Notes From the Fieldby Martin Weil

Archive for the ‘Investing’ Category

January 10, 2016

What I Wrote Clients This Sunday

I am certain a few investors, perhaps you are one, have become uneasy, or worse, after the sharp declines in the world’s stock markets to start 2016.  As the media headlines have made more than clear, this large a decline has not happened before at the beginning of a calendar year.

But apart from that anomaly of timing, there is nothing especially unusual happening.

I have no idea what the markets will do in the coming week(s) and frankly I debated whether to write this at all.  Then over the weekend, I read the excellent piece below by Ron Lieber, the Your Money columnist for the NY Times.  Sometimes it is helpful to reiterate what should be an investor’s basic mantra, in good markets and bad.  I could not sum this up any better than does Lieber.

6 Tips for Investors When the Stock Market Tumbles

  1. You Are Not the Stock Market

Chances are, your portfolio is a diverse mix of investments. While stocks may be falling, you probably also have some bonds and cash. Perhaps there are some real estate mutual funds, too. Then there’s your home equity if you own a home, not to mention the value of your future earnings. These things probably won’t all fall simultaneously.

  1. You May Have Done Quite Well in Stocks

If you were in stocks from 2009 to 2015, or in the 1990s or consistently since the early 1980s, you are most likely a big winner. It’s generally a bad idea to look at your investment statements too often, but take a quick peek at your long-term performance. That outsize gain you see is one reason you were in stocks in the first place.

Plenty of research shows that if you miss just a few days of the market’s biggest gains, your long-term portfolio will suffer badly. If you decide to put a lot of your money in cash right now, how will you know when to get back in the market? You’ll probably be looking for a sign, and that sign will be the rebound days on which you missed out.

  1. Your Goals Probably Have Not Changed

At some time in the past, when you were not scared, you made a decision to construct your portfolio a certain way. You knew that stocks involved risk and that the returns they have traditionally delivered, above and beyond what cash and bonds do, was the reward for your persistence.

Nothing about recent market events suggests that the fundamentals of capitalism have changed. So neither should your confidence in very long-term ownership of the pieces of the for-profit enterprises that benefit from your fortitude.

  1. Most Investors Have Plenty of Time to Recover

Too many 70-year-olds sold all of their stocks in 2009 and are healthy enough to live to 100. They would be going on a lot more vacations now and be worrying less about long-term care if they had held firm.

Worried about a 529 college savings plan for a 12-year-old? Let’s hope you weren’t 100 percent in stocks with six years to go before needing money for tuition. Still, you have at least nine years for a portion of that portfolio to recover from any sustained downturn.

  1. Some People Cannot Handle the Stress of Stock Investing

Maybe you are one of them. But try to give this more time, and consider the alternatives. There are few investments that can deliver the kinds of returns that stocks can without their own accompanying anxiety. An alternative is to save a lot more in safer investments like cash or certain bonds. Most people don’t have enough income to do that easily, so settling for lower returns will mean a combination of working longer and living modestly. For some people, that is a fine trade-off.

  1. Dear New Investors: This Is Just What Markets Do

There is absolutely nothing abnormal about what is going on here. Most of us have to save somewhere, and history suggests that stocks are the most accessible route to getting the returns you will need to retire someday. It would take decades of systemic economic erosion to prove otherwise, and a few days of market declines do not suggest that anything like that is upon us.

November 12, 2015

Is The Art (Stock) Market Topping?

After a shocking $170M was paid this week for a not Picasso, Cezanne, or Monet, but a Modigliani, painting, many asked whether the white hot market for art was finally topping. The chart below from Marketwatch suggests that Sotheby’s own weakening stock price may not only be a proxy for declines in art prices ahead, but for US equity prices as well.  While essentially two cycles are a limited data set to infer this relationship, it is worth noting.

August 24, 2015

Quick note to clients (before Monday’s open)

“In the short run, the market is a voting machine but in the long run, it is a weighing machine.”  Benjamin Graham

The past week has been a stomach churner for any investor watching the equity markets.  And I wouldn’t count on things settling down just yet.  So much for the typically quiet August I expected.

Pointing out that this sell-off was long overdue, given that the US equity market has gone up for more than three years without a routine 10% decline, is of little comfort.  While last week’s decline was sudden and felt enormous, historically declines are often like this.  The bigger picture is that the US equity market has been very good to investors since the financial crisis.  Anyone who had the stomach to go “all in” in early 2009 has earned more than a 160% return, before dividends, even after last week (see DJIA chart below from March 2009).  From the 10,000 foot perspective I think is essential to adopt, last week’s declines in the major US market indices hardly register at all.


But I suspect the question most will ask is whether the market continue to fall and if so how far [NB: this was written Sunday].  The likelihood is that markets are undergoing that overdue “correction,” the term pundits use for a decline of 10-20%.  Could it get worse than that?  Sure, but that is a less likely result.

Whatever happens, CNBC and its counterparts in the print and electronic media will be weighing in on “WHY THE MARKET SOLD OFF” and “WHAT INVESTORS SHOULD DO NOW!”  That is how they grab attention and make their money.  The simple truth is best captured by the Ben Graham quote at the top.  Markets rise in the short term because investors are confident, and sometimes even giddy.  They fall in the short term because they are uncertain or even fearful.  And for the moment, investor greed has given way to investor fear.

On the other hand, to paraphrase Warren Buffett, the American economy remains a strong engine of growth and over the long term will provide ample returns to prudent investors.  That is the value that is weighed and that is the value that one invests in for the longer-term.

Assuming one is diversified and invested prudently, the only concern should be for those funds that you expect to be spent in the coming few years.  For our clients who are, or will be, withdrawing funds, we maintain a significant cash reserve precisely because sell-offs such as these are unpredictable and we do not want to have to fund cash needs by selling assets under duress.

For anyone else, especially those who are accumulating retirement or other wealth, equity prices are some 10% cheaper than they were a month or so ago.  They may get cheaper yet before they stabilize.  But this is an opportunity to add assets to your portfolio at a lower price.

I know I have written the above repeatedly over the years.  Frankly, the advice doesn’t change.  One of my favorite investment observers, Jason Zweig, has said he just writes the same thing over and over again, trying to keep it interesting.

And speaking of Zweig, if you want some further reassurances, click on the link to read his “5 Things Investors Shouldn’t Do Now” in the WSJ.  Channeling his inner Douglas Adams, Zweig’s important second rule is “Don’t Panic.”

June 3, 2015

Uh Oh

“Each of the last six great merger waves on record” — going back more than 125 years — “ended with a precipitous decline in equity prices,” says Matthew Rhodes-Kropf, a professor at Harvard Business School and an expert in mergers and acquisitions.

Mark Hulbert examines the current frenzy in Merger and Acquisition activity and its implications for the stock market as a whole. The use of the word “precipitous” in the quote above does give one pause.

Professor Rhodes-Kropf is convinced this will all end badly though neither ventures to predict when the “peak” of the current M&A boom will arise.  Until then, the trend is decidedly up. Party on, I presume.

Hulbert concludes:

The bottom line? Unless you can find some other way of defusing the historical precedents, you should squarely face the prospect that the current merger wave will — just as was the case following each of the previous six — end with a precipitous decline in stock prices.

April 26, 2015

Margin Debt Also Hits New Highs

NYSE-investor-credit-SPX-since-1980The estimable D. Short publishes a wealth of charts on the internals of global markets. This one caught my eye – but not so much for the obvious suggestion that we are at, or nearing, a major market peak.

A more nuanced look shows that it is the massive reduction of margin (late 2000), or the outright raising of cash (2008), that can turn a market correction into a market rout. For this to happen, there first needs to be a lot of debt to liquidate, and I suppose a trigger that causes a major change in sentiment. The former condition is certainly present today.

April 25, 2015

NASDAQ Composite, a Fifteen Year Journey

InFT Nasdaq Composite 4-24-15vestors had something more to cheer about this week as the NASDAQ Composite Index finally surpassed its prior high of 5048 set during the Dot Com bubble in March 2000. It has been a long journey since then as the tech-heavy index sunk as low as 1100 in 2002.

With this week’s landmark, a $1,000 investment into the NASDAQ at that March 2000 peak is now once again worth the original $1000 invested. Or is it? After inflation, or in “real” terms, that $1,000 today is worth the equivalent of just $715 in March 2000 dollars. So NASDAQ investors of March 2000, you are not back to par just yet. Breakeven for you, after inflation, would require the index to be at 7,000 today, not 5000.

On the flip side of this trying tale, an investor who fought off the overwhelming urge to flee risk in early 2009 and invested into the NASDAQ at the depths of the financial crisis would be sitting pretty, with $4,000 today for every $1,000 invested then. Timing is everything I guess.

But how to judge timing? There is no proven way I know to get the timing anywhere close to spot on in advance. But valuations are a useful, if highly imperfect, tool. Valuations were almost as compelling in early 2009 as they were terrifying in early 2000. However, investing in stocks in early 2009 essentially meant “running into a burning building,” while getting out of the market during the Dot Com bubble risked looking like a fool. In the context of a market flowing irresistibly either higher, or lower, investing with a valuation discipline often means running counter to conventional wisdom. This can be very very difficult, and it can be costly in the short-term, even for professional investors.


March 6, 2015

Sooner or Later … All Good Things Must End



Anecdotal signs are starting to accumulate that this bull market cycle may be nearing at least a pause. More than one client has contacted me of late wondering why they can’t make more money in the seemingly unstoppable rise of the US market. I need to have the chart above laminated and hung next to my desk.

From EcPoFi via The Big Picture

December 18, 2014

Once again, nobody knows ‘nuthin

Those of you who continue to insist you can even remotely forecast what might happen next continue to reveal incredibly foolish, thoroughly disproved beliefs, despite an overwhelming avalanche of evidence that you haven’t the slightest idea what the fuck is going on now, much less what is going to happen next.

Once again, the markets prove that nobody knows ‘nuthin.

Carry on.

That’s Barry Ritholz on the Us stock market’s impressive bounce back this AM

November 8, 2014

“Happiness Letters” – Yet One More Reason You Should Hire a True Fiduciary

The brokerage industry never ceases to amaze in the many ways it puts its own interests ahead of those of its clients. Jason Zweig, at the WSJ’s MoneyBeat, discusses “happiness letters,” wherein brokerages try to cover-their-you-know-whats at year-end for potential misbehavior in an investor’s account.

The bottom line, should you receive a letter from your broker that begins by “thanking you for your business” and then mentioning a periodic review or some such, you should check your statements immediately.  Zweig says it is likely that there has been churning or risk exposures that are perhaps inappropriate. Do not call the broker, but call the branch manager instead and ask to see the data that prompted the letter. Reading Zweig’s column makes for a chilling experience.

October 17, 2014

BOO! – market corrections are scary

If I were a “talking head” on CNBC or in the financial press, I would be totally puffed up right about now as to how, for at least the last six months, I have been writing that we were due for a market correction in the Fall.  But self-promotion is not my style and an awful lot of people had that figured out anyway.  Everybody gets something right now and then, even me.  I don’t expect this lucky streak to continue.
My outlook a few months back was pretty simple: If bad things are going to happen, they often occur in September-October. The US market had gone too long a time without the slightest hint of fatigue. Well,we have it now. Investors should note that investment-grade bonds have put on one hell of a rally, against all expectations to the contrary.  This provides some counterweight to those with diversified portfolios. 
I have had only a call or two from clients during the recent market sell-off, less than I would have expected given the suddenness and severity of the stock market decline.  The important question of course is what happens next.  A market “correction” can be a 10% decline – we are spitting distance to that – or as much as 20%, another 200 points down on the S&P before we leave “correction” territory and enter a “bear market.”  Here, I am afraid my crystal ball is out of service.  Weather forecasters have it hands down on market forecasters when predicting tomorrow’s or next week’s conditions.
As for my guess, I will stick to my thesis that this is the correction I have been expecting and that buying opportunities are presenting themselves for those who might be under-invested. If the market takes another 10% dive, I would be buying aggressively.  But as I said, that is just my guess.  And I may have already had my one bulls-eye for the year.


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