HATE DOESN’T WORK FOR INVESTORS - Weekly Blog # 617

Mike Lipper’s Monday Morning Musings

HATE DOESN’T WORK FOR INVESTORS

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

Few if any investors like the current market, where on relatively low volume volatility has picked up, particularly intraday. This suggests that the stock market is dominated by relatively few traders with strong views. To the extent that bonds and credit instruments are sought to provide reasonable income, investors are finding current yields unattractive. The continued increase in demand for fixed income suggests that yield is not a driver. Some investors, perhaps counseled by investment advisors, suggest that bonds and credit instruments will be a safe port in the anticipated coming equity storm. The growth of corporate and individual debt, plus the deficit spending by most of the developed world, suggests there will be something of credit crunch. This may surprise holders of fixed income securities when they see an increase in the volatility of prices.

Nevertheless, people are being driven by “hate” of stock price volatility. While this blog is intended to deal with investments, it recognizes the environmental background influencing the decision process for some investors. If they can hate certain political leaders, geographies, foods, and sports teams, why can’t they hate certain investments?

Years ago, there was a very successful Broadway production and movie titled “Damn Yankees”. It was the story of a long-suffering former Washington Senators baseball fan whose team could never seem to defeat the New York Yankees, preventing them from getting into the World Series. His solution was to do a deal with the Devil, which enabled him to become a baseball player “phenom” for almost a full season. He led the Senators to victories right down to the last play in the last game, when suddenly the Devil’s magic wore off. He returned to his former state as a middle-aged lamenting fan as the Senators never learned to play better or get better players. (The losing team eventually left Washington and over the years were replaced by a new team using the old beloved name. Readers can make up their own minds whether this myth should be applied to the Senators working on Capitol Hill.)

Apple (*), Tesla, Microsoft (**), and perhaps Amazon are stocks that some investors have “hated” at various points in time. Historically, this has been a mistake for the following reasons:

1. The most important thing about any stock or bond is its price. The physical and intellectual scrape value may be worth a substantial premium.
2. In many cases there are good people in failed companies who have learned from their experiences. They now provide substantial help to others, some of which are winners.
3. The downfall of the hated may well be due to improvement in the opposition.
4. The nature of competition may have changed, benefiting the hated. (Microsoft and Apple are good examples)
5. Internally, hated leadership can change.  

(*) Owned in personal and managed accounts.
(**) Owned in funds utilized in managed fund portfolios.)

Once again, we urge investors to sub-divide their portfolios into slices of expected payments needs. Earlier payment periods should have less equity and more low-yield, money market fund type investments. Periods beyond ten years outside of opportunity reserves should be equity oriented, particularly legacy accounts. Payment slices in the five-year range should have at least 50% invested in risk products at all times.

To avoid falling into the “hate” trap, make a list of three positives and more negatives.

Question? Have your “hated” investment opportunities cost you?



Did you miss my past few blogs? Click one of the links below to read.
https://mikelipper.blogspot.com/2020/02/investment-losses-can-be-prots-weekly.html

https://mikelipper.blogspot.com/2020/02/the-art-of-portfolio-construction.html

https://mikelipper.blogspot.com/2020/02/significant-turnaround-two-fearful.html



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