Sound Advice in Early 2016 Remains Sound in mid-2017

This piece was published in my weekly column–Your Financial IQ–in The Arizona Republic on January 21, 2016 just weeks prior to the market bottom. Had you taken advantage of the advice: “don’t cave, don’t sell, don’t capitulate…rather this is the time time to upgrade your holdings, you would have enjoyed returns close to 30% as measured by the S&P 500.  Hopefully, by buying the stocks to own for a lifetime we advocate, you would have done even better.  The markets are volatile once again.  Investors are worried stocks are too expensive. The same advice holds true:  buy great companies, seek companies that pay a growing dividend and extend your time horizon.  Volatility is the nature of the beast.

January 21, 2016:  For 25 years, I commuted into San Francisco to work. During the Internet bubble at the end of the end of the 1990s, the traffic grew to epic proportions.

A normally 30-minute drive morphed into an hour, sometimes an hour and a half. Too many cars, too few lanes. The traffic made me crazy, and I drove like it. I was the driver who merged first into one lane and then another to anticipate the flow. Inevitably, once I switched lanes, the traffic slowed and the cars in my previous lane whooshed past. If I shifted back over, the traffic in front of me once again suddenly slowed and I watched another stream of cars whiz by on either side. By trying to anticipate future traffic flows, I inevitably came up short and increasingly frustrated.

On the heels of the worst short-term opening for stocks (ever!), it is important to have a plan, know your risk tolerance and to implement your discipline with conviction. One day I observed that changing lanes didn’t pay. The best strategy was to pick a particular lane and stick to it. I learned not to zig. Or zag. I resisted the lure of chasing the apparent traffic flow, because from my vantage — in the thick of the traffic jam — I lacked perspective so I stuck with my driving discipline and didn’t veer from the plan.

According to Deutsche Bank, the stock market, on average, has a correction every 357 days, or about once a year. Based on research conducted by John Prestbo of MarketWatch, between 1945-2013, the average correction in the DJIA (a decline of 13.3 percent) lasted a mere 71.6 trading days, or about 14 calendar weeks. Sell-offs don’t last forever and provide an excellent opportunity to buy great companies at a discount.

It is important to note that our aversion to loss can often overpower our desire for return. That is why the first of my 11 Intelligent Investing rules cites discipline: Having any investing discipline is better than having no discipline at all; once your investment strategy is established, never deviate.

In other words, in a market like the one we’ve experienced so far in 2016, don’t cave, don’t sell, don’t capitulate. Rather, this is the time to upgrade your holdings.

Recall my Starbucks (SBUX) example. It is important. In April 2007 I bought Starbucks after a 30percent decline to about $31 per share. In December of that year, Howard Shultz returned as CEO and the market cheered with a rally in SBUX’s price.

And then the financial crisis of 2008 hit and the stock declined to a low of around $8 per share. But even at my flawed purchase level of $31 in 2007, the stock has returned 198.8.8 percent versus 56.5 percent for the S&P 500 through Friday. Stick with your plan in good times and bad.

Nancy Tengler is the author of “The Women’s Guide to Successful Investing,” a financial-news commentator and university professor and Chief Investment Officer for Heartland Financial USA. Reach her at nancy.tengler@cox.net.

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

The Women’s Guide Named Amazon’s Best Business and Investing Book of the Month

I am thrilled.  See below from Amazon:

Each month, Amazon.com’s editorial team reads scores of books in search of those we consider the Best Books of the Month. We also seek and select the best books in popular categories like Cooking, Food & Wine books, Literature & Fiction, Children’s books, Mystery & Thrillers, Comics & Graphic Novels, Romance, Science Fiction & Fantasy, and the best books for kids and teens. We scour reviews and book news, we swap books amongst ourselves, and spend our nights and weekends tearing through as many of the best books as possible. Then we face off in a monthly Best Books showdown meeting to champion the books we think will resonate most with their readership.

The titles that make our Best Books of Month lists are the keepers, the ones we couldn’t forget. Many of our editorial picks for the best books are also customer favorites and bestsellers, but we strive to spotlight the best books you might not otherwise hear about. Each month we also pick “Spotlight” book (the #1 Editors’ Pick) and a “Debut Spotlight” (the best new book by a debut author).

The books included in Amazon’s Best Books of the Month program are entirely editorial selections. We have great passion for uniting readers of all ages and tastes with their next favorite read, helping our customers find terrific gifts, and drawing more attention to great books by exceptional authors.

The Women’s Guide to Successful Investing releases today, August 19th, 2014.

Dollar-Cost Averaging Brings Peace of Mind But Comes With A Cost

Except for July and August in Arizona, when it comes to getting into the pool, I am a toe-dipper; an incrementalizer; a proceed-with-caution kind of swimmer.

Though I understand that diving in will acclimate me to the temperature more quickly, I’d rather shiver and shimmy my way into immersion. And that is also how I buy stocks. Most of us do the same when we invest. We begin with a modest position in a stock and add to it slowly over time. Investors call that dollar-cost averaging, a kind of second cousin to diversification. It is a satisfying approach except that it detracts from total return over time.

Yes, you heard me right. I employ the strategy although I know it hurts my performance. Still, DCA is the preferred approach of most people — especially if they receive a windfall. Putting a large sum of money to work all at once in the stock market is daunting to even the most experienced investor. DCA makes us feel better about investing in the face of uncertainty. And let’s face it, most investing involves uncertainty.

If the market has been strong, we often hesitate to invest all at once because we worry we are buying in at the top just in time for stocks to decline. If the market is weak, we worry it will continue to decline and we will lose our money. By averaging into the market, we are creating a natural hedge. (The most relevant, real-life example of dollar-cost averaging is the investment of our 401(k) contributions.)

DCA is like buying insurance when the dealer shows an ace in blackjack. We choose to give up some of our gains to insure against a loss.

Click here to read more:  The Arizona Republic

True Diversification Enhances Total Return

Author and economist Peter L. Bernstein once wrote, “Diversification is the only rational deployment of our ignorance.” Which begs the question: What exactly is the optimal level of diversification to dilute our ignorance but not our performance?

In 2002, Morningstar analyzed the returns of large company stock mutual funds. They segmented the funds into six categories according to the number of stocks owned in each portfolio. The most concentrated portfolios held 10 to 20 stocks, while the least concentrated held more than 100 stocks. Results were measured over 10 years. The best-performing category? Portfolios holding 10 to 20 stocks. My experience proves what the research suggests: More is not necessarily better. When we own a few great companies across broad economic sectors, we will generate excellent returns over time.

This column has advocated owning shares in companies of industry leaders. Since economic sectors are made up of numerous industries, it is important for us to understand if we have too much or too little exposure to a particular sector to ensure proper, real diversification in our portfolio. To do so, I go to Fidelity Investments’ website, fidelity.com, then click on “research” and click on “stocks.”

Click here to read more: The Arizona Republic

Growth Stocks Are Wired for Volatility–Buy Value for the Long-Term

Growth stocks occupy the majority of investor and media mind share. More air time is spent on the sales and earnings growth of companies like Tesla, Chipotle and Netflix than their slower-growing counterparts. These high fliers are trend leaders and their stock price performance, while volatile, is generally volatile to the upside.

Until it isn’t. When one of the growth darlings slips and reports an unexpected earnings miss, a once buoyant stock price can tank in a New York minute. Take Whole Foods (stock ticker: WFM).

For the remainder of the column click here: The Arizona Republic

Revisiting My previous Post Regarding Oracle, Corp.

On August 21st of 2013, I wrote a syndicated blog post for The Motley Fool which I linked here.  In that post I suggested that investors consider building a position in the extremely unpopular shares of Oracle Corp (ORCL). At that time it was difficult to find a Wall Street analyst or financial news pundit with a positive comment on the stock.  Most were convinced that legendary CEO, Larry Ellison had suddenly lost his mojo.  He didn’t understand the “cloud” they exclaimed and wasn’t likely to recover from the misstep.  Having watched Ellison and the company for some twenty plus years, I was unwilling to sell him short.  He is a tough competitor and an outstanding leader.  Love him or hate him, you simply can’t argue with his track record in building wealth for himself and his shareholders.  I suggested in my post that he understood cloud computing and was in the process of making strategic acquisitions to right-size the company’s future.

Since that post the total return for the stock is a positive 28.5% versus 15.7% for the S& P 500.

Lest you think I am declaring victory, I am not.  I’ve been investing too long to make that mistake.  There will–at some point–be another problem.  The stock will likely go through another period of difficulty.  Which may just provide another opportunity for savvy investors to buy. When we own shares of great companies–what I call stocks to own for a lifetime– problems often create an investing opportunity.  The question we learn to ask when these companies encounter operating hiccups and stock price declines is: does the management team have the financial and strategic wherewithal to solve the problem?  The Wall Street crowd obviously has doubts which is why the stock price has declined, but often management is in the process of fixing the problem just when investors expectations and the stock price reach their nadir.  Remember that Wall Street and the financial news pundits have a short-term focus.  Ours should be long-term.

And, frequently, their disaster is our opportunity.

 

Why I am Bullish on Stocks Despite the Government Shutdown

Call it American exceptionalism.  Call it the indomitable spirit of capitalistic innovation. Call it whatever you like.  America’s energy production is surging thanks to new technologies for extracting oil.  Hydraulic fracturing (fracking as it is often referred to) has allowed US companies to access shale-rock formations of oil and natural gas that were not fathomed as recent as a decade ago.

The Wall Street Journal posted a front-page headline today that said:  “U.S. Rises to No. 1 Energy Producer.”  Overtaking Russia as the largest producer of oil and natural gas in the world.

Our energy advantage is making American companies more competitive around the globe.  So much so that manufacturers are beginning to move facilities back onto U.S. soil.  This is the kind of macro trend that will eventually rise above the noise of government shutdowns and poor government policies and drive growth for company earnings…in spite of Washington.

I am not advocating that stocks will rise tomorrow but they will over the long-term.  Recently the head of a major European company told The Wall Street Journal he hadn’t seen this kind of economic and competitive advantage available to any company during his entire career.  This energy advantage is going to make U.S. companies very hard to compete with he concluded.

You should always buy stocks for the long-term.  If you have a shorter time horizon this may not be the time for you to invest.  But with the market fretting over government shutdown and default now may be a good time to pick away at some of your best ideas.