Mike Lipper’s Monday Morning Musings
Investment
Thinking During a Lull
Editors: Frank
Harrison 1997-2018, Hylton Phillips-Page 2018
The most
important and precious investment commodity is not money or reputation, but our
time. Throughout a good bit of 2023 the US stock market rose and fell but went nowhere
in many weeks.
Perhaps
we
have entered a period of stagflation, with our cash flow
squeezed by rising expenses and slowing gross investment returns during periods
of low equity volume. In other words, it was dull
despite what happened in the economy and political sphere.
Many of us wasted the most precious investment thinking of our time. Most investors focus their time on trying to guess the next integer of return in their portfolios, when they should be estimating the cash flow needed to meet expected expenditures. Second, we should attempt to estimate a termination value at death, or the liquidation of the estate.
Far too many investors have a collection of securities resulting from transactions focused entirely on the reasons to buy or sell a specific security. This can be appropriate if you are blessed with specific trading skills. However, very few are so blessed. Over time, most investors get more benefit from a diversified portfolio. One such portfolio for a newly retired person not expecting to trade the account might have the following components:
- High quality long-term fixed income (1/2 in US Treasuries and ½ in AA corporates)
- Large-Cap Growth
- Asian Equities (Exporters or high savers)
- All-Cap recovery candidates currently producing net operating cash flow below average for the last five or possibly ten years.
It is not
important for this exercise whether one agrees with
the sector choices.
The key to the exercise is that each sector is assigned a weight. The job of an intelligent portfolio manager is to set the outer limits for each sector. When a sector’s boundary is breached, an adjustment should be made to return the portfolio to a sensible balance.
Many of our big winners were established early in our investment history. It would
be unwise if most of our winners were bought at roughly the same time. A good portfolio should have a combination of new and old winners based on the current situation,
including key people.
Prices move throughout time, often based on “leaks”. Studies of leaks reveal that between
1/5 and ¼ are known in the market before official notification. Investors should be aware that news leaks frequently happen during wartime or dull periods.
What are your thoughts?
Did
you miss my blog last week? Click here to read.
Mike
Lipper's Blog: Need For a Correction Decline - Weekly Blog # 801
Mike Lipper's Blog: Not Yet! - Weekly
blog # 800
Mike Lipper's Blog: What Do Single
Digits Mean? - Weekly Blog # 799
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