Current Events
Mike discusses current events and how they could be affecting your investments - or more likely, your perception.
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The Biggest Stock Market Loss Ever
Archegos, a $10 billion fund, may have lost $100 billion. The final number is not yet settled and may not be for several months, but the loss is huge and it all seems to have happened within 48 hours How did it happen and who is Archegos, anyway? And how could a fund worth $10 billion lose $100 billion? Archegos is a Greek word for “one who leads the way”, and what a way it turned out to be. Archegos was founded as a family office by Bill Hwang. Hwang cut his teeth as one of the so-called “tiger cubs” of investing. Julian Robertson ran the very successful Tiger Management…
- Adams Financial Concepts, COVID-19, Current Events, Mile High View, Return on Investment, Super Cycle, The Investment Industry
Do You Believe It?
Peter Lynch said, “If you cannot convince yourself ‘When I’m down 25 percent, I’m a buyer’ and banish forever the fatal thought ‘When I’m down 25 percent, I’m a seller’ then you’ll never make a decent profit in stocks”.[1] Lynch was one of the greatest investors of all time. He was, of course, talking about a single stock, not an entire portfolio. But in a concentrated portfolio, a stock down 25% can drag down the short-term performance. For the first quarter, I expect that the total of my client portfolios will be roughly flat. That is after a 77% gain in 2020 and 40% gain in 2019. None of the…
- Adams Financial Concepts, Current Events, Mile High View, Return on Investment, Super Cycle, The Investment Industry
Should We Be Worried?
What a week it was for the market! Up one day, down the next. Back up and then down and then down again! So what gives? Should we be worried? The latest data indicators painted a gloomy picture. If you assume the severe winter storms, including snow and freezing temperatures across much of the United States, are going to continue through the summer, and if you think no one is going to spend their stimulus checks, then things do look pretty bad. But the weather changes, bringing with it summer’s new perspective, and most recipients of stimulus checks and monthly child benefits are going to spend them. From that perspective,…
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Are Stocks Overvalued?
Are stocks overvalued? Any number of “experts” are concluding that they are indeed overvalued. But are they? Really? When I was a rookie stockbroker back in 1987, I cold called a prospect who told me the market was overbot and overvalued. The DOW at that time had broken through 1,700, and this prospect had pulled his money out of the market a month earlier and was waiting for the DOW to drop off to 1,300. I never talked to him again. I don’t know if he is still waiting after 34 years for DOW 1,300. Those of us who stayed in the market have ridden that growth to 32,000. I…
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Is the Bear Growling?
There is a lot of talk today about the Buffett Indicator. The Buffett Indicator is the ratio of the market cap of all publicly traded stocks to GDP. Pessimists are saying the Buffett Indicator is predicting a bear market or even a crash. According to the indicator today, stocks are overvalued. There is no question that Warren Buffett has been a brilliant investor, but should we really use this indicator? He is a “bottoms-up” investor, as I am. But there are more problems with the Buffett Indicator. Almost half the revenues of all publicly traded companies come from overseas sales. The United States represents just 16% of worldwide GDP. So…
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Don’t Be Fooled!!
The rapid recovery of the market in 2020 was exceptional. Don’t count on a repeat during the next big sell off. Instead, plan for a “Margin of Safety” in your portfolio. The bounce back of 2020 is the shortest on record. Most market recoveries take a lot longer. If counted in inflation adjusted terms, the drop that began in 1966 did not recover for 30 years. Stocks hits 1,000 on the DOW in 1966 and then bounced up and down for 16 years before going on to new highs. But inflation roared during that time and devalued the dollar by 70%. It took three times as many dollars on the…
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Inflation: Now Is the Time to Prepare
Beware the slow “creep” that could devalue your investments. In their book, The Great Demographic Reversal: Ageing Societies, Waning Inequality, and an Inflation Revival, Charles Goodhart and Manoj Pradhan make the point that changing demographics has the potential to reduce the value of your portfolio.[1] Since the end of World War II, there have been several major changes in the supply of labor. First, there were the baby boomers born from 1946 to 1964; eighteen years later, they powered a surge of 75 million new young fresh faces that led a migration from cities to suburbs and prompted a building boom in housing, schools, fast food, and shopping malls. They…
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GameStop – What Happened?
“Things that have never happened before happen all the time,” wrote Scott Sagan, and while he was referring to mismanagement of nuclear materials, I think his words are certainly applicable to recent market events.[1] There are two lessons, maybe three, we ought to learn from GameStop’s shocking rise last week. First, that unexpected “black swans” seem to happen almost on a regular basis. In the last 40 years, the market dropped 22.6% in one day, October 19, 1987. In 2000, the dot-com crash took the NASDAQ down 80%. In 2008-09 the Great Recession took the market down 37%. And, of course, 2020 saw the pandemic. Things that have never happened…
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5 Lessons from 2020 Hindsight
Do you know of anyone who predicted the pandemic? Anyone who guessed we would enter 2020 and within months see a pandemic that would result in over 1.6 million deaths? Who could have predicted that the United States would be the country with the highest number of cases and the highest number of deaths? Who could have predicted the market would drop 34%, only to recover to an almost normal ~14% gain by the end of the year? Frankly, no one. Looking back on 2020, here are five important lessons that I and all investors should learn: 1. Black Swans happen. Every so often in a bevy of white swans,…
- 401ks, Adams Financial Concepts, COVID-19, Current Events, Financial Planning, Return on Investment, The Investment Industry
Do you know how much money you need to retire?
Will you have enough money to retire and not reduce your quality of life? Big question. Here is a table that gives some idea of what your nest egg would be at retirement if you had saved ten (10) times your earnings. Of course, this table must assume the following: You will only live to age 85, or you will run out of money. You will only need 80% of your income in retirement and that you stay healthy until you die Inflation of 3% or less The accepted wisdom that your nest egg need be only 10 times your current income is based on data collected forty years ago.…