So far in October the U.S. Stock market indexes has risen about 14%, a good month. Remember my statements about 1,000 points lower on the Dow Jones Industrial Average, that now was a great to time to buy a mutual fund that invests in U.S. Stock. At the time, many people thought that I was a little crazy. The people who continued to contribute to their retirement account have been rewarded for their persistence. This is an example of value investing. First is the weekly recap from Vanguard. Lastly, are some quotes for your enjoyment.
Vanguard
Signs of progress on Europe's sovereign debt crisis and solid, but unspectacular, GDP growth in the United States sounded hopeful notes in a week of otherwise mixed signals. The S&P 500 Index rose 3.8% to 1,285 (for a year-to-date total return—including price change plus dividends—of about 3.9%). The yield on the 10-year U.S. Treasury note increased 11 basis points to 2.34% (for a year-to-date decrease of 96 basis points).
Value Investing
Value investing is when an investor views a decline in an asset as a potential buying opportunity rather than a time to panic. Some research is needed to know if it is a buying opportunity or a change in climate. It is important to look at the situation from a few perspectives.
Perhaps the most difficult thing about being a value investor is to buy when your emotion says to sell and to sell when your emotion says to buy. The best time to buy an asset is when it is a good value and when experts in the news media are saying how bad things are and that things are going to get worse. Conversely, the best time to sell an asset is when experts in the news media are saying how good things are and that things are going to get even better.
Interesting Quotes
An American went to Scotland and played golf with a newly acquainted Scottish golfer.
After a bad tee shot, he played a "Mulligan" which was an extremely good one.
He then asked the Scottish fellow, "What do you call a Mulligan in Scotland?"
"We call it 3."
A 2:00 am Police Stop: An elderly man was s stopped by the Knoxville, TN police around 2 a.m. and the officer asked him where he was going at that time of night. The man replied, "I am on my way to a lecture about alcohol abuse and the effects it has on the human body, as well as smoking and staying out late." The officer then asked, "Really? Who is giving that lecture at this time of night?" The man replied, "That would be my wife!"
"It’s not important who starts the game but who finishes it."-- John Wooden
“It is not sufficiently considered in the hour of exultation, that all human excellence is comparative – that no person performs much but in proportion to what others accom-plish, or to the time and opportunities which have been allowed them.” Samuel Johnson
“Life’s like a play – it’s not the length, but the excellence of the acting that matters.” Seneca
“The way to achieve success is first to have a definite, clear, practical ideal – a goal, an objective. Second have the ne-cessary means to achieve your ends – wisdom, money, mate-rials and methods. Third, enlist all your means to that end.” Aristotle
“Do not spoil what you now have by desiring what you have not – but remember that what you now have was once among the things you only hoped for.” Epicurus
“A great part of courage is the courage of having done the thing before.” Emerson
“If you’re strong enough, there are no precedents.” George Bernard Shaw
Showing posts with label value. Show all posts
Showing posts with label value. Show all posts
Sunday, October 30, 2011
Sunday, September 11, 2011
Stocks = Value
I hope your day of remembrance has gone well and you have had a chance to enjoy the good things of life. This will be relatively short and will have 3 sections: Vanguard, Stocks = Value, and a true story called The Gingham Dress for your enjoyment. During the past 10 years the investment that has been impacted the most has been Stocks which makes them the investment that currently has the best value which is why I want every client to have a stock mutual fund.
Vanguard
Despite a few good signs, the market's mood turned grim as somewhat favorable reports on spending, trade, and service-sector growth were offset by higher new jobless claims and continued caution from Federal Reserve officials throughout the country. In remarks similar to those he made a few weeks ago, Fed Chairman Ben Bernanke said the central bank has a few more tools in the box to bolster the weakening economy. However, he didn't say whether he'd use them before the Federal Open Market Committee meets on September 20 to consider other measures to promote economic growth. For the week ended September 9, the S&P 500 Index fell 1.7% to 1154.23 (for a year-to-date total return—including price change plus dividends—of about -6.9%). The yield on the 10-year U.S. Treasury note dropped 9 basis points to 1.93% (for a year-to-date decline of 137 basis points).
Stocks = Value
As we all know, the long-term driver for stock price is corporate profits as profits go so does stock price. So in the 10 years what has happened to corporate profits and to stock price?
The Federal Reserve Bank of New York publishes information on publicly traded corporate profit and the chart is titled Corporate Profits with IVA and CCADJ. On September 2001, publicly held corporations had about $800 Billion in profits. The latest number on the chart is about $1,850 Billion in profits or about 2.3 times more.
The Saturday 9/10/2011 Wall Street Journal shows the value for the S&P 500 Stock Index for the last 10 years. The current S&P 500 stock index value is about $1,150. With corporate profits having grown 2.3 times you would think that the value of the S&P 500 index on 9/10/2001 would be much lower. Actually, 10 years ago the value of the S&P 500 index was a little less then $1,100, about the same. So while corporate profits have been growing at an average annual rate of about 9% the value of the S&P 500 index has barely moved.
So why am I still recommending that people buy a stock based mutual fund(s)? Because this is currently the investment that has the best value for a long-term investor.
The Gingham Dress
A lady in a faded gingham dress and her husband, dressed in a homespun threadbare suit, stepped off the train in Boston, Massachusetts and proceeded to the office of the President of Harvard University. The secretary could tell in a moment that such backwoods, country hicks had no business at Harvard.
“We'd like to see the president,” the man said softly. "He'll be busy all day," the secretary snapped. "We'll wait," the lady replied. For hours the secretary ignored them, hoping that the couple would finally become discouraged and go away. They didn't, and the secretary grew frustrated and finally decided to disturb the presi-dent, even though it was a chore she always dreaded.
"Maybe if you see them for a few minutes, they'll leave," she said. He sighed and nodded. Someone of his impor-tance obviously didn't have the time to spend with them, and he detested gingham dresses and homespun suits clut-tering up his outer office. The president, stern faced and with dignity, strutted toward the couple.
The lady told him, "We had a son who attended Harvard for one year. He loved Harvard and he was happy here. About a year ago, he was accidentally killed. My husband and I would like to erect a memorial to him on campus."
The president wasn't touched. He was shocked. "Ma-dam," he said, gruffly, "We can't put up a statue for every person who attended Harvard and died. If we did, this place would look like a cemetery." “Oh, no,” the lady explained quickly. "We don't want to erect a statue. We thought we would like to give a building to Harvard."
The president rolled his eyes. He glanced at the gingham dress and homespun suit, and then exclaimed, “A build-ing. Do you have any earthly idea how much a building costs? We have over seven and a half million dollars in the physical buildings here at Harvard." For a moment, the lady was silent. The president was pleased. Maybe he could get rid of them now.
The lady turned to her husband and said quietly, "Is that all it costs to start a university? Why don't we just start our own?" Her husband nodded. The president's face wilted in confusion and bewilderment. Mr. and Mrs. Leland Stanford got up and walked away, traveled to Palo Alto, California where they established the university that bears their son’s name, Stanford University, a memorial to a son that Harvard no longer cared about.
You can easily judge the character of others by how they treat those who they think can do nothing for them. A true story by Malcolm Forbes.
Vanguard
Despite a few good signs, the market's mood turned grim as somewhat favorable reports on spending, trade, and service-sector growth were offset by higher new jobless claims and continued caution from Federal Reserve officials throughout the country. In remarks similar to those he made a few weeks ago, Fed Chairman Ben Bernanke said the central bank has a few more tools in the box to bolster the weakening economy. However, he didn't say whether he'd use them before the Federal Open Market Committee meets on September 20 to consider other measures to promote economic growth. For the week ended September 9, the S&P 500 Index fell 1.7% to 1154.23 (for a year-to-date total return—including price change plus dividends—of about -6.9%). The yield on the 10-year U.S. Treasury note dropped 9 basis points to 1.93% (for a year-to-date decline of 137 basis points).
Stocks = Value
As we all know, the long-term driver for stock price is corporate profits as profits go so does stock price. So in the 10 years what has happened to corporate profits and to stock price?
The Federal Reserve Bank of New York publishes information on publicly traded corporate profit and the chart is titled Corporate Profits with IVA and CCADJ. On September 2001, publicly held corporations had about $800 Billion in profits. The latest number on the chart is about $1,850 Billion in profits or about 2.3 times more.
The Saturday 9/10/2011 Wall Street Journal shows the value for the S&P 500 Stock Index for the last 10 years. The current S&P 500 stock index value is about $1,150. With corporate profits having grown 2.3 times you would think that the value of the S&P 500 index on 9/10/2001 would be much lower. Actually, 10 years ago the value of the S&P 500 index was a little less then $1,100, about the same. So while corporate profits have been growing at an average annual rate of about 9% the value of the S&P 500 index has barely moved.
So why am I still recommending that people buy a stock based mutual fund(s)? Because this is currently the investment that has the best value for a long-term investor.
The Gingham Dress
A lady in a faded gingham dress and her husband, dressed in a homespun threadbare suit, stepped off the train in Boston, Massachusetts and proceeded to the office of the President of Harvard University. The secretary could tell in a moment that such backwoods, country hicks had no business at Harvard.
“We'd like to see the president,” the man said softly. "He'll be busy all day," the secretary snapped. "We'll wait," the lady replied. For hours the secretary ignored them, hoping that the couple would finally become discouraged and go away. They didn't, and the secretary grew frustrated and finally decided to disturb the presi-dent, even though it was a chore she always dreaded.
"Maybe if you see them for a few minutes, they'll leave," she said. He sighed and nodded. Someone of his impor-tance obviously didn't have the time to spend with them, and he detested gingham dresses and homespun suits clut-tering up his outer office. The president, stern faced and with dignity, strutted toward the couple.
The lady told him, "We had a son who attended Harvard for one year. He loved Harvard and he was happy here. About a year ago, he was accidentally killed. My husband and I would like to erect a memorial to him on campus."
The president wasn't touched. He was shocked. "Ma-dam," he said, gruffly, "We can't put up a statue for every person who attended Harvard and died. If we did, this place would look like a cemetery." “Oh, no,” the lady explained quickly. "We don't want to erect a statue. We thought we would like to give a building to Harvard."
The president rolled his eyes. He glanced at the gingham dress and homespun suit, and then exclaimed, “A build-ing. Do you have any earthly idea how much a building costs? We have over seven and a half million dollars in the physical buildings here at Harvard." For a moment, the lady was silent. The president was pleased. Maybe he could get rid of them now.
The lady turned to her husband and said quietly, "Is that all it costs to start a university? Why don't we just start our own?" Her husband nodded. The president's face wilted in confusion and bewilderment. Mr. and Mrs. Leland Stanford got up and walked away, traveled to Palo Alto, California where they established the university that bears their son’s name, Stanford University, a memorial to a son that Harvard no longer cared about.
You can easily judge the character of others by how they treat those who they think can do nothing for them. A true story by Malcolm Forbes.
Tuesday, December 4, 2007
Time Value of Money
It is very important to understand the concept of the Time Value of Money
The Rule of 72 is the first concept: Money doubles when the interest rate and the number of years equals 72. An investment that has a 9% return will double in 8 years, 9 times 8 = 72. The reason it is 72 instead of 100 is because of compounding interest.
Growing Money is an exponential function not a linear function. What this means is that getting money to double again is very important. So a small difference in return on your investment can have a huge impact on your money over time.
Let me illustrate: $10,000 invested for 30 years at 3%, 5%, 7%, 9%, & 11%:
3% = $24,272
5% = $43,219
7% = $76,123
9% = $132,677
11% = $228,923
Notice that a 9% return gave about 6 times the amount of money versus a 3% return. If it was a linear function it would have been only 3 times more.
What is the bottom line? Time & Sound Investing is Your Friend
The Rule of 72 is the first concept: Money doubles when the interest rate and the number of years equals 72. An investment that has a 9% return will double in 8 years, 9 times 8 = 72. The reason it is 72 instead of 100 is because of compounding interest.
Growing Money is an exponential function not a linear function. What this means is that getting money to double again is very important. So a small difference in return on your investment can have a huge impact on your money over time.
Let me illustrate: $10,000 invested for 30 years at 3%, 5%, 7%, 9%, & 11%:
3% = $24,272
5% = $43,219
7% = $76,123
9% = $132,677
11% = $228,923
Notice that a 9% return gave about 6 times the amount of money versus a 3% return. If it was a linear function it would have been only 3 times more.
What is the bottom line? Time & Sound Investing is Your Friend
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