you have the opportunity to read what arguably the best investor ever has to say about investing, the market, the economy and much, much more. We are talking about Warren Buffett and his annual letter to his shareholders. We read each this letter religiously for the opportunity to learn from the “Oracle of Omaha.” This year was no different. Below is a portion of the 2014 letter. If you read nothing else you must read what we have pasted below. If you would like to read the entire letter just click here. (The bolded sentences below is our emphasis not Buffett’s.) From page 17 and 18 of the 2014 Berkshire Annual Letter . . . “Our investment results have been helped by a terrific tailwind. During the
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Categories: Markets, Personal Finance, and Strategy.

Buy and Hold vs. Timing the Market: Which one is better?

There is debate that has been going on for decades and decades. Of course the two sides of the debate both think they are correct  when answering the question which is more profitable, buy and hold or timing the market? Before I give you my thoughts and answer that question,(which is probably different than any answer you have heard before), let me attempt to make an argument for both. Buy and Hold To make sure we’re all on the same page buy and hold would mean buying a stock, ETF, or mutual fund at a price you are comfortable with and never selling it. That definition seems obvious and the concept seems simple. However, it’s probably one of the hardest investment techniques for most people. Emotions, fear, and lack of discipline are just a few reasons why people have a hard time staying true to the buy and hold investment style. Below
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Categories: Markets and Strategy.

A Glimpse at the Global Markets

Global Markets For the past two years the U.S. market has crushed the rest of the globe! The U.S. (S&P 500) is up 42% compared to 15% for Developed Non-U.S. (Europe, Asia, Australia) and -3.5% for the Emerging Markets (China, Brazil, India, etc.). While no one knows when the rest of the globe will catch or even pass the U.S. the returns year to date are interesting. Below is a chart highlighting the returns of the global markets.   As far as the global PE ratios go, here is a brief list. This list highlights the opportunities from a price perspective. While we remain cautious of some areas of the globe, there’s no doubt that there are some great potential opportunities beyond the U.S. United States – 20.3 China – 10.1 Japan – 16.6 India – 19.1 Europe – 18.7 The Good Ole’ U.S. of A.  According to historical probabilities
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Categories: Markets.

Probabilities of Stock Investing

I recently saw a study that helped confirm something that I’ve known for many years but just didn’t have the data. It’s the probability that you will lose money on stocks based on holding them a certain time frame. The statistics shouldn’t be too surprising.   In the 10 years I spent in financial education I would witness these probabilities come true as people would “trade” their hard earned money away looking for the next home run. I could tell you sad story after sad story of those that just didn’t understand the importance of building a portfolio based on fundamentally sound stocks . . . stocks that you would actually want to be a business owner in . . . stocks that you may never want to sell. Warren Buffett said something as it relates to the types of stocks you want to buy . . . “when we own
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Categories: Markets and Strategy.

Early Volatility to Begin the New Year

Half way through the first month of 2015 the S&P 500 is down 2.5%. Terrorism, a European recession, bad earnings and other headlines have investors across the globe are running into safe investments like government bonds. This January move actually reminds me of what happened just a year ago in 2014. The S&P 500 finished January of 2014 down -5%. That was the low point of the year as the U.S. market rallied to finish the year up 14%. This volatility to begin the year shouldn’t cause anyone to panic. It shouldn’t cause people to worry that the six year bull market is over. Rather it should be an opportunity. Let me explain . . . There is a “fear index” in the market known as the VIX (S&P 500 volatility index). To keep it at a very, very basic level, when it spikes higher there is “fear” in the
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Categories: Markets and Strategy.

Battle of the indexes: Equal Weighted vs. Market Cap Weighted

The S&P 500 is one of the most quoted indexes in the world. It tracks the largest companies in the U.S. and has become one of the most popular indexes for not only stock market returns but also for comparing performance against (often referred to as a benchmark). It’s become so popular that people have made it a staple in a portfolios by buying an S&P 500 ETF or mutual fund. While plenty of people follow the index, few people actually understand how it’s constructed. The S&P 500 is a market capitalization weighted index. Here’s a quick definition: A type of market index whose individual components are weighted according to their market capitalization, so that larger components carry a larger percentage weighting.  So what does this really mean? It means that as companies grow larger and larger (think Apple or Exxon) they comprise more and more of the S&P 500
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Categories: Markets and Strategy.

A Recap of 2014 and a Preview to 2015

Boom! That’s how 2014 ended. The U.S. market continued its bullish streak (six plus years and counting) as the U.S. economy showed some really good signs of strength. Before we break down our stance on the global markets we need to recap the global returns from 2014. As you can see in the table below, the U.S. market completely destroyed the rest of the globe in terms of market performance. The struggles of Europe worsened the last half of the year while Russia and Brazil’s own issues slowed down the Emerging Markets. The global markets as a whole as represented by the MSCI All World Country index (which many use as the global benchmark) lagged the U.S. again this year. For the past two years the U.S. market has outpaced the rest of the global markets. Our economy, despite what you may see and hear in the press, is growing
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Categories: Markets and Strategy.

A Tale of Three Charts

“Come listen to a story about a man named Jed A poor mountaineer, barely kept his family fed, Then one day he was shootin’ at some food, And up from the ground came a bubblin’ crude. Oil that is, black gold, Texas tea.” This tune is from one of the classics of all time . . . the Beverly Hillbillies. The one thing that remains true about this story is the fact that oil has always been and will always one of the most important commodities in the world. That will never change . . . however, it doesn’t mean this commodity won’t have its ups and downs. Below are three charts that illustrate the impact of oil on the market and the ups and downs. Chart 1: The price of Light Sweet Crude   The price of oil has fallen nearly 40% from it’s June 2014 high of $104 per
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Categories: Markets.