You don’t need to be an expert in order to achieve satisfactory investment returns. But if you aren’t, you must recognize your limitations and follow a course certain to work reasonably well. Keep things simple and don’t swing for the fences. When promised quick profits, respond with a quick “no.”
Focus on the future productivity of the asset you are considering. If you don’t feel comfortable making a rough estimate of the asset’s future earnings, just forget it and move on. No one has the ability to evaluate every investment possibility. But omniscience isn’t necessary; you only need to understand the actions you undertake.
If you instead focus on the prospective price change of a contemplated purchase, you are speculating. There is nothing improper about that. I know, however, that I am unable to speculate successfully, and I am skeptical of those who claim sustained success at doing so. Half of all coin-flippers will win their first toss; none of those winners has an expectation of profit if he continues to play the game. And the fact that a given asset has appreciated in the recent past is never a reason to buy it.
With my two small investments, I thought only of what the properties would produce and cared not at all about their daily valuations. Games are won by players who focus on the playing field — not by those whose eyes are glued to the scoreboard. If you can enjoy Saturdays and Sundays without looking at stock prices, give it a try on weekdays.
Forming macro opinions or listening to the macro or market predictions of others is a waste of time. Indeed, it is dangerous because it may blur your vision of the facts that are truly important. (When I hear TV commentators glibly opine on what the market will do next, I am reminded of Mickey Mantle’s scathing comment: “You don’t know how easy this game is until you get into that broadcasting booth.”)
Wednesday morning October 31st I attended a breakfast put on by Riverview Savings.
You might expect that something on the morning of All Hallows Eve might be a bit frightening, but on this particular morning what we heard was actually more reassuring.
Bill Ehling Vice president at Federated Investment management flew in to consult with Riverview Asset Management wealth managers Tuesday at dinner, and still had plenty to share at breakfast. Ehling is the Fixed Income market strategist at Federated. He has been a long term trader in the bond market, and his thesis; even more than equities, if you pay very close attention and analyze the data bond markets can give you very clear insights into the true financial health of a country and it’s economy.
His first pronouncement – which took me by surprise – of the 200 Trillion dollars that makes up the worlds wealth, seventy five (75) per cent is in bonds. Nations and corporations have used this as a source of financing for centuries . These markets are huge, they have long histories, and he talked about having researched data back to the founding of the United States.
While the US situation hasn’t been great, it is better than any other countries.
We’ve been growing at about two per cent, which doesn’t increase employment at any significant pace. If you look at Europe and Japan they’ve been stagnant or have continued to experience job losses.
He referenced the study by Rogoff and Reinhardt the two Harvard economists. This is the same study that was mentioned in my post Breakfast on West Coast time. It is a study of banking crises back several hundred years. When these are Systemic as this one was (is) and we will have on going deleveraging for many years, and have a very slow slog to regain ground. So there is still work to do.
Another factor that adds drag , we have a much more diverse global economy. We’re battling “competitors” that even thirty years ago had minimal impact on theUS. This along with a changing demographic that has many countries experiencing the aging of their populations will provide even more friction to slow our progress down.
However his reading of the markets is slow sluggish growth, not a downturn.
I’ve mentioned before that Bill Connerly the Oregon economist who is highly regarded has consistently said he sees reasons for optimism in the latter part of 2011, even with the slow down we have expreienced. Here is a post on his September Businomics Blog . Notice he says that commercial lending has been improving, and actually surged in July.
So while you may want to prepare a little defense if things hold or trend down a bit more, but don’t take your eye off the possibility of a better quarter coming up. Solidifying your growth and improved market share are likely if your prepared.
Remember this as well… 2012 is an election year, both the President and a whole slew of Democratic senate seats are on the line. They will pull every lever they can to generate activity.
As we wait for the Chairman to speak, let’s review another key indicator of our economic condition.
The recently released Consumer Price Index rose a disturbing 0.5% in July, exceeding forecasts. Such prices are up 3.6% during the past 12 months, exceeding the 2.3% rise in average hourly earnings for all employees on private nonfarm payrolls.
To no ones surprise…higher energy costs led the way, with overall energy costs rising 19.0% during the past 12 months. Expectations that sluggish domestic and global economic growth could lead energy prices even lower than what has developed in recent weeks helps sooth some of the inflation anxiety in financial markets.
Food costs rose an estimated 4.2% during the past year, which most of our restauratuers would say is understated. The weak U.S. dollar hasn’t exactly helped either.
The “core” measure of consumer inflation (which excludes volatile food and energy costs) rose 1.8% during the past 12 months. This measure is within the Fed’s perceived long-term “core” target range of 1.5% -2.0% annually. At the same time, the 1.8% core rise is three times what is was as recently as last October.
Most forecasters, including the Fed, expect consumer inflation pressures to moderate in coming months as economic growth most everywhere seems to be slowing. Should inflation pressures not moderate, any new stimulus from the Fed would be limited.
We’ve discussed before the unpredictable nature of inflationary pressures. They may seem to ebb and flow, like the tide at the coast, and it may not always appear to impact you, but they steadily erode your purchasing power.