Investing in Wishes or Thoughts, Fair or Full - Weekly Blog # 613

Mike Lipper’s Monday Morning Musings

Investing in Wishes or Thoughts, Fair or Full

Editors: Frank Harrison 1997-2018, Hylton Phillips-Page 2018 –

Everything people do involves investing. Committing effort, emotions, or capital influences our immediate, short-term, or indefinite future. Thankfully, a relatively small portion of the world’s population invests in securities and funds, which is the focus of these blogs. I have been asked where I get the ideas for these weekly blogs and the simple answer is that they are derived from my thinking about the investment implications of much what I observe, through reading and other inputs. Today’s blog is drawn from my investment thoughts on what I observed this week.

Davos Implications from the Media
The global meeting of the “bright people” drew government leaders, politicians, business leaders, and experts (some self-appointed). We are all in sales and attempt to convince others and should recognize those who are similarly trying to convince others. My first impression was that almost all attending were selling their views rather than looking to buy the ideas of others. As someone who has attended many conferences that were turned out to be sales meetings, I have found them to be useful in making the initial sales effort and reinforcing my knowledge of previously sold items. Thus, my impression of Davos was that it was an expensive way to see old friends and make some new contacts who might possibly introduce the participant to an absent or eventual buyer.

In a few media interviews there was the expressed desire to moderate the boom and bust cycles, usually through some “top-down” strategy. This is a classic wish from those hurt by past recessions, who lust for the power to prevent future recessions. They want to live in a planned world, but they forget the old expression “man plans, and God laughs”.

There are two primary sources of economic/business cycles, fear and greed, and surprises. Today, practically every businessperson and politician are anxious to lengthen the present cycle through to their next critical report or election. The main way they attempt to do this is by weakening the safeguards put in place during the last cycle. They may be temporarily successful in keeping the game going through the next milestone, but increase the risk of failing to reach future milestones. Even if we are successful in moderating the greed in people, we will still be subject to periodic surprises like unexpected weather conditions, medical emergencies (coronavirus, etc.), and machine failures.

To me, the real message from meetings of “bright people” is that we live in an uncertain world. From an investment standpoint it means we need a series of human and financial capital reserves, recognizing that by definition we won’t be able to anticipate all surprises. The best we can hope for is to be a bit early in in recognizing changes. For example, politicians and other marketers are pitching for perfection, but are only going to get well thought out ideas delivered by imperfect humans.

This Week’s Divergent Views
Normally, followers of fund investments expect the average weekly performance to be less than half of 1%. This week through Thursday it was -0.37%, although there were nine mutual fund investment averages that lost over 1%. They were led by a drop of -3.94 % for the 130 Energy MLP funds and a -3.63% drop for the 98 China Region funds. Two investment objectives gained more than 1.0%, the 58 Utility funds gained +2.00% and the 267 Real Estate funds gained +1.06%.

The American Association of Individual Investors (AAII) sample survey showed that 45.6% were bullish compared with 33.1% three weeks ago. (Readings above 40% are abnormal.) In reviewing the weekly prices of stock indices, commodities, and currencies, 31% rose and 69% declined.

Quite possibly, the Dow Jones Industrial Average (DJIA) and the S&P 500 Index charts are signaling a rounding top. A rounding top for the NASDAQ Composite chart has not yet developed. This is significant because the NASDAQ has led the older indices higher. The question for long-term investors is whether current prices and valuations represent fair or fully priced merchandise. Fair prices suggest that buyers and sellers are evenly matched, with equilibrium prices having as much risk as reward for the period. Fully priced suggests that without any new positive information, there is more risk at current prices than there is upside. Relatively low volume and somewhat quiet derivative trading suggests that the direction in the near-term is not yet clear.

Attitudes are a Jobs Problem
In the US there are more job openings than people registered to work. When I question why employers can’t fill their vacancies, one of the constant replies is attitude, particularly the attitudes of young people who attended college. The employers are particularly concerned with  the attitudes of those who’s schooling was not centered on STEM. Those who are primarily schooled at liberal arts institutions (notice I did not say educated), believe that they do not have to provide a sufficient amount of work and cooperation with their bosses and fellow workers. They believe that they are entitled to jobs because of their time spent in school but are not committed to working hard and diligently. I suspect that in some cases the job seekers expect the need for more discipline than there was at school or home.

Saturday night, a thought occurred to me while listening to the New Jersey Symphony Orchestra’s Lunar New Year concert and celebration. At the end of the concert the stage was crammed with a large group of Chinese-American children between the ages of five and sixteen singing in Chinese, Italian, and English. They not only sounded good, but were an example of strict physical discipline. They reminded me of the precision drill teams I experienced in Military School and in the US Marine Corps. As a potential employer I would be very interested in discussing future employment with these choristers compared to some of the young people discussed above. A disciplined work force like those found in parts of Asia is another reason to continue to invest in Asia securities and funds.

Question of the week: Which of my ideas are helping you with your investments?



Did you miss my past few blogs? Click one of the links below to read.
https://mikelipper.blogspot.com/2020/01/is-it-always-brains-over-flexible.html

https://mikelipper.blogspot.com/2020/01/architectural-sway-points-and-current.html

https://mikelipper.blogspot.com/2020/01/how-much-will-markets-decline-10-25-or.html



Did someone forward you this blog?
To receive Mike Lipper’s Blog each Monday morning, please subscribe by emailing me directly at AML@Lipperadvising.com

Copyright © 2008 - 2019
A. Michael Lipper, CFA

All rights reserved
Contact author for limited redistribution permission.

Possible Tags