Weekend Reading 4-13-14

Here are some articles that caught my attention this past week: Topics include: How to pay too much for stocks, The world of Mad Men’s Don Draper, why I cheer for lower stock prices and more.

Don’t get dazzled by Glittering Growth – Jason Zweig



It only took a 300% rise in the stock market over the last 5 years to get investors back interested in stocks. And now, investors are repeating a similar mistake – overpaying for the hot “growth” stocks of the day.


“There isn’t any doubt that the potential profits from breakthroughs in biotechnology are huge. Nor was there any doubt, back in 1999, that the Internet would boom—and, sure enough, it did. If you happened to buy Amazon.com, you ended up being right—and making a good investment. But if you bought just about anything else, from America Online or Exodus Communications to Lycos and VerticalNet, you ended up badly underperforming the rest of the stock market—even though the Internet grew just as explosively as you expected.”


Reminds me of a great quote by Benjamin Graham in his classic book The Intelligent Investor:

“Today’s investor is so concerned with anticipating the future that he is already paying handsomely for it in advance. Thus what he has projected with so much study and care may actually happen and still not bring him any profit. If it should fail to materialize to the degree as expected he may in fact be faced with a serious temporary and perhaps even permanent loss.”


Some worry what would happen if all investors started index investing. But I think the evidence from the past year or two in some names proves that some greedy investors have the memory of a goldfish.




The “Mad Men” Chart Book, just how different Don Draper’s world was from yours


Not totally investing related, though there are some great charts on Dow Jones Industrial Average level, interest rates, etc, but a quick, fun read nonetheless.




J.P Morgan Guide To The Markets



I missed this last weekend, but this is always on my reading list whenever it is updated. J.P. Morgan’s researchers do a great job putting together tons or charts and data about the economy today.

The whole presentation is worth a look, here is just one slide I want to highlight.


A lot of media time and internet bandwidth is begin used today to discuss the “upcoming market crash”. They are right in a way, there will be a day when the market goes down again, and that’s ok.

But for investors waiting for a 2008 repeat (a once or twice in a lifetime event), I just don’t see where it is going to come from.



Sure, stocks are more expensive than a few years ago, and a 10-20% correction will probably come within the year. But systematic collapse? Not looking likely. Corporations are making more money than ever with the least amount of leverage they have had in over 20 years.


As confidence increases and we pull ourselves out of this balance sheet recession, leverage should tick back up, which should propel profits even higher. But looking at charts like that make me more than comfortable to continue to buy and hold at today’s levels.



The Blessing of Declining Stock Prices



A classic lesson straight out of the book of Buffett and Graham. There are 2 days the price of a stock matter to you. The day you buy and the day you sell. What it does in between really doesn’t matter.

So when you can research a stock well enough to have confidence it won’t go the way of the dodo, declining prices is just an invitation to make more money in the long run.


Low morale will continue until the beatings improve



This past week was not a good one for investors heavily invested in high flying growth stocks. Biotechnology and social media took the brunt of the sell off. Josh’s input on the market is always humorous and more importantly educational. Here is the crux of it:


“The upshot is that if you have a diversified portfolio, you’re not quite howling in pain yet. While the Nasdaq and Russell are both down more than 7%, the social media and biotech index are down 20%, there are other areas of the investable markets that are doing just fine. The Dow is down less than 2% and the S&P is down less than 4% from the recent highs. In the old days, this is how stocks used to act! It wasn’t 72 and sunny every day, but somehow we survived. Investment grade corporates, high yields, Treasurys are all up on the year. So are foreign stocks, the VXUS – an ETF that owns the world’s equities ex-United States, is up around 2% since the year began.

So unless you came into the year fully invested in US equities, chasing the hottest sectors, you’re fine. Trend-following was your friend last year, asset allocation is your friend this year.”



That’s all for this weekend. Happy investing!

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