Premature: Buying Program to Begin Soon? - Weekly Blog # 931

  

 

Mike Lipper’s Monday Morning Musings

 

Premature: Buying Program to Begin Soon?

 

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

 

 

 

Basic Investment Principle

Investment opportunities are cyclical in both timing and magnitude. Larger gains are achieved after periods of extended declines. Since one does not know the extent of a decline or magnitude, it is wise to use a buying program. For instance, invest no more than 10% of buying reserves at any time. (This assumes you establish a buying reserve in rising markets. Charlie Munger has taught us to buy good companies at fair prices rather than always look for “cheap” prices.

 

Recently, my sister-in-law sent me a copy of a letter from my grandfather to my late brother sometime after he left the Marine Corps to begin his life in the investment business in the mid-1950s. My grandfather, who built his own brokerage firm for more than thirty years, cautioned my brother to always expect periodic recessions and less frequent depressions. He also advised him to not invest against the US, as the country was rich in natural resources. (This is still good advice, but there are times when our government makes our currency risky for a period.)

 

Where are We?

Most investors in defining where we are, do so by looking at where we have come from. The pundits wax poetic about recent data extrapolations, expecting the past to be repeated. My analytical training at the New York racetracks and as a US Marines Corp Officer was to always examine the current situation and expect some change.

 

Today, many pundits and politicians see an improving picture. As a student of financial history, I am conscious that it has been some time since the last recession. Furthermore, it has been 97 years since the Wall Street crash and the 12-year depression. Few people recognize any similarity between that time and our current condition.

 

Trading Alerts-Correction, Recession, or Depression?

The following are a number of alerts from last week suggesting we are entering a period of more declines than increases:

1. Morgan Stanley is planning to cut 3% of its customer-facing workers.
2. 73% of stocks traded down on the NYSE and 67% on the NASDAQ. A pattern which has been going on for several weeks.
3. The ECRI industrial price index rose to 126%, a 4.73% gain year over year. Clearly, the war in the mid-east is inflationary. 85% of prices tracked by the Wall Street Journal each weekend declined, echoing the ECRI results
4. Individual investors and those serving retail investors are not confident in their outlook for the next 6 months. 33.1% are bullish and 35.5% bearish.
5. The S&P 500 index is the best indicator of the market for both institutional investors and wealthy investors. Along with most other indices, the S&P 500 index fell on Friday. If this was the beginning of a recession and the index were to decline to where its rise began, it would drop 28%. If this was the beginning of a relatively mild depression, the drop could be 49%.

 

Advice to Buy Program Buyers

I have found it extremely difficult to buy at the exact bottom, as most declines don’t appear convincing enough. The advantage of using a buy program strategy instead of a one-shot purchase is that you will likely have a collection of winners and losers before the overall market has reached back to its original starting point, assuming you buy 10% each month or quarter. However, that is not the point of the exercise. You should want to hold your position until it has reached the condition of a great company at too high a price, where some trimming makes sense.

 

Please share your thoughts with us.   

 

 

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Mike Lipper's Blog: Expectations Changing? - Weekly Blog # 930

Mike Lipper's Blog: Diversification - Weekly Blog # 929

Mike Lipper's Blog: To Win Long-Term, Learn From Great Presidents - Weekly Blog # 928

 

 

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Do Current Prices Lead Future Markets? - Weekly Blog # 926

 

 

 

Mike Lipper’s Monday Morning Musings

 

Do Current Prices Lead Future Markets?

 

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

 

 

Lessons From the Weatherperson

With condolences to too many in the US and Europe this weekend, no snow came down in Summit, New Jersey today. The purpose of mentioning this is not to gloat, because we will have our share of bad weather in the future. The purpose is to remind all of the lack of certainty in predictions, and to remind all that the real value of weather-people is making professional investors look good!

 

I have one advantage in the securities analysis game, another title for predictions. My advantage is I learned analysis at the New York racetracks. The first thing was to read the situation, which included the conditions of each race and many other details. The purpose of this exercise was to eliminate races that were difficult to analyze. For example, younger horses with little to no experience, or a clear standout quoted at very small odds. Remember, my prime objective was to leave the track with more money than when I arrived, after expenses. A goal only a minority achieved each day. (This led to never wagering all on any given race and having enough money to get home. Thus, I am not fully committed in my current portfolio.)

 

The next task was to compare the records of the horses, which usually produced horses with the most wins or fastest times. This exercise normally produced a list with the smallest betting-odds, and they would generally be excluded because the payoffs were relatively small. So much so that they would not even cover prior or future losses. (This is like coming to a highly favored stock in a late market phase)

 

With all these eliminations, what is left? What I found at the track and later at my desk were bits of information in public view, suggesting that on a given day a horse could do well and beat the more popular favorite. (This was and still is my current hunting ground for investments.)

 

The Big Advantage

There is a big long-term advantage in selecting investments over picking horses at the track. When the day at the track is over, the game restarts the next time you enter the track. With investing in securities your investment progress passes through a number of phases. I find it easier to pick securities, which will have more up phases than down. The big advantage is that after an up phase there is more at risk than what you initially put in. If there are subsequent up phases, your returns are the product of your initial investment plus the return on other people’s money. A study of the returns of successful people captures this compounding impact. 

 

Applying The Track’s Principles Today

Enthusiasm is the enemy of finding current bargains. Most long-term investors, if they don’t get punished by high expenses, taxes, and selling large portions of their wealth quickly, have a good record of growing capital. However, if they get sucked into the market when most are enthusiastic about its progress, they become victims when enthusiasm shifts. The greater the number of transactions the greater chance they will not only have poor returns but will lack the capital and the guts to buy when securities are cheap.

 

The 2026 Shift

One month is hardly conclusive that markets around the world are expecting a different game, but the S&P 600 Small Cap Index led most other US stock indices with a gain of +5.61% in January. (If that rate of monthly gains were to continue throughout the year, the annual gain would be over 100%)

 

By comparison, if a January S&P 500 Index gain of +1.45% continued for a year it would produce another double-digit return. The problem is that it results in a four-year period of double-digit returns. (I suspect the doubling of one of the small cap indices is more likely than a four-year period of double-digit gains in the S&P 500 Index. Goldman Sachs calculated that if only 1% of the capital invested in the S&P 500 moved to the S&P 600, it would raise the latter’s price by 37%.) For perspective, of the 105 Mutual fund peer group averages, only 8 were up double digits.

 

Now To The Real World

In the last 3 weeks the usually slow moving ECRI Industrial Price Index came alive with successive weekly readings of 131.20, 126.28, and 117.67. The gain over all of last year was +11.50%. The three biggest price-increases this week in The Wall Street Journal were Natural Gas +20.64%, ULSD (diesel fuel) +12.16%, and Crude +6.78%. (I wonder what the present Fed and the probable new Chairman after May will do.)

 

There are lot of other worrisome statics out there. In a recent report Michael Roberts listed some 17 economic return elements that are worth looking at. I have selected just a few of them for you to digest.

1. Healthcare and social services generated more than 100% of net payroll gains in 2025. Top decile earners now account for about 45% of total consumption. (These top decile earners won’t be the beneficiaries of the tax changes in ’26.)
2. Softer demand for luxury goods suggests financial stress is beginning to move up the ladder.
3. Layoffs have reached recessionary levels and wage growth continues to slow.
4. Creditors are increasingly unwilling to lend at historically low real yields.
5. A recent PWC survey of 4000 global CEOs found that confidence in revenue growth had fallen to a five-year low.

 

Next Two Years

Odds are, the next two years will be anything but smooth. The key to surviving this troubled period is maintaining capital in diverse financial and other assets. Gather as many resourceful people as possible into your circle. Stay alert and get comfortable with change. Lastly, share your thoughts with us.  

 

 

 

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Mike Lipper's Blog: Failed Expectations: Do Details Count? Zig-Zag Flips - Weekly Blog # 925

Mike Lipper's Blog: Is This The Week That Ends Instability? - Weekly Blog # 924

Mike Lipper's Blog: How Much Longer Can We Avoid Thinking About the Long-Term? - Weekly Blog # 923 

 

 

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Failed Expectations: Do Details Count? Zig-Zag Flips - Weekly Blog # 925

 

 

Mike Lipper’s Monday Morning Musings

 

Failed Expectations

Do Details Count? Zig-Zag Flips

 

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

 

 

 

Was this the week that was?

Last week’s blog anticipated a ruling by the US Supreme Court on the Presidential use of Executive Orders to impose tariffs on countries and products. It was further expected that the President would use substitute measures to accomplish similar goals if he loses the Supreme Court case. Additionally, there was a belief that the government would be forced to repay the existing tariffs to the American people (voters). The new tariffs would probably cause some changes by foreign nations. None of this happened.

 

Instead, the major topic of conversation at the World Economic Forum at Davos was Greenland. Discussions moved at lightening or Trump speed from a military occupation to a not fully disclosed peaceful agreement with NATO forces by the end of the week. The importance of these dramatic changes reminds us of what may be topic one in developing future investment strategies. All of this brief history shows how wrong we can be. What we missed was the significant price level change that occurred this week.

 

Critical Price Changes

Starting with the least followed ECRI industrial price index, which normally moves ploddingly. The index rose to 126.28 from the prior week’s 120.49. The jump raised the year-over-year gain to 6.58%, which is greater than the various inflation measures the Fed and many others use. I would not be surprised to see industrial buyers of products add this amount to their resale prices, after adding an insurance amount to protect their profits against further prices increases.

 

One explanation of ECRI prices can be found in the weekly price chart in the weekend Wall Street Journal, which showed Natural Gas rising +70.0% and Silver +14.57% for the week. Part of these increases could be for increased use of these items in the normal course of business. However, I suspect some of the increased demand comes from trading and/or gambling interests, either on the long side or from covering short positions. The importance of the last sentence is that the size of the trading and gambling sectors is growing, and I believe it’s already quite large.

 

The third price increase impacts all of us in our daily purchase of goods and services. It is the value of the dollar. On Friday the 16th of January the US dollar index was 99.395, one week later it was 97.599. The President has threatened foreign countries if they sell US assets!! (I personally believe this won’t happen, but it shows a sensitivity to the value of the dollar, even though Trump and Xi have both advocated for a lower value of their currencies as mercantilists.)

 

Warning

I have already indicated how wrong I can be. Please be careful in developing your own investment strategy and make changes slowly, not abruptly.

 

 

 

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Mike Lipper's Blog: Is This The Week That Ends Instability? - Weekly Blog # 924

Mike Lipper's Blog: How Much Longer Can We Avoid Thinking About the Long-Term? - Weekly Blog # 923 Mike Lipper's Blog: Data May Be Signaling Change - Weekly Blog # 922

 

 

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Data May Be Signaling Change - Weekly Blog # 922

 

 

 

Mike Lipper’s Monday Morning Musings

 

Data May Be Signaling Change

 

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

 

 

 

Preface

I came to my desk Saturday morning and was prepared to begin writing this week’s blog. My thought pattern suggested we were quite possibly in a pivot period, with market leadership shifting to foreign priced securities priced substantially below “AI” securities. Then I paid attention to Bloomberg television, which is on 24 hours a day. I was mesmerized by the news on the raid on Caracas, the capital of Venezuela. The daring and skills involved were impressive and the growing implications are disturbing.

 

Normally, I try to view everything from a global perspective, as I believe almost all we do has roots in the global world. However, for this week’s blog I am not going to deal with the longer-term implications of the successful raid and capture of indicted criminals. It is too early to tell. I expect these events will create global shadows which I will address in future blogs. The world listens but does not necessarily follow the U.S

 

Pivoting to the Data

 

Last Two Weeks of 2025

Each of the last two trading weeks, including January 2nd, have had only four trading days of relatively light trading volume. A disproportionate number of trades were either tax motivated, or position statement driven. Nevertheless, they share traits with many earlier days of December’s trading, with more stocks sold on minus ticks than rising prices. It is worth noting that the popular stock market indices generally rose a small amount. This highlights the dichotomy in the market between what many believe are retail driven indices and a broader, slower-moving institutional market. I am guessing many retirement and other long-term institutions were relatively quiet in the last part of 2025.

 

This institutional hesitation mirrors the large corporations’ labor practices, where many companies spend considerable amounts training new employees, which they consider assets. They are therefore reluctant to fire many employees and are slow to hire new workers. Some believe in the “promise of “AI”, where in the not-too-distant future companies will need less employees to produce the same or more sales. Consequently, many employers are not hiring new employees, other than critical replacements.

 

Typically, corporations begin investing new capital into their retirement plans in January, be it pension or 401-k accounts. The institutional advisory community has counted on this flow in the past. My guess, it may be smaller this year. We will see.  

 

Prices and Inflation

There were two lessons on prices in the Weekend Edition of The Wall Street Journal, which measures 72 traded items each week. Only 24 prices or one-third were up, and 48 prices were down. Are we peaking? The second lesson from these data is that markets deal with both extreme momentary shortages and slower moving prices, which are more common. One analytical technique I use to differentiate them is to examine the top and bottom two prices. On the upside is Comex Silver +142.34% and Platinum +127.57%. On the downside are Orange Juice -58.75% and Cocoa -48.05%. I believe these four are special imbalances, as the third extreme prices are the KOSPI composite +75.63% and the Argentine Peso -28.96%. The gaps between the extremes and third ranking are large. Much smaller but concerning nevertheless is the one-week industrial prices gain of +1.28% in the ECRI weekly index, suggesting inflation is not under control.

 

The Key Link

If there were a single suggestion of a world view of the US economy, it would be the value of the US dollar. The Financial Times headline “Dollar Is Wild Card in 2026”. This UK publication, now owned by the Japanese newspaper/wire service giant, is a traditional critic of the US. The value of the dollar is dependent on two factors, the value of the other major currencies and the price of the dollar. In 2025, numerous foreign markets have for the first time in many years appreciated more than the US. Currencies, like securities, are priced at their perceived future value. Not only is the US government spending more than it is earning through taxes and tariffs, but it’s also expected by many to continue to do so in the future. (Even if tariffs bring in a lot of money, part of the receipts are expected to be paid to citizens instead of being used to pay our debts.) In addition, both President Trump and Chairman Yi have stated they would both like their currencies to decline. Some weakness in the dollar may have been caused by individual and institutional investors selling dollars to buy foreign securities.

 

What to Do?

Examine whether it is prudent to have 100% of your long-term investment money in securities that are traded primarily in dollars? Is it time to pivot?

 

Share your thoughts, please.

 

 

 

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Mike Lipper's Blog: Investment Time Horizon Should Pick How You Measure the Results - Weekly Blog # 921

Mike Lipper's Blog: Tis the Season of Joy & Reflection - Weekly Blog # 920

Mike Lipper's Blog: Are Investors Seeing a Change? Politicos Are Not - Weekly Blog # 919

 

 

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On The Way To Casualties & Eventually Riches - Weekly Blog # 918

 

 

 

Mike Lipper’s Monday Morning Musings

 

On The Way To

Casualties & Eventually Riches

 

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

 

Current Situation

In the fog of the latest week there were a few possible clues of changes and pronouncements.

• In November, US manufacturing activity contracted for the 9th month.
• After Friday’s close, an emerging market fund rose +4.99%.
• The value of the US dollar has fallen -6.16% year-to-date.
• Financial Times headline: “Wall Street expects double digit gains next year”.
• Apollo provided a glossy wrapper to the weekend Wall Street Journal, titled “What if the old financial playbook is costing you?”
• The Trump boom is comparable to past expansions, but not yet as big a percentage gain of GDP as the railroad boom of the 1880s.

Each of these bullets point to possible clues for the future, which should be examined by long-term oriented investors and their managers, as this blog will attempt to do.

 

The search for Investment clues

• While we have become a service-oriented economy with high dependence on the skills and attitudes of workers, politicians focus more on the manufacturing sector which has more unions and workers paying real estate taxes and buying lots of local supplies. Thus, manufacturing jobs are more important in Washington than in NYC. I suspect the re-shoring of manufacturing will probably be more automated and will have less employees. Consequently, office holders need to worry about ’26 and ’28.
• The real purpose of announcing tariffs was to force meetings with economic leaders to reduce non-tariff trade barriers. This has led to numerous currencies dropping more than the US dollar. (In my view, this is the wrong way to create more prosperity. We should be raising interest rates, so we are able to absorb the likely increase in bad debts, particularly those held by private capital. Higher interest rates will also raise foreign exchange rates, encouraging foreign lands to utilize more of our exports. A richer world is safer and better for us than a poorer one.)  
• The “street” is predicting at least a 10% gain next year. This year the median US Diversified Mutual fund produced a year-to-date gain of +12.55% and an annualized gain of +10.12% for the five-year period, this is at least 2-3% better than the expected net income gain. The difference is the result of other income and stock buybacks. Currently, public polls suggest investors are not happy with the results.
• Bankruptcies are increasing, particularly in non-listed companies. Private capital raises money to invest in the equity of these companies or to buy parts of public companies. Some of the private-capital is sold to investors as an income producing asset, which often requires a periodic sale of some of their assets. In some cases, this has proven to be difficult because some of their holdings experience difficulties. (While there is some trading of assets between privates, the remaining assets need to be sold to listed companies. This may resemble the old game of musical chairs, where one or more of the ‘safe’ chairs are removed after each round. The remaining chairs will be purchased by the public market, so the private market is dependent on the public market in the end. My concern with regulators encouraging retail investors to put some of their retirement money in private vehicles is that they will be buying into troubled situations.)  
• The comparison of the “Trump Expansion” with the railroad expansion of the 1880s could be accurate. It was a period of speculative, and in some cases fraudulent activities. Many new issues came to market competing with existing firms, which led to price wars and consequent bankruptcies. The era ended when JP Morgan and others recognized that too much competition was ruinous, resulting in rigorous rounds of mergers. Much money was lost and many communities lost rail service.

 

Conclusion

We have entered a globally different world. Investors need to study carefully and invest for the long term, periodically choosing not to invest.

 

Thoughts?

 

 

 

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Mike Lipper's Blog: Was it the week that wasn’t? - Weekly Blog # 917

Mike Lipper's Blog: Recession/Depression Risk Assumptions - Weekly Blog # 916

Mike Lipper's Blog: Risks Are Rising Thru the Clouds - Weekly Blog # 915

 

 

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Recession/Depression Risk Assumptions - Weekly Blog # 916

 

 

 

Mike Lipper’s Monday Morning Musings

 

Recession/Depression Risk Assumptions

 

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

 

 

 

 Future Probabilities

One intelligent betting task at the New York racetracks, where I learned basic analysis, was to guess the rough size of the gap between the betting pool odds and the probabilities. Only if the self-assessed probabilities were significantly larger than the crowd-determined payment odds, was it a sound wager. I try to apply the same approach to investing in stocks around the world. The easy part is determining the payment odds, which are based on two factors. The popularity shown in the market and guessing the quality of the current stock bulls, which is much more difficult. In general, more retail buying equals lower quality. This is not to equate brains with capital, but the amount of research done. There is an inverse correlation between the amount of media pundit space devoted to an investment and the probability of them being correct. That is not to say the pundits are dumb, they are limited by space and time and that limits their ability to handle complexity.

 

Determining probabilities often rests on the number of separate supporting elements. This is difficult because unpopular views normally have fewer supporting elements and are more complex. (If this happens then that will happen or at least improve the possibility of it happening.)

 

I have found that a search of history is useful in searching for probabilities. As there are no axiomatic rules, sometimes something will happen and sometimes it will not. The trick is to try to understand what caused the different outcomes. In dealing with history, we are lucky to have both written and geological records from around the world. From those records it is apparent there are similarities in what drives many critical trends, no matter the place or time-period.

 

Causes of Recessions

No one wishes for a recession, although we should expect one or at least the possibility of one. When a recession does occur, it is generally a surprise, and most are unprepared for it. In the beginning most don’t recognize they are experiencing a period of decreasing ability to make purchases and the ability to promptly pay debts. Hopefully, the economic community recognizes it soon after the nadir of the recession. The academic community only declares “official” notice of a recession after full recovery of lost resources.

 

In every recession I have studied, the critical realization of being in a recession occurs when the level of current earnings makes it difficult or temporarily impossible to repay what is owed on time. The squeeze on repayment is caused by an overly optimistic belief in current earnings and the absence of sufficient reserves. These conditions in turn are caused by imprudent personal, business, non-profit, and government decisions. Other causes are sloppy executions, which cause incomplete and wrong actions. Greed also drives actions without regard to consequences. There also appears to be an increase in fraud during a recession.

 

Causes of a Depression

Depressions are relatively few but longer lasting. For the most part they are caused by attempts to structurally pull the economy out of a recession. Typically, the leader of the government sees that the problems facing society are structural and immediately seeks to fix the problem.

 

In the US we have had four activist presidents who wanted to structurally change how we operate. These are Andrew Jackson, Thedore and Franklin Roosevelt, plus the current occupant of the White House. These leaders attempted to change many things but ran into opposition from the minority who used the Constitution and courts to block the changes. In addition, their actions created other problems for the country and globally after their terms.

 

Curren t Conditions

The following elements suggest there are problems ahead. My lens is primarily fixed on market analysis, not economic analysis. (This is due to belief that the market is primarily focused on the perception of future markets and not how past economic data impacts it.)

• For the past 2 weeks there have been more declining than rising stock prices on the NYSE and NASDAQ.
• For the last two weeks, the AAII sample survey shows only 32.6% and 31.6% bearish for the next 6 months.
• Tech stocks listed globally fell last week.
• Only 25% of weekly prices reported in the Saturday Wall Street Journal rose, the remaining 75% declined.
• Last week through Thursday, my old firm reported that only three mutual fund peer groups out of 104 competitive leagues showed average gains - Dedicated Short +7.80%, Health/Biotech +0.98%, and Indian Regional +0.55%.

 

My Working Wager

Between now and next Presidential election, the odds on a recession are 60%, with the odds of a depression before 2035 at 50%. (Remember the market rises about 80% of the time.)

 

Your thoughts, please.

 

 

 

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Mike Lipper's Blog: Risks Are Rising Thru the Clouds - Weekly Blog # 915

Mike Lipper's Blog: The Inevitable Recession - Weekly Blog # 914

Mike Lipper's Blog: Biggest Investment Hurdle: Complexity - Weekly Blog # 913

 

 

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Biggest Investment Hurdle: Complexity - Weekly Blog # 913

 

 

 

Mike Lipper’s Monday Morning Musings

 

Biggest Investment Hurdle: Complexity

 

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

 

 

 

 

First Priority

An investment priority should be logging changes to your investment policies, although most investors do not maintain such records. To paraphrase the late and great Charlie Munger said that Warren Buffett was a learning machine. His point was, Warren benefited from the losses he sustained. He had an investment history of making very few repeated mistakes.

 

Most profitable investors also make relatively few mistakes, in part due to most mistakes forfeiting more opportunities than money. To avoid future mistakes, it would be helpful to have an insightful roster of mistakes. The real painful mistakes are repeaters.

 

Tools of Repeating Errors

Many repeating errors of judgement rely on an automatic mathematical response. For example, if “x” happens then do “y”. This is a non-thinking action. It does not adjust for changes in critical conditions that might impact the current situation.

 

On a very basic level, buying is different than selling. Investment buying is often based on market prices being wrong but are likely to change soon. The seller on the other hand believes in the relative attractiveness of a security that will shortly decline in price. In both cases the investor believes that he/she is ahead of the bulk of the investment market. These are the actions of someone who wants to be among the leaders.  This is in direct conflict with successful investors who prefer to be lonely and contrary to the crowd.

 

Understanding Complexity

Berkshire Hathaway (*) developed a system of categorizing new investment information into three buckets, “yes, no, too hard”. Berkshire’s advantage was structured on the combined experience of the late Mr. Munger and Mr. Buffett. This experience included knowledge of over 60 different companies they owned and the knowledge of various securities they previously owned or looked at for more than 100 years combined. Where most others saw complexity, they saw investment opportunity.

(* Berkshire Hathaway shares are owned in client and personal accounts.)

 

Can’t Avoid Complexity

In the modern global world, one cannot avoid complexity. However, with some hard work and experience you can reorder many elements into positives, negatives, and judgements to be determined. With this structure one can put odds on each critical item, leading to a preponderance of positives or negatives worthy of action.

 

An example of factors that surfaced this week in the media are shown below:

• Wall Street Journal Headline “Foreign Stocks outperform S&P…”. This could cause many US accounts to add foreign stocks and funds. However, the largest collection of stocks that Americans buy are multinational stocks listed overseas. In many cases the largest portion of these portfolios are invested in US operations, which is a negative if your purpose is to participate in European and Asian growth. (The same could be said about US listed multinationals with significant sales abroad. This includes Coca Cola, a large holding of Berkshire. The same could be said about Apple.)
• The Federal Reserve is concerned about a bifurcated economy consisting of technology and older companies. Both sides have significant foreign sales.
• This may be the wrong time for the proposed cut in bank supervision. Both banks and non-bank financials are increasing loans to lower-quality companies.
• While some believe oil is being priced attractively, natural gas prices are even more attractive. Also, Copper has historically performed better than gold.
• The “Buffett Premium” is disappearing just as insurance driven earnings are very strong.
• Cash in portfolios should be used in the short term, either as a basket to buy favored stocks or to reduce exposure to over-capitalized companies and increase return on equity.
• In latest week there were more declining stocks than rising stocks.

 

Each of the mentioned items could be attractive buy or sell opportunities, depending on one’s view.

 

What do you think?

 

 

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Mike Lipper's Blog: Signals of Change in Historic Patterns - Weekly Blog # 912

Mike Lipper's Blog: Where Are US Stock Prices Going? - Weekly Blog # 911

Mike Lipper's Blog: A Good Time to Sell? - Weekly Blog # 910

 

 

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Bad Comparisons Can Lead To Faulty Conclusions - Weekly Blog # 905

Mike Lipper’s Monday Morning Musings

 

Bad Comparisons Can Lead

To Faulty Conclusions

 

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

 

 

 

Your Portfolio vs. Stock Indices

The biggest trap the media and sales community set for both institutions and individual investors is comparing portfolio performance with a stock index constructed by a publisher. The best US stock market index is probably the S&P 500 Composite (SWX is its symbol).

 

The index is published by Standard & Poor’s Global (*), whose components are selected by data analyst editors, not investment managers. In a performance year where a company splits into two or more publicly traded stocks; the index carries each component of the former stock for the performance year. That is why the SWX measures slightly more than 500 stocks at times. Additionally, almost every active investor’s portfolio contains some cash or similar instrument. In periods of large gains or losses, the performance of non-equities will affect the performance of an account, but not the index. Furthermore, it is extremely rare for an active portfolio to own anywhere close to 500 names.

(*) Owned in client and personal accounts

 

In measuring the performance of the SWX, the measurement compares the closing trade price of the prior trade date to the ending price of the current day. It is extremely common for the ending price to be higher or lower than what an investor receives, so the actual performance of an active account is likely to be different than an end price calculation.

 

The management committee of the Wall Street Journal and the Standard & Poor’s editors have decided that SWX will only contain stocks that are listed on US stock exchanges. They also do not limit the percentage size of holdings in the composite, while the SEC limits diversified mutual funds to holding no more than 5% weighting within the portfolio of any given stock at cost (not market). Non-diversified funds are not restricted this way.

 

In today’s world, managed accounts are almost certain to hold cash or fixed income instruments as redemption reserves. Additionally, opportunity reserves will in many cases include non-US listed securities.

 

Many years ago, for these reasons, we convinced a number of outside directors of mutual funds to compare the performance of their funds to similar portfolios of funds. I believe this is the way almost all investment accounts should be measured, whether they are funds or not.

 

Other Mis-labeling

Last week, three of the five leading large-cap stocks were labeled financials; JP Morgan Chase (*), Morgan Stanley(*), and American Express(*). None of the articles I read mentioned that Charles Schwab(*) was the fourth largest declining large stock on Friday. Clearly, Schwab has something else going on that the first three do not, despite sharing the same industry label.

(*) Client or personally owned

 

Also last week, there was no mention of various countries whose local market indices showed gains, Europe 6 and Asia 12.

 

Another example of incomplete labeling was a headline of Goldman predicting that “Gold will hit close to $5000, if Trump undermines the Fed”. Perhaps true, but other commodities and some foreign stocks may do just as well. (Coincidently, a strategic collaboration between Goldman and T. Rowe Price to create a range of public and private investments was also announced. As a part of this collaboration, Goldman will invest $1 billion in open market purchases of T. Rowe Price stock.  Perhaps the more important message, is that Goldman believes the market is not offing enough diversity.)

 

Question: What are your thoughts? 

 

 

 

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Mike Lipper's Blog: What We Should Have Been Watching? - Weekly Blog # 903

Mike Lipper's Blog: The Week That Wasn't - Weekly Blog # 902

Mike Lipper's Blog: DIFFERENT IMPLICATIONS: DATA VS. TEXT - Weekly Blog # 901

 

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Four Lessons Discussed - Weekly Blog # 877

 

 

Mike Lipper’s Monday Morning Musings

 

Four Lessons Discussed

 

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

 

 Farmers’ Experience Led to the Crash

Is 1930 a preview of 202x? To set the stage, the 1920s were a period of transition and economic expansion. America and most of the industrial world enjoyed meaningful economic progress spurred on by the encouragement of increased debt. Governments, companies, individuals, and farmers used the resources of others to leverage their assets with increasing debt, fulfilling their perceived needs at ever increasing rates. The lessons of the 50-years before WWI were distant memories.

 

Due to WWI mobilization, women entered the workforce in increased numbers. The returning military found farm work too hard and too poorly paid on the farms. Financial communities, which had extensive experience with debt and leverage, found vast new markets for the financial skills of banks and others. Thus, the missing manpower was replaced by expensive machines and chemicals, which led to farmers owning leveraged machines and farms.

 

The age-old problem with leverage is the cost-price spread abruptly narrows. In a world becoming increasingly more global, international trade becomes the fulcrum-point of the fluctuating cost-price spread. To protect those in the middle from price swings, tariffs and other restrictive measures were introduced.

The US consumer desired ever-increasing amounts of food, with much of it imported from lower cost countries. To protect home-grown crops, additional costs and restrictions were placed on imports. Exporting countries fought back by lowering their prices to a point where domestically produced products could not compete effectively. Consequently, domestic farmers got their elected politicians to impose tariffs on imports, like the Smoot-Hawley tariff that President Hoover was reluctant to do. (It was repealed three years later) Other nations reacted by imposing their own tariffs on US exports, which was a contributing cause for WWII. 

 

What will be the impact of the proposed Reciprocal Tariffs being proposed? Despite what is being said, it seems unlikely consumers will avoid some or more of the cost.

 

Learning from Uncle Warren

This weekend Berkshire Hathaway (*) published its results for the 4th quarter and all of 2024, along with a well thought out discussion. The company has four main revenue sources for the heirs of its shareholders. Berkshire has total or partial ownership of over 180 private companies and a smaller but better-known portfolio of quite large publicly traded companies. They also have an increasingly large portfolio of short-term US Treasuries, which increase in value as interest rates rise.

 

The difference between what their insurance companies charge and their eventual payout is called a “float”. In the most current period all earnings asset categories rose, except for the holdings of the publicly owned securities which declined because of sales. The total portfolio rose and is selling very close to its all-time high. Considering the company announced it is being managed for the benefit of today’s shareholder heirs; it is extremely appropriate to occasionally reduce its near-term market risks. (It is worth noting, the remaining two lessons in this blog suggest caution is warranted.)

(*) Owned in Personal and Client accounts

 

The Leading Mutual Funds Suggest US Risk

Each week I look at over 1500 SEC registered mutual funds, as well as many more in the global world. Usually, a number of different drivers describe the leaders of the week.

 

The list below shows the investment objective assigned to the fund:

Precious Metals Equity           21.04%

Commodities Precious Metals      11.86

International Large-Cap Value     8.60

International Mid-Cap Value       8.54

Commodities Base Metals           8.34

International Large-Cap Growth    8.24

Commodities Agriculture           8.15

Warren Buffet, among others, is concerned that the US government may cause the value of the US dollar to drop.

The year-to-date winners are not investing in the US.

 

“Debt Has Always Been the Ruin of Great Powers. Is the U.S. Next?”

 Above is the title of Niall Ferguson’s article in Saturday’s Wall Street Journal where he introduces Ferguson’s Law, which was crafted in 1767. The law states “that any great power that spends more on debt service than on defense risks ceasing to be a great power.” According to the author, debt service includes repayment of debt and defense includes all costs to maintain the military. The US has just passed this milestone, but it would take an extended period to fundamentally break the Ferguson Law.

 

Working Conclusion

Be careful and share your thoughts, particularly if you disagree.

 

 

 

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Mike Lipper's Blog: Recognizing Change as it Happens - Weekly Blog # 876

Mike Lipper's Blog: A Rush to the 1930s - Weekly Blog # 875

Mike Lipper's Blog: More Evidence of New Era - Weekly Blog # 874

 

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SPORTS FANS SELECT CABINET & OTHER PROBLEMS - Weekly Blog # 864

 

 

 

Mike Lipper’s Monday Morning Musings

 

SPORTS FANS SELECT CABINET

&

OTHER PROBLEMS

 

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

 

 

 

Go to the Arenas

As we view many contests and competitions, it is clear to us the mistakes combatants are making. Apparently, the President elect is choosing his cabinet based on the following three characteristics:  

• Personal loyalty to Trump.
• Complaints about what the government does or does not do.
• No experience in running a large federal organization.

 

I remember from my sports days, both in secondary school and university competitions, various screams were heard about the details of the front-line games or the details of a move setting up some subsequent play. All we knew was that most of the players were inexperienced in their announced positions. They may have been fortunate in that many relied on what they were taught in school in those days. For example, they could have taught us that stock prices could approximate the value of a stock, or a sound reaction to an event.

 

Today, 80% of the volume of the S&P 500 is passive and 10 stocks make up 39% of its market-cap. One stock is bigger than every other national stock exchange, except Japan.

 

Bonds Speak Differently

High grade US Treasuries bond yields have risen 124 basis points in a year, sending their prices down. However, the prices of medium-grade bonds have been flat over the same period. This does not speak to the quality of US Treasuries but instead reflects the demand for them. Time value (the bond’s maturity) used to be a critical element of the bond market. Today, only 31 basis points of yield separates the 2-year bond from the 30-year bond. (This may suggest that due to low yields, very few of the current owners of 30-year bonds are expected to own them for a long time.)

 

Caution: Keep Data and Date Tied

The Saturday weekly Wall Street Journal roster of stock indexes, currencies, commodities, and ETFs showed gains for 74% of them. The American Association of Individual Investors (AAII) showed an increase in bearish readings, reducing the spread between bulls and bears to 8%, from 21.5% the prior week. This is a dramatic change. It could reflect a shift in the sample survey makeup. Alternatively, because the AAII survey was taken early in the week it reflected the views of the prior week. Overall, this week’s data was positive every day, suggesting “Black Friday” sales enticed customers for at least two weeks. That is my preferred guess.

 

What do you think?    

 

Happy Thanksgiving, particularly those and their families serving far from home.

 

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Mike Lipper's Blog: Reading the Future from History - Weekly Blog # 863

Mike Lipper's Blog: Inflection Point: “Trump Trade” at Risk - Weekly Blog # 862

Mike Lipper's Blog: This Was the Week That Was, But Not What Was Expected - Weekly Blog # 861

 

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