2009- A Year to Remember

As 2009 ends and 2010 begins let's take a brief look back to see what we need to remember and what we should have learned from this past year. The herd mentality that drove many investors out of the stock market early in 2009 helped us define the difference between investing and speculating. Looking at money fund balances, it is clear many investors have missed the 65% upswing since early March as they wait for "the right time" to invest. Depending on these last 2 trading days the S&P 500 should finish with its best year since 1995.

We also learned that all asset classes including real estate can decline in value. For many folks this reality has been almost unthinkable. The good news is that much of the data suggest a bottoming process may be underway in some regions and at some price points. The bad news is mortgage rates are likely heading up and higher priced homes are still soft . We are roughly at 2003 price levels in most areas of the country.

Looking ahead to 2010 we of course make no predictions but a couple observations might be useful. Looking at Price to Earnings ratios it seems that the now 9 month long rally in equities has somewhat outstripped the underlying earnings. That is, growth in 2010 will likely come from higher earnings not expanding P/E's. One final tidbit. I heard yesterday that a recent study of stock "analysts" predictions provided some helpful information. The study looked back a number of years and covered over 6 million "Buy and Sell" recommendations from these brokerage firm analysts. The conclusion was , in the aggregate, the recommendations followed the market trends in both the up and down directions. In other words...they had no particular predictive value. No surprise here! Happy New Year!

Ideas for Improving the Economy

I fairly recently became aware of the Center for Economic Forecasting at California Lutheran University (with full disclosure my son is an economics major/basketball player there). CERF is headed by Dr. Bill Watkins and just today they released their current 2010 forecast for California and the U.S. This is an excerpt from that report from the VC Star.

The very straightforward prescriptive measures include: 1. Fixing the banks (as I have said here they are not yet sound-the toxic assets largely still remain) ; 2. Lowering the cost of hiring- this seems simple enough but of course politically difficult. High employment costs= lower # of employees...always has/always will; 3. Changing Monetary Policy- they are 100% correct. The so called "carry trade" where banks are making billions for not lending has to be reversed ; 4. Increase Immigration- this is a sensible manner of correcting the huge imbalance that we have in terms of retirees to those actively employed.

Quite good stuff.

Market Efficiency Revisited

When you unravel all of the puffery, investors either believe that the market is efficient or they do not. Of course in the short term it is very messy and very noisy. Perhaps this is really the wrong question. Even if you believe that the market is not efficient what is the cost of seeking to exploit the perceived inefficiency? In reality , very, very few will manage to outpace the market on a cost and risk adjusted basis.

FHA follow up/ TD Ameritrade ad slogan

You may have read that Bank of America will soon be repaying the government in order to be free from the government pay standards etc. My most recent post mentioned brewing problems with FHA mortgages. Bank of America is the largest originator of these loans and recent estimates of near term losses by FHA range from $75-150 billion. FHA is essentially out of reserves so...these losses could end up being losses for banks that hold these mortgages. Time will tell if Bank of America and all the others are really out of the woods just yet.

I have seen a new ad by our primary custodian TD Ameritrade that is pretty good. It has a tag line/slogan of "It's time for fresh thinking". Indeed it is. It also mentions objective advice which of course we like as well. A lot of ways to interpret "fresh thinking" but a start might be to ignore the typical Wall Street marketing din of "we have a system, manager,black box, fund, etc. that can solve all that ails you". Interesting times indeed.

Housing Improvement

Data out today from the Commerce Department show the first year over year increase in housing sales since this period of 2005. Perhaps of even greater importance is the number of unsold new homes in inventory which has literally been halved since January. While there is still a lot of ground to make up these are some signs of improvement. The South is faring much better than most other parts of the country and essentially all of the gains in recent monthly data have come from our region.

There are of course big dark clouds hovering over residential housing in many areas. A sizeable number of homeowners owe more on their homes than they may be worth in the current market. Most of these owners won't be selling in the near term however and for the main will continue paying their mortgages. As an aside, I recently saw a television ad for a mortgage company touting "no appraisal " mortgages. I really could not believe what I heard but indeed that was in the ad. These type mortgages were the crux of the problem to start with and it troubles me that these are being made again. Some of the data from FHA (which makes 3.5% down payment mortgages) suggests big troubles brewing within that market segment.

Sticky Intuition

Making financial decisions is rarely simple. Both spheres of the brain are involved thereby using both intuition and analysis- feeling and thinking. One of the problems , however, is that intuition can be "sticky" . That is- intuition can be stuck on a wholly incorrect notion and this "anchoring" tends to survive for long periods of time. This plays out in a number of different ways including being stuck on imaginary asset values (for real estate, individual stocks , etc) as well as rates of return, withdrawal rates and so on.

The most important aspect to remember is that very often financial decisions are aimed at either avoiding regret or achieving pride.

Stock Market Rallies- Historical Perspective

Since 1900 there have been roughly 27 major market rallies in the U.S. stock market .So about once every 4 years. Most of these fall into the range of 30-150%. Our current market rally measures 62% from the March 9 bottom (for the S&P 500).The length of these rallies run from 200-800 trading days or about 9 months to 3 years. So, the current rally as it now stands is under the average in both length and magnitude. Just some food for thought.

Where from Here?

Rarely a day goes by without someone (at the store, in a doctor's office,etc.) asking about which direction the stock market is heading. A few days ago I was asked if I was a "bull or a bear"? My response was simple- if you plan on being around for awhile then you have to be a bull. That is the long term answer. The short term- this day; this week; this month may be different but that is not really investing anyway...it is speculating. The headline at lunchtime today on one of the financial news channels was "Should you buy/sell or hold? " What may well serve their "news" interests in filling air time should not be confused with an investment strategy. Long term investors are in the markets for the long term. They expect both good times and bad . It is really just that simple.

Pursuit of Perfromance

As all of our clients know, chasing short term performance is a poor strategy. Generally it is the triumph of emotion over intellect. The simple truth is this: diversified long term investors win as a group and undiversified short term investors lose as a group. Short term out-performance often turns out to be anti-prologue.

Some investors bailed out of the markets earlier this year and are likely still waiting for a good time to re-enter (and have missed a 55% gain). Others have put money into gold fearful of future inflation. These are 2 sides of the same coin and likely will disappoint. Financial goals are accomplished by action not re-action. Our philosophy is grounded in the science of the markets and based on individual client goals. Vanguard founder John Bogle calls this "client stewardship over salesmanship".

Winners and Losers

The turmoil within the markets over the past year has put Washington in the position of picking winners and losers. Much has been written about those institutions that in one way or another are deemed "too big to fail". If an entity is really too big to fail then it is just too big. If we don't have losers in our capitalistic system then we very soon won't have winners either. Much of what is transpiring in Washington today seems to be aimed at "leveling" the range between winners and losers so that everyone wins. This has never worked ...anywhere. Remember one of the precepts of our philosophy is that risk and return are related. This is a fundamental rule of capitalism and cannot be abrogated except by fiat which is what may be transpiring now.

A quick observation- without question we are enjoying a very nice 7 month rally from the March 9 market lows. About two-thirds of the S&P 500 entities are beating analysts estimates of earnings. It is important, however, to recall that even with these better than expected earnings, the average company is reporting a 19% decline from the same period last year.

Financial Planning vs. Financial Plan

In times like this (uncertainty, unknown), it is crucial to understand the distinction between the dynamic wealth management process as opposed to a static financial plan (the kind marketed endlessly by the large financial firms).

Over the past couple years our clients, while not immune to the ravages of market volatility, have benefited from our ongoing advice concerning adjustments to the underlying assumptions in their plans, portfolio risk levels and expectations for future withdrawal rates. Theses dynamic course corrections help neutralize the predictive difficulties in the assumptions and produce more reliable long term positive outcomes.

There simply is no substitute for objective, ongoing advice.

Remember- markets go up and down...not up and up

The almost linear run up in the stock market since early March is among the fastest in history. By some measures it is among the top 10 of all time. In early March many investors were thinking seriously about abandoning ship but now they are equally as concerned about maximizing their gains from this almost 50% rally.

Moat of you have heard our mantra about the markets before: Markets go up and down , not up and up. The point is to place emphasis on the long term and not become emotionally tied to the sometimes extreme short term gyrations in the stock market. We instead have to remind ourselves that the reason we invest is for our long term goals. We can't time the market successfully so in order to reap the long term equity returns , we have to actually be in equities.

The month of September has been among the cruelest months to the market in the recent past. We have no way of knowing if this September will be great,good, okay or terrible. What we do know is the market noise is just that...noise and should largely be ignored. Stay focused on the long term.

July and Jobs

The month just ended was the best overall month for the stock market in 7 years. That is cause to celebrate for sure! Year to date the S&P 500 Index shows an 11% gain. A diversified portfolio (like those we manage) with a 60% stocks/40% fixed allocation is up  about 14% for the year (this is because small and international have outperformed). 

On the jobs front I came across an interview with Charles (Chuck) Schwab . He said "we haven't restored the confidence of the people that create jobs". I think that is very well put. To a large extent confidence in the markets and the banking system has been restored but the big missing link is confidence among small businesses. Schwab goes on to say "there are 6 million businesses that employ more than 1 person. What would it take to get them to hire 1 more?"

Happy Birthday and Magic Tricks

Hope everyone had an enjoyable 4th of July weekend. On the occasion of our nations birth I always try to read something from the founders and this year I settled on some of Madison's Federalist Papers #51. I have read this many times but each time seems different. The particular passage I like best starts "If men were angels, no government would be necessary". The passage concludes " the great difficulty lies in this : you must first enable the government to control the governed ; and in the next place oblige it to control itself". Seems like something worth considering today.

The past quarter was the best in several years. No one knows what the immediate future in the markets might be but over time discipline is rewarded. The deficit, debt, jobless rate etc. all weigh on the markets so the path to progress will not likely be straight.

I read a piece this morning on the subject of the pending approval of GM's emergence from bankruptcy. Viola! Abracadabra ! Seems like the government has elected to rely on a series of magic tricks instead of actually correcting the problems. Unlike most bankruptcies where pensions are modified and everything is changed going forward, the GM pension obligations remain hugely underfunded. The company has not made a contribution to the pension plan since 2003. The pension benefits are likely unsustainable and sooner or later will have to be brought into line for the firm to avoid yet another bankruptcy

May Market

The S&P 500 posted a 5.3% gain for the month of May. Since mid March the gains total 25%. The past 3 months represent the best 3 consecutive month period since ...1938!

Of course , 3 months is a short timeframe and we can't extrapolate this forever into the future. If we can keep the government from taking over the economy it looks like the markets, as always, will work. As positive as all of this is, I can't help but think that we are "papering over" a number of serious problems that could well rear their ugly heads again. 

Investor's Manifesto

While I generally don't recommend putting much credence in the personal finance magazines, I recently read a piece in  the June issue of Kiplinger's Personal Finance magazine that is worthy of note. This issue carries a column by Knight Kiplinger  titled An Investor's Manifesto. There are 20 short statements followed by a few words of commentary. I can't find a single one that is not totally correct and on point. Bravo!

The first of the 20 is "I am an investor. I do not trade my assets frequently .That's speculation,not investing." Another of my favorites is "I regard my home as a place to live,not as an investment. It is not a substitute for retirement savings." 

The piece can be found at www.kiplinger.com/magazine/archives/2009/06/knight_kiplinger.html 

April Rally

The broad stock market rally during April goes in the books as the best since March 2000. The S&P 500 posted almost a 10% increase for the month . Small stocks led by U.S. Small Value gained almost 19% for the month!

As you know, our investment philosophy is not dependent on correctly predicting the economy or the markets in the short run.  That is in the main a fools game. Rather the strategy is dependent on your particular goals and the commensurate returns and risk levels needed to fund them. At times of market stress charlatans of various stripes come out of the woodwork promising above market returns without market risk. As one of our colleagues likes to say " you have to be in...to be in. " That is, you have to be in the market to obtain market returns. 

The now 7 week old (or young) rally now tops 30% for the broad market. The "better bad news" as some have put it may be generating a more positive tenor to the economy and markets. At the very least it is good to be rewarded for discipline and patience.

What a Difference

The past 30 days or so has marked a sharp departure from the negativity laden market environment up until about March 6th or so. Previous bear markets have shown that turnarounds can be very quick . It may still be too early to tell if this rally holds or if it backs up some but in either event the past few weeks have been better...much better. 

Since March 9 (through April 9), the S&P 500 Index has gained over 26%. Other segments of the market have posted even higher increases. The Russell 2000 Index (mostly small stocks) is up over 36% (best 4 weeks ever). The DFA U.S. Small Value Fund is up over 44% and U.S. Large Value up 38%. One month does not make a market but it demonstrates the resiliency and strength  in the markets overall despite all the challenges . The rapid fire quickness of the increases also points out why we stay invested in the markets even in tough periods. 

Business Cycle & Expected Returns

Well, 2 positive weeks back to back in the market and perhaps starting on week 3 today. The momentous amount of government intervention and tinkering makes it difficult to properly analyze what part of the business cycle we are in at present. On most levels it appears we are late in the contraction but the medicine prescribed by the government may be masking some additional ills...not sure. What we do know is that generally speaking, the sharper the decline ...the stronger the recovery.

David Booth , President of Dimensional Funds (DFA) published a brief article last week on expected returns in the market. He says in part " we believe expected stock returns are now higher than before the drop, rather than lower". The math leads one to think this is likely so.

The worst real estate market in the country (California) saw a 42% year over year increase in sales during February . Prices were almost 40% lower than the year prior. Over half of the transactions were foreclosures with a median sales price of $373,000. The real estate market seems to be trying to find a bottom .

Speaking of market bottoms, almost every interaction these days seems to contain the query of "is this the bottom?" Really, it doesn't matter much. Few have made money "finding the market bottom". On the contrary, many have lost $ trying to time the markets ins and outs. 

Best 7 Days

While we of course don't put much credence in short term market movements in either direction, I heard a stat this morning that bears repeating. The S&P 500 Index has increased 17% over the past 7 trading days. This represents the best 7 days since 1939!

Investing vs. Banking

The stock market posted good returns last week (up about 11% in 4 days) which of course is welcome news. Even if it does not retrace the downward path in an uninterrupted sequence, it certainly helps investors look ahead. Even so, we don't like to look at day to day or week to week price movement since we are involved in  investing not banking. Your investment account is different at a fundamental level than your bank account. Investing consists of exchanging one asset (cash) for another asset (in this case ownership in businesses). A bank account is  simply a place to store cash . The downdraft in the market has led investors to look at the short term movements in their account values as one would look at a bank account statement. The two are different and really should not be viewed in the same way. Remember investing is long term by definition. Continue to stay focused on your long term planning goals. More later.

Clarity=Confidence

A lot has been made of Warren Buffett's comments a couple days ago about "the economy going off a cliff". I saw some of the 2 hour long interview and he was actually quite upbeat. He did say that clarity (by the political forces primarily) will transform into confidence. Declining confidence is more of a symptom of what is wrong vs. the cause of our travails. Confidence is derived from improvements (forward looking) in what we see as economic activity. 

Buffett also said that he is convinced that over the next 10 years owning a basket of American companies (equities) will do considerably better than fixed income. Further, he pointed out that U.S. Treasury  securities are guaranteed ...to lose purchasing power over time. Indeed. He went on to describe the late 19th century and early 20th century economic struggles and said we have always come out of these troubles and will again this time. Final tidbit ...he mentioned that the Dow Jones Industrial Average went from about 66 to 11,000 during the 20th century. Keep the faith and stay tuned.

Things to Consider

The first couple months of 2009 have been anything but kind to investors . I thought you might benefit from a list of a few things to consider as we continue to work our way through this bear market. This list is certainly not comprehensive but is a start. 

1. Fear and hysteria are blinding investors to long term market values

2. No one knew in advance this was coming and for the most part there has been no where to hide.

3. The past is the past . Don't focus on how much you portfolio or net worth  has "lost" (unless you have cashed out you have not realized any losses ). Focus on what you nave now.

4.It is okay- normal- to have some fear and anxiety.

5. Focus on what you can control- diversification, low expenses,etc. A recent study reports that index (passive) funds outperform active funds by 4%  per year over time when considering tax efficiency,costs,turnover etc. 

6. Keep decisions in context of your long term financial planning goals.

7.Be an "adult" investor- one not ruled by emotions which can lead to poor decisions.

8. Cash is not a long term investment- it is a returns "smoother" . You can't accomplish long term planning objectives with cash.

9.Don't think that a decision to capitulate( to sell) will relieve your anxiety/fear. You will just transfer this to the decision of when to get back in the market. There is no bell that rings at the bottom . Remember that the average 12 month return from market bottoms is 32.4%.

10.Despite all the negativity and concern about the direction of the economy/country, optimism is the only realism. 

David Brooks-NYTimes on the budget

David Brooks 

Where we are/Where we stay

It is important in a fear driven market rout (like the present) to acknowledge that fear could drive the market lower still. That being said, do you really believe that the current market level (plus or minus a little) is where the market will stay? With almost 50% of investor cash on the sidelines( an all time high), we think the momentum will eventually reverse and head higher once again. As Larry Kudlow likes to say "free market prosperity will return" and hopefully soon.

The negative tenor of the market is to a large extent due to the unwillingness of the new administration to acknowledge market stability as even a tangential objective. Hopefully this will change as early as today when the Treasury Secretary visits Capitol Hill . Valuation levels are bordering on ridiculous levels  for most stocks.

Bear markets end when investors give up hope (capitulate). Looks like we are getting close to that point. 

Monday Morning Musings

I read Warren Buffett's  annual letter this weekend and even "the oracle of Omaha" has not been able to dodge the worldwide contagion impacting financial markets. Looking forward he proffers that 3 out of 4 years will bring positive returns for stocks (just as through the observed history to date) and that he is enjoying "buying quality stocks at low prices".

I also heard an interview with Wharton School Professor Jeremy Siegel where he discussed the earnings of the market at present after adjusting for the negative performance of the large banks. He said the multiples are near all time lows once the adjustments are made. I was curious and looked back at an interview he did in early January where he predicted -7% 4th quarter GDP and -5% 1st quarter 09 GDP. As we now know, the recently revised 4th qt 08 GDP was -6.8%. Anyway, at that time he was looking for a +20% year in 09 for stocks . Let's hope that he is even half right.

So far, the financial markets have not signed on to the government sector expansion planned by the new administration. Markets know that there are but 3 methods for paying for these huge expenditures: grow/innovate our way out (unlikely given the disincentives in the tax policies); tax our way out ; inflate our way out. The market is guessing the latter two will carry most of the weight.

For perspective we are sending out to clients a chart showing the worst 3 year periods for the S&P 500 and subsequent returns. The 3 year timeframe ending in February ranks 35th worst . Of the 40 periods portrayed on the chart , the subsequent 3 year annualized returns were in double digits in 36 . The average 3 year returns were 19.56% per year.

Behavior and Belief

There is a reciprocal relationship between how we behave and what we believe. Many of us have an inclination to move from euphoria to despondency , from faith to fear. Financial history has always been a roller coaster ride of up and downs and this time is no different. It is important that we see ourselves and our money as being in continuity with longer term economic history as opposed to being separate or apart.

The funding of our personal/family long term goals is why we are investing in the first instance. The range of possible outcomes depends on our actions- on our behavior- at times such as this. It is important that we not fixate on the short term political/economic turmoil and stay with our long term plan. That is the best path to recovery.

Economic Trade-offs

The concept of trade-offs, that is, receiving  more of one "thing" in return for less of another "thing" is a substantive part of economic reasoning. At least it used to be. We now have 24 hours of news- an almost endless array of "information" but in exchange for this "more", we have a trade-off with the quality of the information which is decidedly "less". 

Many of the actions of the government over the past few weeks, while perhaps well intentioned , seem designed to obscure the trade-offs built into each economic decision. The housing rescue plan is one instant example. Those of us with mortgages are exchanging the payment in return for the occupancy. As one real estate lawyer likes to say "you have to pay to stay". This is what is sometimes called a "Hobson's choice" , basically a take it or leave it proposition where you have only one choice- to pay or not.  As I wrote in an earlier post, the real issue in housing may not be those already in foreclosure but those who are underwater but not (yet) behind. Certain provisions in the plan allow for the possibility of mortgage principal to be changed in a bankruptcy . This could prove as a perverse incentive to some of those underwater as a way to stay and not pay. 

Tinkering with economic trade-offs appears innocent but often has unintended negative consequences. We often see clients who struggle with trade-offs. If you retire early you have more time but in return you have less accumulated savings. If you seek a high degree of safety , you forgo much of the future growth potential . If you spend/withdraw more now, you have less for later. And on and on. 

Bad history= Bad economics

Much of the rhetoric and many of the analogies currently  being employed by journalists and those in government are historically inaccurate. While each economic period has unique characteristics, the most apt comparison we have is the 1981-82 timeframe not the 1929-1932 period. It is simply untrue to state that the current economic environment is "the worst since the Great Depression."

In 2008 , despite a sharp pull back in the 4th quarter, real (adjusted for inflation) GDP (Gross Domestic Product- the sum of all goods and services produced) was modestly positive for 2008. Compare that to GDP contractions of 1.9% in 1982 and 8-13% per year during the 1930-32 period. Job losses as a percentage of the workforce were identical in 1981 and 2008.  The current unemployment rate of 7.6% is still well under the 1982 peak of 10.8% and but a fraction of the 24% jobless rate reached in 1932.

Economic policies should be grounded in a realistic and genuine understanding of economic history. In the main, this is not what we see at present. 

Lessons from the Past

"Absent the ability to forecast changes in economic activity & policy more accurately than the forecasts that are already built into asset prices,investors should maintain an allocation to risky assets that is consistent with their risk preferences & long term goals." What we can learn from Past Financial Turmoil-Dimensional Fund Advisors- Dr. Inmoo Lee and Garrett Quigley

I had a chance to hear Dr. Lee present findings from his research paper recently and think they are on point. The only clarification or quibble I would have with the quote above is the word "preferences". Many investors might "prefer" little or no risk but they "need" higher risk levels to fund long term financial goals.

The paper explains how attempts to time allocation decisions among differing stages of the business cycle often prove futile. Markets are forward looking -anticipating changes before they actually occur. Prices have tended to recover quickly in previous bear markets and investors who maintained risky asset allocations (stocks) were generally rewarded for the risk.

Creative Destruction

Early 20th century Austrian (now Czech Republic) economist Joseph Schumpeter coined the phrase "creative destruction" in his 1942 book Capitalism,Socialism,and Democracy. Sounds like an apt title for today don't you think? Schumpeter was not attempting to engage in political debate but rather highlight the business cycle and natural evolutionary dynamic of capitalism.

A couple interesting points from his writings. First, he was highly critical of economist John Maynard Keynes, whose theories of fiscal stimulus we are now practicing. He believed that the innovative qualities of capitalism and particularly entrepreneurship were key . He describes a possible method of how the intellectual class might destroy capitalism from within via creation of a welfare state and restrictions placed on innovation/entrepreneurship. Interesting in light of the current environment.

What We Hear

I heard a long interview a few days ago with Professor Niall Ferguson-author or The Ascent of Money . He had an interesting observation about economic literacy and our overall poor understanding of economic history. He said "we don't teach financial history- we only talk about the generals and not the bankers". Well put- this poor (or factually flawed) view of history is at the root of our current problems.

On the same day I heard an interview with Dr. Nassim Taleb- author of 2 books on our list. Taleb is a difficult interview as he is highly charged and acerbic. He made a couple major points. First, he proffers that all asset bubbles are driven either by inflation (tech stocks in the 90's) or debt (housing in this decade). He also thinks banks are operating as "utilities " (like the electric company or cable company) and should be regulated as such. Finally, lending to the themes in his books, he thinks institutions should have "robustness to rare events" or they should be allowed to break (fail).

Housing-the good and the bad

The current economic tailspin started largely with housing (or more specifically with housing finance) and housing will likely be the path back to prosperity. Stabilization of housing is a noble ideal but it will prove difficult because of the fractured relationships involved in most mortgages. For the most part, homeowners have little or no relationship with the lender after the loan is closed and usually even less with the servicer. Perhaps it's time to shift mortgage lending back to the local community lenders away from the behemoth banks.

Apparently the days ahead will bring details of the government plan for housing. In reality, only a small percentage of the homeowners currently "underwater" (their mortgage debt exceeds the house value) can be salvaged. For the main, consumers over-bought and over-borrowed . Even with very low mortgage rates they still have too much debt. 

On the good news side- market bottoms are being formed in many of the hardest hit areas and market activity is increasing . Stay tuned. 

$9.7 Trillion

Bloomberg.com has a piece today by Mark Pittman & Bob Ivry on the lending programs and guarantees made by the federal government over the past couple years. Primarily from the Fed, FDIC and Treasury , about $3 Trillion has been lent to yet unnamed firms/banks with another $5.7 Trillion in guarantees. Just for perspective, the entire U.S. economy is about $14.3 Trillion . Bloomberg has filed a lawsuit in federal court demanding the disclosure of to whom; how much and when. Can't make this stuff up...

Buffett and Stocks

Famed investor Warren Buffett is the subject of a piece in the February 4 Fortune article titled Buffett's metric says it's time to Buy." The article details the relationship between stock prices and GDP (Gross Domestic Product= the sum of all goods and services produces in our domestic economy). The valuation reached a peak in March 2000 of 190% (the value of U.S. stocks was 190% of GDP).  During WWII this range was as low as 40-45% and tested those same levels in the early 1980's. Buffett says " If the percentage relationship falls to the 70-80% area ,buying stocks is likely to work very well for you." At present the estimate is about 75%. 

Welcome !

Well, we thought that clients and others might enjoy seeing some of what goes into our thought process . It is my hope that this will serve to re-inforce the long standing philosophy that we practice. I will try to link charts and articles that are appropriate and discuss items of interest. The frequency of items will vary but I intend to add commentary regularly . So check back often and let us know what you think.