Mike Lipper’s Monday Morning Musings
Investors Focus on the Wrong Elements
Editors:
Frank Harrison 1997-2018, Hylton Phillips-Page 2018
Combing Mr. Buffett
with Albert Einstein
Compound interest, the eighth wonder of the world, is
wrongly attributed to Einstein according to the people at Caltech.
Nevertheless, Warren Buffet stated, “He who understands it (compound interest)
earns it. He who doesn’t pays it.” The better long-term investor understands it
and uses it in drawing up his/her long-term strategy.
I have tended to use a long-term lens in my lifetime focus
on mutual funds. My particular focus is the long-term, the ten-year record of
the average performance of 30 equity fund indices for the last 10 years through
August. Of the 30 only 7 had double digit returns, the highest being
Health/Biotech which rose 15.67%. I also looked at the 25 largest stock mutual
funds for 5 years, 17 of which produced double digit returns, with only one
reaching the twenty percent level. It was Invesco QQQ Trust, which gained
21.30%.
This research reminds me of one pension plan a number of
years ago which sold all its equities when the portfolio was up 20%. It was one
of the best performing pension funds. Strange for me considering my background
to suggest that superior performance could well be a signal to reduce
investment. I say this knowing that every few years there is a period when one
or more funds gain 100%. Strangely, none of these wonders makes the best
performing list for the five or ten-year period.
The Media and Frequent Statements by Pundits
Traditionally, media outlets get more attention when the
news is bad. However, in covering the
market and economy there is much space devoted to “happy news”. What seems particularly
true is headline editors, correspondents, and allocators of space/minutes seem
to share a single political view. It is occasionally worth reading to the end
of an article where the other point of view gets some exposure. Operating
margins for news distributors are under pressure, which has led to surveys
where the number of people polled is only between 1,000 and 1,500. This might
be okay, except that many people on the right don’t trust polls and media
related agencies and thus do not participate in polls, often causing the prediction
of incorrect election results.
What Should We Be Following
- Unlike the current situation in the US, many nations are seeing younger people move up. This is particularly true in the Middle East, Africa, and Asia.
- China is exporting surplus steel, which amounts to half of what they produce
- Our Presidential election on both sides exaggerates
- their commitment to integrity
- The pouring of money into small company start-ups will curtail the future of small business capital formation. The odds of repaying these loans and other bribes will probably be similar to the repayment of student debts. The unstated purpose of these programs is to hurt the families and friends of the would-be entrepreneur.
What elements are you watching to help make decisions about
the two apparently unrelated games, equity markets and economy? How will global
problems impact them?
Did you miss my blog last week? Click here to read.
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