Over long periods of time one would expect to see the stock market to continue to provide better returns than the fixed income market. What will have the best return over the next week or month, nobody really knows and no one should really care. To reach your investment goals, you need a solid plan and portfolio built around your own circumstances and risk tolerance. The ability to stay the course during periods of high anxiety becomes the key. Increasingly, it seems the news stories become so scary that investors are frightened to cash “waiting for a better time”. This emotional behavior leads to underperformance for most and total frustration for many others. Playing the market based on news or focusing on “what is going to happen next?” is a slippery slope.
Investing really offers only two main choices- lending your money out or owning things. Gerald Loeb, the great investor of years ago, shared in The Battle for Investment Survival the goal of investing is to outpace inflation over time, after all fees and taxes. That might sound simple but is not easy to achieve. In order to do this you need to embrace the approach of owning things- equities, real estate, coins, and other collectables. These days the coins and collectables come in many varieties but that is another story all together.
Lending your money for fixed interest payments is a good strategy if you get paid back on time and the interest rate is high enough. When interest rates are this low, you are almost certain to lose to inflation over time. Even as yields “have popped” to over 1.75% for ten year US treasuries, expect true inflation to continue to run significantly higher than reported inflation. You may not lose money, but you most certainly will lose your purchasing power.
The stock market offers long term opportunity but seems to confuse too many people. We continue to hear the ageless debates regarding which styles of companies you should favor. The comparisons have gotten more complicated. The choices can be confusing- value or growth, technology or cyclical and now “economy opening” or “economy closing” stocks. My approach is instead to focus on high quality that we can measure. Our models invest in the few companies that pass the Magnet® screens looking for value, growth, and earnings momentum. Less than 1% of companies can pass all our screens. Then we eliminate even more companies before we make portfolios selections. The discipline of managing concentrated but diversified portfolios of companies with increasing dividends, cash flow, and conservative accounting keeps me from thinking I need to know what will happen next.
For now, current market internals are positive. Despite the NASDAQ large caps looking soft, the overall advance decline line looks healthy and the new low list is small. Leading economic indicators are positive and the Fed is giving clear signals they are willing to let the economy run hot. With that backdrop our team’s focus is on our portfolios, not what someone says might happen next.
Flickr photo: Sunil Soundarapandian
Jordan Kimmel Chief Equity Strategist
Portfolio Manager Lebenthal Global Advisors
200 Parkway Drive South Suite 200
Hauppauge, NY 11788
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