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.