Prices of goods and services are inching up and according to The Wall Street Journal the Fed is not going to get in the way of a little inflation.
Inflation has begun picking up, and it looks as if the Federal Reserve is going to let it keep climbing.
The Labor Department on Tuesday said that consumer prices rose by 0.3% in September from August, putting them 1.5% above their year-earlier level. With gasoline prices stabilizing, annual inflation ought to push above 2% on the year within a couple of months.
Core prices, which exclude food and energy costs, have been there for a while. Last month they were up 2.2% on the year.
The worry on the mind of Wall Street for the last couple of years has been that in order to stay ahead of inflation the U.S. Federal Reserve will start raising interest rates and high interest rates would hurt stocks. It appears that the Fed might not be as worried about inflation as we all thought. Assuming that the Fed does not raise rates very fast and inflation goes up, what does increasing inflation mean for stocks?
How Inflation Affects Stocks
The effect of inflation on stocks is that profits and prices eventually decline. Investopedia discusses inflation’s impact on stock returns.
Rising inflation has an insidious effect: input prices are higher, consumers can purchase fewer goods, revenues and profits decline, and the economy slows for a time until a steady state is reached.
This negative impact of rising inflation keeps the Fed diligent and focused on detecting early warning signs to anticipate any unexpected rise in inflation. But once the unanticipated inflation works its way through the levels of economy, the impact of a higher steady state of inflation can have varying effects. In other words, the unexpected rise of inflation is generally considered the most painful, as it takes companies several quarters to be able to pass along higher input costs to consumers. Likewise, consumers feel the unexpected “pinch” when goods and services cost more. However, businesses and consumers eventually become “acclimated” to the new pricing environment, and then even when a new higher steady state is reached, the expected inflation that may occur thereafter can result in consumers spending more cash. These consumers become less likely to hold cash because its value over time decreases with inflation. For investors, this can cause confusion, since inflation appears to impact the economy and stock prices, but not at the same rate.
Those who gained adulthood in the 1970’s remember going Target to buy garden supplies in the fall because the same supplies were going to be much more expensive in the spring. Inflation is disruptive on several levels. The end result at the end of the 1970’s was called stagflation in which the economy stagnated along with stock prices while the cost of living kept going up. When inflation is a dominant factor companies quit hiring to save on salaries which retards growth. This was the stagflation effect that the Fed is usually concerned about. The problem today is that the Fed is so worried about choking off the recovery that they are probably going to wait a bit longer. This generally heartened the market as the immediate effect of higher rates is a drop in stock prices.
The Wall Street Journal recently discussed The Dying Business of Picking Stocks and how passive investing in index funds has become common. Despite this trend there are folks who make a lot of money on specific stocks. When is stock picking likely to be successful and when should you stick with an index fund?
Pension funds, endowments, 401(k) retirement plans and retail investors are flooding into passive investment funds, which run on autopilot by tracking an index. Stock pickers, archetypes of 20th century Wall Street, are being pushed to the margins.
Over the three years ended Aug. 31, investors added nearly $1.3 trillion to passive mutual funds and their brethren-passive exchange-traded funds-while draining more than a quarter trillion from active funds, according to Morningstar Inc.
Advocates of passive funds have long cited their superior performance over time, lower fees and simplicity. Today, that credo has been effectively institutionalized, with government regulators, plaintiffs’ lawyers and performance data pushing investors away from active stock picking.
A decade ago 84% of funds were actively invested and today it is 66%. During the same decade U.S. stock mutual funds have not done well. As a group they have either closed their doors or have seriously underperformed index funds. Hedge funds as a group have not beaten the market since 2008. Why should an investor pay for “expertise” that results in lost money instead of gains? And if the experts cannot make money by picking stocks how can you? Here are a few thoughts on when stock picking is likely to be successful.
What Do You Know and How Can You Be Sure?
There have been investors over the years who have seen the future and profitably invested in it. If you had a clue about how personal computers would change the world you could have bought Microsoft in the 80’s when it went public. Biographies of baseball legend Ty Cobb typically mention that in the World War I Era and 1920’s that he invested in AT&T, Coca Cola and other stocks that proceeded on to exceptional growth. If your forte is bio tech you may have insights that will lead to you invest in the small company that will produce the next cancer cure. And if you are a follower of investing greats like Warren Buffett you will have learned how to seek out measures of intrinsic stock value so that you can routinely buy winners and avoid losers. The best advice for being successful at picking your own stocks is to stick with what you know, learn how to appraise value and keep an eye on your portfolio so that you get rid of stocks that no longer meet your criteria for winners.
Who Can You Trust to Invest Your Money?
People who loved the apparent returns that scammer Bernie Madoff gave them were sickened when it turned out that he ran a pyramid scheme which lost investors about $65 billion! Bernie is seven years into a 150 year prison sentence for this massive fraud. If someone else is handling your money you need to pay attention and if it seems too good to be true maybe you want to get out before everything collapses. This, on a lesser level of loss, it what has happened with many mutual funds and hedge funds. Many of these folks are paid well to handle your money but they end up losing money or making gains that trail the index funds. If you are a totally passive investor already the better choice is to use an index fund and avoid excessive fees for high volume trading that is eating away at your capital.
Weak Chinese trade data sent stocks down across the globe. According to The Wall Street Journal U.S. stocks were hit after the opening but pared their losses later in the day.
The Dow Jones Industrial Average closed little changed Thursday, nearly recovering from an earlier 184-point drop that followed weak Chinese trade data.
Official data released Thursday showed Chinese exports fell 10% year-over-year last month, sparking concerns about the world’s second-largest economy and global demand. Stocks around the globe fell and base metals such as copper tumbled. Investors moved to safe havens such as gold, U.S. government bonds and utility stocks.
There are two aspects to this news. First is that if China exports fall it consumes fewer raw materials, buys fewer high tech equipment from Japan, Germany and the U.S.A. and consequently drives affected stocks down across the globe. The second thing is that China’s economy is slowing down because its economic growth was based on exponential growth of its export market. But the world is only so big and there is not a lot of room for the Chinese export market to grow, especially in a world that that is still slowly recovering in fits and starts from the Great Recession. Considering that China has become a cog in the global economic economy how dependent is the Chinese economy on exports and is there a way to fix that?
Consumer Driven Economic Growth
Japan appeared set to take over the world economically at the end of the 1980’s until a mountain of bad debt came to light. Now a nation of savers and exporters is into its third decade of economic doldrums. China followed the Japanese example of central planning and selling to the world while saving at home. Unfortunately China has also run up a huge amount of debt, not so hidden as that of Japan a quarter of a century ago but very worrisome. There is not a lot of room for China’s exports to grow even in a healthier world economy. The general consensus of economists is that China needs to ramp up consumer spending and sell more within the country. That means letting small businesses grow and backing off the central state planning and heavy industry that characterized its early growth phase.
Debt and a Consumer Driven Economy
The Chinese drive toward a consumer driven economy may be hampered by excessive debt. The Journal notes that while household debt as a percentage of GDP is falling in the USA it is rising rapidly in China. They believe that Chinese consumers might soon feel the pinch and stop spending!
China’s overall economic slowdown has been cushioned by the relative strength of consumer spending. It is meant to be a virtuous transition, in which the economy shifts from investment in heavy industry and infrastructure to consumption-led growth.
Nearly a quarter of all mortgage debt outstanding in China was taken out in the past 12 months. Peer-to-peer lenders have also flourished, anecdotally helping home buyers with purchase deposits and down payments. The auto market, which has boomed this year, is also increasingly relying on finance to fuel sales.
Now the issue in China will be how much debt consumers can take on before they back off spending while exports fall to sustainable level.
It looks like Hillary Clinton is going to be the next president and the market has reacted positively. Here are a few thoughts on how this is working out and how to make a profit in stocks as the presidential election campaign winds down to a welcome close.
The reason that U.S. presidential candidates always move politically toward the center as the election approaches is because it works. Each party has its base of ardent supporters but not enough people to win the election. The winner is the candidate who convinces the vast undecided middle of the U.S. political spectrum to vote for them and who keeps their base energized enough to get out and vote. The problem for Donald Trump is that with questions arising about his business acumen ($1 billion dollar business loss in one year) and his morals (bragging on tape about unsolicited sexual advances on women) he has retreated to the attack, slash and burn, mode that is popular with his base but is offensive to virtually everyone else. Take a look at the odds reported in the New York Times “Upshot” page and their “Who Will Be President” page.
The Upshot’s elections model suggests that Hillary Clinton is favored to win the presidency, based on the latest state and national polls. A victory by Mr. Trump remains quite possible: Mrs. Clinton’s chance of losing is about the same as the probability that an N.F.L. kicker misses a 36-yard field goal.
In the last couple of weeks Mr. Trumps odds of winning have gone down from about one in three to one in six or worse and the market has gone up. Our point is not to argue the pros and cons of either candidate’s positions or defend or attack either candidate. Rather our point is to ask if stocks will continue to rise as Trump goes down in flames, perhaps taking a Republican Party in both houses of congress with him.
Stocks Are Up Post Debate
Reuters reports that U.S. stocks gain on Clinton’s debate performance.
U.S. stocks strode higher on Monday, buoyed by the perception that Hilary Clinton won the second U.S. presidential debate and by a surge in oil prices, while sterling was under pressure on concerns Britain will make a hard exit from the European Union.
A poll taken by CNN immediately following Sunday night’s debate showed viewers said Clinton had beaten Donald Trump, 57 percent to 34 percent.
“The broader market is responding positively to the events over the weekend that make Clinton more likely to win,” said Rick Meckler, president of hedge fund LibertyView Capital Management LLC in Jersey City, New Jersey.
Investors see a Democratic Clinton administration as more predictable than one led by Trump, who has provided less detail about his plans and raised fears of market volatility around his candidacy, Meckler said.
As the election campaign winds down to close it would appear that Mr. Trump is going to retreat back into his base and fail to contest the middle ground. This will make him fall even further in the polls and will hearten the market which likes predictability. Take a look at what a Clinton presidency would mean for stocks.
What will poor Donald Trump do at 3am if there is no Twitter? This horrific though comes to mind after reading a Fortune article about how Twitter’s share price is plummeting.
The word “roller-coaster” doesn’t even begin to describe the ride that Twitter shareholders have been on so far this week-and it’s not over yet by a long shot.
First, the company’s share price price TWTR -19.38% zoomed higher early in the week on reports that the company could be a takeover target for several large tech and media companies, including Google, Disney, and Salesforce. But late Wednesday, the stock collapsed after reports that poured cold water on that initial enthusiasm.
After its IPO in 2013 Twitter’s market cap was $48 billion. After rumors of a takeover bid this week Twitter’s market cap made it back up to $17 billion, barely a third more that it was after the IPO. Is it too late to sell your Twitter stock or is the stock likely to fall even more?
Comparisons to Yahoo
A lot of the recent strength of Twitter stock has come from rumors of takeover bids. This is all too reminiscent of Yahoo during its decline. What is of value to other companies is Twitter’s huge amount of data on social behavior. However, Google which seemed to be the best fit for a takeover already has a partnership with Twitter whereby it can take advantage of Twitter’s data. Market Watch writes about how deep Twitter’s slide could get if no one steps in to bail it out.
Chris Bailey, founder of Financial Orbit, said Twitter shares could drop more than 10% Thursday, which was already happening, as a market that had gotten ahead of itself, tries to adjust.
“Fundamentally the numbers are not supportive of a share price here, so there is a balance game between the value of info/the franchise and the actual profit/cash flow numbers. A mid-teens share price seems to offer some support between these two aspects,” he said.
“My gut: Twitter gets taken out in the next couple of years by a top-tier tech name recognizing the value of real-time info/eyeballs. Price? $20s. My trading instinct is to buy every couple of [dollar moves] below $20, i.e. $19s, $17s, $15s…” Bailey said in emailed comments.
Other opinions are similar. It is probably too late to sell right now for a profit but most analysts are saying that anything too far into the $20 range is unsustainable given that no white knight is likely to step in with a buyout offer. Right now no one is making a Yahoo comparison of continued demise. However, no one was doing that with Yahoo over the years. This is the reason that long term investors like Warren Buffett like to avoid tech stocks because they don’t know how to value them 5 and 1o years out. If someone picks up Twitter it will be a nice payday for current stock holders. But it is always possible that their business model will cease to be as profitable as it is, like Kodak, and then you will have wanted to gotten out now instead of later. Poor Mr. Trump if Twitter goes away and there is no way to tweet at 3 am!
While the Affordable Care Act (Obama Care) has provided health insurance for many who could otherwise not afford it, the net result for health stocks and insurance companies has not been good. How bad is Obama care for the companies involved? Reuters just announced that health stocks helped pull the market lower.
U.S. stocks started the fourth quarter on a weak note as healthcare stocks fell and Deutsche Bank’s travails weighed on financials.
Merck and Johnson & Johnson both fell on the day. But a better measure of how bad Obama care is for health stocks are the number of health insurers leaving Obama Care. In Minnesota Obamacare rates are going up as regulators are allowing premium increases of 50% according to Bloomberg.
Minnesota will let the health insurers in its Obamacare market raise rates by at least 50 percent next year, after the individual market there came to the brink of collapse, the state’s commerce commissioner said Friday.
The increases range from 50 percent to 67 percent, Commissioner Mike Rothman’s office said in a statement. Rothman, who regulates the state’s insurers, is an appointee under Governor Mark Dayton, a Democrat. The rate hike follows increases for this year of 14 percent to 49 percent.
“It’s in an emergency situation – we worked hard and avoided a collapse.” Rothman said in a telephone interview. “It’s a stopgap for 2017.”
Blue Cross and Blue Shield of Minnesota is leaving the Obama Care exchanges due to losses and regulators are working hard to see that remaining insurers are not overwhelmed with too many patients and excessive losses.
Tailored Plan Quits
Harken Health Insurance is a startup launched early this year and affiliated with health care giant United Health Care. The company was specifically tailored to offer plans through the Affordable Care Act. According to Business Insider the company is already quitting Obamacare exchanges after less than a year.
Harken Health Insurance, a startup and part of UnitedHealthcare that offered low-cost health plans through the Affordable Care Act (ACA) exchanges, is leaving the marketplace.
Harken had been launched in early 2016 to create tailored plans that would make money in the ACA, better known as Obamacare exchanges.
UnitedHealthcare, the parent company, has also rolled back its offerings through the exchanges due to financial losses.
It should be noted at United Health Care invested a lot of time and money into how they would deal with and profit from the Affordable Care Act. It is a measure of how bad Obama care is for these companies that even the smartest of the bunch could not find a way to make money and continue offering services.
Change to Survive
The New York Times says Obama care will need to change to survive.
The fierce struggle to enact and carry out the Affordable Care Act was supposed to put an end to 75 years of fighting for a health care system to insure all Americans. Instead, the law’s troubles could make it just a way station on the road to another, more stable health care system, the shape of which could be determined on Election Day.
Seeing a lack of competition in many of the health law’s online insurance marketplaces, Hillary Clinton, President Obama and much of the Democratic Party are calling for more government, not less.
The departing president, the woman who seeks to replace him and nearly one-third of the Senate have endorsed a new government-sponsored health plan, the so-called public option, to give consumers an additional choice. A significant number of Democrats, for whom Senator Bernie Sanders spoke in the primaries, favor a single-payer arrangement, which could take the form of Medicare for all.
Considering that the government might just choose the “Bernie” option and nationalize health care this may be just the right time to get out of health stocks. Of course, after the shakeup the survivors will probably make money by selling private insurance to those who can afford it.
There are fewer stocks listed on public stock exchanges than there used to be. Why is the stock market shrinking? According to USA Today investors are worrying about the shriveling size of the market.
The stock market is shrinking fast. There are now fewer stocks for investors to choose from than in 1979, leaving 401(k) plans, investment plans and other investors with fewer options from the market.
Just 3,659 stocks trade on public markets available to investors, based on the Wilshire 5000 Total Market Index through August, the latest data available. That’s down 3.1% from 2015 and half the number of actively traded stocks available than at the peak in 1997, Wilshire says. The Wilshire 5000 is an index designed to track the stock market’s entire value.
According to USA Today new companies are not going public but rather looking for other ways to raise money. Why is that? And what will the effects be?
Buyouts and mergers reduce the number of stocks available to investors. Business Insider writes about the agricultural merger mania and its effects on smaller operations.
The U.S. Justice Department is looking into concerns that global consolidation among major seed and agricultural chemical companies may squeeze supplies of the building blocks for widely used genetically modified seeds, a farm group told Reuters.
The department has asked the American Soybean Association for details about how small and independent seed companies license seed traits from developers, said Steve Censky, chief executive of the association.
The federal inquiries started after Dow Chemical said in December that it would seek to merge with DuPont in a $130 billion deal. In recent months, department officials have also asked how farmers select seeds, Censky said.
Small seed operations are making an argument that mergers will hurt the seed stock. Investors should make the argument that with fewer stocks to choose from it hurts the market.
It used to be that when a company got to a certain size and had prospects for growth that it issued stock in order to raise more capital and reward those who had started the company. But there have been fewer IPOs as companies have sought funds elsewhere. This means that investors can be a little crazy when there are new IPOs, especially in the tech sector. Bloomberg writes about current tech IPOs.
I never imagined I would write this sentence: Technology IPO investors have gone almost as crazy as the private financiers throwing wads of money at tech “unicorns” like Uber.
There have been so few technology companies braving the public markets this year that investors are pouncing on the tiny handful of fresh listings like hungry wolves. They are driving up stock valuations to overheated and potentially unsustainable levels for many new public companies.
In fact, a rational explanation for the currently overvalued market in general might just be that we have too many investors chasing too few stocks.
Private Ownership Means Private Control
When Michael Dell took back the company that he founded it took it private. This allows the owners to do when they want without being answerable to shareholders or for that matter to takeover artists who demand a rapid return on their invested capital regardless of the intrinsic value of the company.
A lead article in Reuters says that global stocks fall before U.S. presidential debate. Why is it that the presidential debate scares the stock market?
Stock prices around the world declined on Monday ahead of the first U.S. presidential debate between Hillary Clinton and Donald Trump, while oil prices rose in advance of an informal OPEC meeting in Algeria on hopes for an output cut.
Half of America’s likely voters will rely on the presidential debates to help them make their choice between the two major U.S. party nominees in the Nov. 8 election, according to a Reuters/Ipsos poll released on Monday.
“The polls have both candidates neck-to-neck. The debates might increase the lead of one over the other and that’s what the market is fearful of,” said Peter Cardillo, chief market economist at First Standard Financial in New York.
Is the market just afraid of the uncertainty or is it afraid of one of the potential outcomes of the election? Last month we gave some thought to either a Clinton or a Trump presidency and the stock market.
If Hillary Clinton Wins
What a Clinton presidency would mean for stocks depends on whether or not democrats regain control of the senate or even the House of Representatives. We looked at what Kiplinger suggested for stocks picks if Hillary Clinton wins.
Although we have an idea about what Clinton would want the odds are that the Republicans will retain control of the House of Representatives even if they lose the senate. Thus there will need to be deal making for the government work function. That having been said here are the Kiplinger picks.
- Cognizant Tech Solutions
- Hospital Corporation of America
- Lockheed Martin
- Marriott International
- Sun Power
- Toll Brothers
- Wal-Mart Stores
As Kiplinger notes Clinton has a long track record and stated policy positions on a huge number of issues. As such it is a lot easier to decide how the market would be affected when she is president as opposed to if Trump pulls off an upset.
Clinton has a long and clear track record that will help investors decide where the market might go if she gets into the oval office. That cannot be said for her opponent.
If Donald Trump Wins
What a Trump presidency would mean for stocks is uncertain which is perhaps at the root of why the presidential debate scares the stock market. NASDAQ weighed in on what investors might look for in a Trump presidency. They noted that, like with the Brexit vote, a vote for Trump is a vote against the status quo without a clear idea of what comes next. But if you believe the hype of “the Donald’s” speeches then NASDAQ believes that
construction and materials companies would prosper if the famed wall on the border with Mexico is built and more so if Trump were to follow through with investments in infrastructure. Multinationals would be hurt if Trump nixed trade deals and does not follow through with the Trans Pacific Partnership. Global companies like Amazon and Walmart would be hurt. And meanwhile defense and security stocks would do well if Trump’s wish to make gun permits valid throughout the nation and increase defense spending. The agricultural sector would be hurt if all migrant workers without papers were sent back to Mexico and points south. But lower corporate taxes would be a relief to multinationals who might be persuaded to bring their profits back home.
What if Trump becomes president but the Democrats control the senate and hostile Republicans control the House of Representatives? That might be a recipe for a dysfunctional government worse than that which we have seen.
The prospect of a U.S. government even more dysfunctional that it has been for the last years is perhaps what scares the market the most. Baring a landslide by either party that situation is likely to continue to a greater or lesser degree into the next presidency.
Every time the Federal Reserve meets or even speaks the markets shutter. When will interest rates go up? How bad will that be for stocks and the whole economy? We are wondering, are there stocks that the Federal Reserve cannot hurt either by raising interest rates or holding at the current level? Jim Cramer of Mad Money suggests some financial stocks that an increase in interest rates by the Federal Reserve will not be hurt.
With the Federal Reserve meeting on the horizon, Jim Cramer wants investors to be searching for stocks that could be bought regardless of what happens with interest rates.
“We know that the banks have been hammered. However, the non-bank financials, especially the payment plays, have been holding up pretty nicely, “the “Mad Money” host said.
He suggests that investors look at VISA, MasterCard and PayPal. The point is that none of these companies needs higher interest rates to make money and none will be badly hurt if rates go up. So long as people use their services these companies prosper. What other stocks might be good choices?
Big banks have not done well of late but when interest rates go up banks usually prosper. Market Watch suggests 6 financial companies that would be good bets if interest rates rise.
[There are] six companies Goldman analysts believe “will benefit the most from a potential rate hike.” All six are financial companies: Bank of America Corp. BAC, +0.58% and Bank of New York Mellon Corp. BK, +0.83% -both of which are both on Goldman’s “conviction buy” list-along with Citizens Financial Group Inc. CFG, +1.37% , Regions Financial Corp. RF, +1.30% , Charles Schwab Corp. SCHW, +1.02% and Zions Bancorp ZION, +0.62% .
For these companies, “our analysts see on average 46% upside to normalized earnings if rates go back to 3%,” according to the report.
“Many investors are worried about the potential impact to equities in the event the Fed raises rates. However, a rate hike wouldn’t be a negative for all equities.”
There is likely another small increase due this year but it may be a while before the Fed raises rates to 3%. Nevertheless, these are stocks that may do OK with even small rate increase. And what other stocks would be Federal Reserve proof?
Health Care, Materials, Energy
Other stocks that have tended to do well when interest rates go up are those in the materials, energy and health care sectors. USA Today says investors can beat the Federal Reserve buy picking the right stocks.
Higher rates aren’t toxic to all stocks. Energy stocks like Helmerich & Payne (HP), materials stocks like Nucor (NUE) and health care stocks like Humana (HUM) have actually performed relatively well during periods when the Fed is raising rates going back to 1971, according to a USA TODAY analysis of data from S&P Global Market Intelligence that looks at current members of the Standard & Poor’s 500.
On the other hand they suggest avoiding consumer discretionary stocks, auto manufacturers and selected big banks and financials.
The first days of September were good for stocks. One analyst says that this fact indicates that there will be a year-end stock rally. CNBC talked to strategist Tom Lee who says there is a 90% chance of a year-end rally.
Perennially bullish strategist Tom Lee believes the S&P 500 is set to rally 6 to 8 percent before the year is out.
That specific number is based on his analysis of prior market moves. Lee found that since 1940, the S&P ended the year higher in 27 of the 30 times it was up by 5 to 20 percent through mid-September.
One might think that election years, which threaten to bring a great deal of uncertainty to the end of the year, may hold something different. But out of the nine election years covered by the above stat, eight of them saw stocks gain in the final 3½ months, Lee says.
Many believe that the current market is overpriced. If that is the case what would drive it higher? One opinion is that many investors are still hurting from the 2008 market crash and have avoided stocks ever since. Some of these folks are finally becoming believers and will push the market up as they try to get back into the market. The problem is that some will probably come in for a slight gain before the market finally corrects!
Will the Market Correct or Crash?
Not everyone believes that a year-end rally is in the cards. Investopedia reports that James Dale Davidson, who predicted the 1999 and 2007 crashes, says a stock market correction is imminent.
James Dale Davidson is controversial economist who famously made accurate predictions of the financial crashes of both 1999 and 2007. Now, he and other leaders in market correction predictions are suggesting that signs are pointing to another impending correction in the markets, and possibly one that is of greater magnitude since any crash since the Great Depression.
Interestingly Mr. Davidson does not believe that sources of current economic and market concern will cause the correction. This is a technical prediction. Many of us would like to see the fundamentals that drive the market higher the 27 of 30 times that stocks were up in September and rallied for the rest of the year. And it would be nice to see what Mr. Davidson thinks will pull the market down if it is not overpriced stocks. With this sort of confusion about the market how should an investor proceed?
Investment Returns and Investment Decisions
The point of investing is to make money and not lose any. As we gain experience with the results of our investments we, hopefully, make better investment decisions. The Economic Times writes about incorrect assessment of returns leading to bad investment decisions.
For most investors, point-to-point return figures serve as the performance yardstick. This can be misleading. The current return profile of equity funds, for instance, is a case in point. The three-year returns of most equity funds comfortably outshine the five-year figures (see chart). Large-cap funds have clocked 13.5% CAGR over the past five years compared to 17.8% over the past three. Mid-cap equity funds have yielded 20.6% CAGR over the past five years against a whopping 34% in three years.
It is an interest discussion and worth the read. The point is that staying invested, even through events like the Great Recession smooths out the peaks and valleys. You may want to get into the market for a year-end rally but a better choice is probably to pick stocks with high intrinsic value and invest for the long term.