THIS IS MY 166TH BLOG ON UNDERSTANDING MONEY
TOOLS
June, 2019
With the markets recently trending down a couple of friends
asked me for stock advice. In my
blogs I attempt to discuss “tools” for investing and from there you have a
couple of options. One would be to
use these tools to do your own stock analysis. The second option is to seek out professional advice, and
this may include subscriptions to stock “gurus” and financial planners. I don’t recommend any particular stocks
or options, and do not stay on top of that to render any good advice.
If you select to go it on your own you may want to invest in
trading software, lots on the market; seek out the best. If you go with professionals, again go
with the recommended best. If it
is a Certified Financial Planner they are most likely no better than the investment
bank they work for telling them what to do. Statistics have found that money managers in the long run
are no better than an index or mutual fund. They’ve even run stats against monkeys, and sometimes the
monkeys do better on selecting stocks.
Subscribe to about 2 or 3 top financial stock reports. Perhaps one who likes solid “blue chips”,
another liking small cap NASDAQ or foreign exchanges. Most of these “gurus” are great in “bull markets”, however
lose money in “bear markets”. You
may do just as well going to casino!
I have either worked along side some of the best, or been associated
with the following:
- Tom
Bailey who started Janus Capital Group in Denver, also worked for Vail
Associates with me.
- The
guys who started Invesco Funds were classmates in college and friends.
- Jim
Galbreath, Managing Director of Nuveen Asset Management, roommate in college
and one of my best friends.
- Jeffrey
Jennings, manger of investments with International Monetary Fund and
subsequently manager of “long” investments with Whitehead Associates in NYC and
Greenwich.
Even with all these contacts I still have lost a lot of
money at times; win some years, lose some years. I have never been a great one for timing the stock market,
and few can time markets correctly.
A good example of market craziness was on May 30th when Uber announced
their first quarter earnings after going public and they lost $1 billion. Wall Street estimated losses at $1.1
billion, viewed this as good news, and their stock rose $2.; a company that may
never produce a profit! This is considered “good news”? We’ve run an enormous ride up in the
stock markets, time to be careful.
Here is a thought-provoking question for you. Since 2009 when the DOW Jones Average
was at 9,000 and today it is at 25,000 what is the justification as our GDP
only rose between 1% and 3% during those years? US companies working internationally also face a challenge
as many of the world countries have faired no better, or worse, including
Chile, Argentina, Brazil, Venezuela, France, Spain, Portugal, Italy and even
Germany. So what has driven the
markets up from a normal 15:1 price to earnings ratio to 26.5 to 1? Only 2 things: too much capital for investments and
companies buying their own stock back with debt (bonds).
Play it safe now for investing. If you have a surplus of money, then gamble with it in investments
like China or technology.
Some people ask how Warren Buffett has done so well on
investing in stocks over the 60 years, or so. He started out, like most, analyzing and buying
quality. He has made his big money
by either buying companies or buying substantial quantities of stock in a
company placing one of “his people” on the Board and assisting in management or
control of a company. Buy some of
his stock; just joking! His Class A stock is currently priced at $298,000 per
share. Warren hasn’t split his
Class A stock, and wants only institutional or very wealthy investors.
This quarter’s US Gross Domestic Product should slide down
to about 1%. These tariffs that
President Trump is placing on goods from China and Mexico are in the end paid
by the American people. It hurts
us as much as the countries producing goods, just a pass through of cost, and
will naturally slow our economy.
What would I do now?
Look at not losing money.
- Look
for solid good A-rated municipal bonds, where you get a tax break, and a decent
yield.
- Look
at “staple”, necessary product companies where even in a recession people will
continue to buy product.
- Seek
out good companies with price to earnings ratios of 10-12, (lower the better)
and paying a good dividend. Don’t
forget that if a company runs into financial trouble the Board of Directors can
cut the dividend payout. Past
performance of dividends are not guaranteed in the future.
Gold just broke through $1300 an ounce as I write. Perhaps a small amount of money in that
might be a nice hedge. It had
remained stable under $1300 for quite some time. Buying gold stocks is easier than buying bullion and storing
it.
And lastly, if you have stocks that have risen significantly
in price, and you have held them under 1 year (short term capital gains tax
rate applies) get assistance on placing a hedge with put options. (We have discussed the options markets
and how they function in my past blogs.)
No comments:
Post a Comment