Mike
Lipper’s Monday Morning Musings
Tis
the Season of Joy & Reflection
Editors: Frank Harrison 1997-2018,
Hylton Phillips-Page 2018
The Season
Around the world families and friends gather to exchange holiday
wishes with those who are close to us, either in person or through electronic
devices. We express feelings of goodwill, with the hope that all are happy and
in good health. We often harken back to times of shared thoughts as we communicate
with one another.
As we get older, we reflect on the progress that we and
those close to us have made over time. It is remarkable how much success we
have had and do not dwell on less happy
periods we have passed through. Those of us who carry the investment and
political bug lapse into thoughts about the unknown future, which will likely bring
periods of happiness and sadness. As an addict of history, I know we will live
through both types of times. My wish for all of our families and friends is that
we continue to enjoy more good than bad periods, and most importantly learn
from both.
Last Week was not of much help, or was it?
The first three trading days showed more losses than gains.
The last two days generated advances that more than made up for the earlier losses.
For the week there was a slight gain, leaving the three main stock market
indices less than 3% from record levels. (For most of 2025 the S&P 500
traded in a relatively narrow band. Market analysts often believe this type of
banded performance is the storing up of energy to either break up or down by a
significant amount.) However, looking at the week as a whole, 50.8% fell on the
NYSE and 60.1% fell on the NASDAQ. On the “Big Board” there were 233 new highs
vs. 198 new lows, while on NASDAQ new lows were the majority, 554 new lows vs.
352 new highs. (Since the NASDAQ has risen more for the year, I believe it is a
better guide to professional thinking, at least at the moment.)
What is more important?
All market analysis is about picking the expected period of
ownership. Warren Buffet would like to never sell a stock he’d bought for
Berkshire Hathaway, which is owned by us in client and personal accounts. (This
may change a bit under the new CEO of Berkshire.) His approach is followed by
other publicly traded family holding companies, who additionally own shares of Belgium,
Canadian, French, Italian, and Swedish companies. (For the most part, all of
these companies invest for the foreseeable long-term, which we try to copy.)
In looking at the long-term, we expect that stock prices to be
cyclical, with some down periods. Most of these holding companies are buyers of
stocks below their perceived long-term investment value. (We try to do the
same.)
Applying this thinking to 2026
Having learned analysis at the New York race tracks I look
for a wide gap in the odds posted, which measures the amount of money invested
in each horse and the self-determined probability of each opportunity. When the
gap is large it is worth a bet. Recognizing that in order to win I must overcome
track fees, individual expenses, taxes, and racing luck. There is also a near
certainty that on average I will be wrong (premature) on some individual bets,
but right on monies bet and earned. When this logic is applied to investing in
stocks and funds, I am very selective and very conscious of the investment
environment. When the bulk of the crowd is betting considerable amounts of
money in one direction, I don’t bet or at least bet very differently than the
crowd.
Currently, the crowd believes stock prices are attractive and
are expected to rise as they have for a number of years. However, each year that
stocks rise reduces the probability of them rising in subsequent years.
Considering the number of years of positive performance, the chance of a repeat
is low. Especially when you consider the US election cycle, a bullish
government reducing domestic constraints, Ukraine, Middle East tensions, an
ambitious China, and technological challenges.
The one thing wrong with my outlook is the frequency of the
number of declines over advances. There were some sellers in the late 1920s, one
of which was my grandfather, to the benefit of his clients.
This may not be the time to be 100% in or out. What do you
think?
Did you miss my blog last week? Click here to read.
Mike
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