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.