Don’t Let Market Volatility Distract You From You Goals

It is true. Stock returns can be unpredictable, which is why so many feel investing is like gambling — irrational, even scary. Echoing that sentiment, The Wall Street Journal’s Jason Zweig wrote over the weekend, “There is something poignantly human about every attempt to make markets behave as we all wish they would: always rising and making us richer, never falling and inflicting pain upon us.”

For all the volatility we’ve experienced this year, stocks are basically flat to modestly up. Down 300 points one day, up 250 points the next day. Exhausting, right? Only if we focus on the daily movements in stock prices. As investors, we must be in it for the long term, buying shares of stocks we are willing to own for a lifetime. Here’s why. According to the Dalbar 2010 Quantitative Analysis of Investor Behavior Study, the S&P 500 returned 9.14 percent over the previous 20 years, while the average investor in equity mutual funds earned 3.83 percent. This is because individuals tend to sell based on emotions, at just the wrong time. Yielding to emotions does not yield profits.

Let’s look at it another way.  To read more please click below:  TheArizonaRepublic

Investors need confidence in company’s managers

You may have heard the old adage: If you don’t like company management, vote with your feet and sell the stock.

Benjamin Graham, author of the 1949 classic The Intelligent Investor, calls that attitude “fatuous and harmful,” for it does nothing to improve bad management and merely shifts the problem to someone else. Graham was a believer that “investors make money not out of each other but out of … businesses.”

In the daily hype surrounding the stock market, the purpose of owning stocks is often lost on the average investor. The prevailing sense that investing is gambling or sport (words such as “bet” or “play” when referring to investing make me cringe) is unfortunate. Investing is neither. When we buy shares in a company, we are buying the company’s management team as well as a portion of the company’s future earnings. This is our management team, and we are counting on them to execute a sound business strategy and robust earnings growth.

Because the nature of stock ownership is a little less tangible than say, real estate, it is even more imperative we have confidence in the management team. This past weekend, Barron‘s published its annual listing of the “World’s Most Respected Companies.”

lick here for the rest:  The Arizona Republic  And comment or share if helpful to you.

Play your own game–invest, don’t trade.

Trading and investing are not the same thing. When we use the two words interchangeably we muddle the message. We confuse the issue.

The word trade comes from the 14th century Old English: tredan. The original meaning referred to a way or course — a manner of life. But by the early 1500s the meaning had evolved to include buying and selling as a means of exchanging commodities.

A trade, therefore, is a short-term activity with a very specific purpose — an acquisition or disposition.

Investing, on the other hand, is an activity with a longer-term intention. The word’s source, investire, is from the 14th century Latin meaning to clothe. By the 16th century, this word, too, had evolved into an activity that gives capital a new form. For our purposes: a greater, larger, plumper form.

RELATED: Checking back on our 2014 stocks to watch

MORE: Temper speculation with common sense

The differentiation between trading and investing matters because too many of us freely interchange the use of and meaning of these words. They are antithetical. They are mutually exclusive. Traders intend to produce a quick, short-term gain (though the statistics would show more frequently a loss) and investors seek to increase their wealth through the long-term ownership of sound businesses.

Our friend, Benjamin Graham, author of “The Intelligent Investor,” said it like this: “But everybody knows that most people who trade in the market lose money at it in the end…they are not investors.”

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Following up on our 2014 stocks to watch.

Last July we examined two industry leaders in two very different cyclical industries: Oracle Corporation —a stock I own — and International Paper.

ORCL is a leader in enterprise software and IP is a leader in paper and packaging (think: corrugated boxes and paper cups). At that time the two companies traded at comparable valuations of approximately 13 times estimated earnings. Both stocks paid a dividend. ORCL yielded 1.2 percent, while IP yielded a more substantial 2.9 percent. Both stocks were cheap as measured by their respective p/e’s, and, in particular, when compared withtheir peer group companies and the S&P 500.

RELATED: Tengler: Long-term strategy key to investing success

MORE: Human nature key in stock decisions

Despite their similar valuations in July 2014 both stocks had very different earnings histories. ORCL’s five-year earnings registered in the mid-double digits, and was expected to slow to the low double digits in the subsequent five year period. IP’s five-year earnings growth, on the other hand, was flat due largely to a restructuring; five-year estimated earnings growth was expected to grow in the mid-single digits.

Read more here:  The Arizona Republic

Temper speculation with common sense

For Benjamin Graham, the greatest risk facing an investor is not the market, but short-term, emotional reactions to stocks. Nancy Tengler discusses the importance of emotional discipline.

 

Successful investors are students of history. Just as philosopher George Satayana famously declared: “Those who do not remember the past are condemned to repeat it,” so it is also true: Investors who do not study the historical performance of stocks are doomed to make costly mistakes.

No one understood that point as clearly as Benjamin Graham, author of “The Intelligent Investor.” And no one has articulated it so well. According to Graham, intelligent investing requires an informed (though not necessarily exhaustive) understanding of the companies we are buying. He does not argue that individuals must be endowed with superior intelligence; rather, they must possess the discipline to exercise “firmness in the application of relatively simple principles of sound procedure.”

For Graham, the greatest risk facing the individual investor is not the market but our short-term reaction (often emotional) to stocks. We sometimes find ourselves “beset with confusions and temptation… frequently unconscious toward speculation, toward making money quickly and excitedly, toward participating in the moods … of the crowd.” In other words, Graham warns us to be wary of our natural proclivity to desire instant success. Gambling, lotteries and speculative trading appeal to the eternal hope etched on our imagination; the hope we just might win, we just might get rich quick.

Read the rest of this column by clicking here:  The Arizona Republic

Why Rising Interest Rates Won’t Necessarily Be Bad for Stocks

When Benjamin Franklin said, “An investment in knowledge pays the best interest,” he may have been anticipating the low to zero interest rates savers and investors have been contending with for years.

Now it seems that rates have finally begun to rise, and contrary to conventional wisdom, that won’t necessarily be bad news for stocks.

Since the end of January, the S&P 500 has returned a positive 7.1 percent, while the price of bonds has declined and the 10-year Treasury yield has risen 0.6 percent. Investors have been busy selling bonds in anticipation of the inevitable (and much-anticipated) hike by the Federal Reserve Board while economists and pundits handicap the date of the upcoming rate increase. June? September? 2016?

Click here for the rest of the column: The Arizona Republic