Mike Lipper’s Monday Morning Musings
Data
Performance/Easy.Interpretation/Not
Editors: Frank
Harrison 1997-2018, Hylton Phillips-Page 2018
Simple Numbers Not Useful Answers
The
Standard & Poor’s 500 index with dividends has annualized compounded
performance reported to be 10.81% since its theoretical inception in1871. The
index’s performance since 1965, the period for which Berkshire Hathaway has a
public record is 9.9%. The Buffett/Munger
record for this period is 19.8%, or twice the index. I find the three-year
record of Berkshire Hathaway compared to the S&P 500 and NASDAQ of greater
interest. Berkshire’s compound growth rate was +11.34%, the S&P 500‘s +7.66%,
and the NASDAQ +7.80%.
The
overall superior Berkshire result produces more comfort to me and clients than
just the raw performance numbers. Remember, Berkshire’s combined results
include their operating assets and expenses. I do not normally use three-year
performance comparisons, as they frequently do not include one or more down
years. The S&P 500 had three periods of two consecutive down years in the
58 years, vs. Berkshire which had only one such period. Over the entire 58
years the index fell in 13 calendar years, vs.11 years for Berkshire. (Psychiatrists
tell us we feel twice as much pain from a loss vs. a similar gain, which makes
sense arithmetically.)
Since
we manage money for ourselves and others, investment performance is only part
of the gain. Our reward is having the proceeds used productively by our
beneficiaries or ourselves. If we or others squander the proceeds through bad
choices its human impact is the penalty we should calculate in assessing success
or failure.
Perspective
on the last Three Years
On
a purely mathematical basis, performance for the last three years suggests we
have entered a different period than before. For the five years ended this past
December, the S&P 500 index rose by an annualized 9.43 %, which is not a great
deal different than its annualized 10.81% return since 1871. However, what is
different is the S&P 500 Index growing only 7.66% annualized over the last
three calendar years. (Berkshire, because it didn’t have the down year and had its
operating side perform better than the security side, produced a compound annual
return of 11.34%.)
While
our accounts benefitted from Berkshire’s performance, the accounts will track a
bit more closely to the index. I don’t know how much longer this particular
phase will last, we have quite possibly entered a stagflation period. The president
and past president have been spenders, comfortable with debts rising faster
than the ability to repay it.
If
we define a period of stagflation from purely an investment perspective, we had
six multi-year periods where the index did not produce a single year rising 20%
or more, (1968-1974, 1974-1981, 1986-1989, 1992-1994, 1999-2002, 2004-2008,
2010-2012, 2014-2016).
A
number of CEOs are changing. In many cases the new ones have strength in
operations rather than skills climbing the political ladder.
We
are also seeing changes at the supermarket. In one of the normally high-priced
markets they are no longer carrying the highest price merchandise, e.g. lobster
bisque. The weekly list of prices for stocks, bonds, commodities and indices are
fluctuating wildly. Less than 10% of prices on the WSJ weekend list rose the
week before last. This week 88% rose. To add to the confusion in the securities
marketplace, the NYSE saw prices decline for four of the last five trading days,
vs. three out of five for the more trading-oriented NASDAQ. For the week, 62% of
prices dropped on the NASDAQ vs. only 54% on the NYSE.
American
investors and their institutions have been selling US stocks but buying both
European and Asian stocks. Those buying in the US have favored small-capitalization
stocks, including those having more physical assets.
Low
transaction volume in US stocks is being offset by investors favoring perceived
to be less risky investments.
We
may well be in a phase like the period between the Archduke being assassinated
and the formal beginnings of World War I, which was obviously going to happen.
Question: What are you looking at to signify a
new market phase?
Did you miss my blog
last week? Click here to read.
Mike
Lipper's Blog: “This was the Worst Week of the Year” - Weekly Blog # 773
Mike
Lipper's Blog: A Terrible Week - Weekly Blog # 772
Mike
Lipper's Blog: Primer on Starts of Cyclical & Stagflation - Weekly Blog #
771
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