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I’ve been going over Buffett’s Lecture at the University of Florida from 1998. I believe it’s one of his better lectures, maybe because his answers are less scripted than in recent years. You still hear the themes he repeats today only his answers are more in-depth.
One of the questions offered to him is about diversification, which I found interesting. His answer is one he’s repeated several times since in a similar form, yet for some reason it stands out. Continue Reading…
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Most people should know by now that asset classes go through periods of good years and bad years. This is why you diversify – owning several asset classes with a low correlation – so they don’t all move in the same direction at once. Especially when that direction is down. What you end up with is a decent average return in the 6-8% range via index funds, depending on the allocation.
Then smart beta funds came along. While not the holy grail, smart beta does offer the chance of better than average returns. But value, momentum, low volatility, etc. all go through similar periods of good years and bad years. So you still have to diversify. Continue Reading…
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There are a lot of reasons why stock prices move the way they do. Business performance should account for all of it…in a perfect world. In reality, almost all of it is due to the human element in the market reacting to different stimuli.
Sometime in the 1950s, Ben Graham gave his thoughts on whether he believed this would continue in the future. He asks and answers the question – how will markets behave in the future? Continue Reading…
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So Dow 20,000 happened. Many people will take credit for it, undeservedly so. Sure it’s a cool milestone and the psychology around it is important but the number is arbitrary. It’s no more important than when the Dow hit 5,000 or 10,000.
Still, Dow 20,000 will be splashed all across the news this week, which will get people interested. Combine that with the fact that people have never felt better financially and perspectives may change.
Optimism is okay…until it spreads into other areas. When people feel financially better, they’re willing to spend more, they treat debt differently, they see they’re investments differently, maybe they like stocks more (Dow 20,000 certainly helps), and they might be willing to take more risks. Continue Reading…
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Indexes might be relatively efficient but underneath it all is something different. Individual stocks can fluctuate quite a bit in a matter of a year. That was the basis for Graham’s argument in the last post for using certain criteria to profit from those moves. Mr. Market can quote ridiculous prices for individual companies and it happens more often than you might expect.
Well, curiosity got the best me. I did some digging to see just how much stock prices fluctuate in a given year.
I settled on the S&P 500 stocks (via Wikipedia since the ticker symbols were readily available), dropped it into a spreadsheet, and pulled the data from Google Finance. For the record, there are currently 505 stocks, from 500 companies, in the S&P 500. Continue Reading…
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Market valuation is always a hot topic at the start of every year. Predictions are another. And there’s always someone who combines the two, citing current valuation for what the market will do over the next year.
Let’s stick to what we know. The current U.S. valuation hovers around a CAPE of 28. You can read more about the CAPE ratio here. For the short version, 28 falls on the expensive side of things, meaning on average expensive markets tend to perform poorly over the next decade.
But expensive does not mean that a market correction or crash is imminent or guaranteed. The funny thing about averages is that it turns a large basket of numbers – added up and divided by the total number of numbers – into one number. Some people choose to focus only on the one number and ignore all the rest but we can’t. Continue Reading…