Happy New Year!!! 2013 is upon us and the Mayan calendar was wrong, we made it through 2012 ok. Investors even survived the fiscal cliff, and apparently all is well in the world as the stock market gained 5% last week. I don't think anyone should expect 5% weeks to be normal, but it is consistent with how the market performs. One of the best investors ever, Peter Lynch of Fidelity, always emphasized being fully invested, among other principles like doing a whole lot of homework. Lynch believed you had to be fully invested because history proved that something like 80% of all market gains occur on less than 5 days during the year. If you are trying to time the market by buying and selling, the small number of days when it roars are literally impossible to predict. If you are always fully invested, you participate in full and reap the entire benefits. Certainly, much depends on the individual circumstance and as one gets older, many should not be risking capital they need to live on. Still, the results from last week are important as there may be some big changes occurring in the capital markets.
So what exactly am I referring to? First, last week bond yields rose and the notes the Federal Reserve released showed many members of that board being inclined to start getting hawkish at the first signs of economic growth. Indeed, if the economy starts to perform better and grow quicker, employment and inflation tick up at all, the Federal Reserve will start to walk back their (low) interest rate targets. Now, the caveat is we saw this last January as well, when money poured out of the bond market and into stocks. Money also left gold and went to oil. The important question is will this continue? Earnings reports will start to roll in next week so there is quite a bit to pay attention to in the equity markets.
My two cents on the fiscal cliff deal is it is more evidence of how poor of a job our elected leaders perform. Waiting until the last minute to get deals done is awful for work product and what you get is the result. Essentially, the key issues of spending and entitlement reform were not addressed. Many corporate leaders were very disappointed in the deal. The ex-CEO of Wells Fargo, who ran a very disciplined company when he was in charge, said the country was going to hell and it was a joke that they spent months negotiating to come up with such a poor result. It is more indication we need to have term limits for Congress, not pay for their retirement packages and benefits, and elect better leaders (as President, for example- my editorial comment).
Even worse, it now sets up the end of the February and March as deadlines for a debt limit negotiation between the warring parties again. Pretty much the same bunch arguing about the same issues they have for the last 3 years. For investors, the market focuses on moving from one problem to another. Of course, it is illustrative that long term success in the stock market, like Berkshire Hathaway's recent out performance, is dependant on profits and not political events.
Costco, Sam's Club, or BJ's- I know which one I favor-http://finance.yahoo.com/news/best-warehouse-store-bj-costco-104106736.html
The new Obamacare health care law is not changing the long term trend of health care insurance costs- all they do is keep going up. There are quite a few issues to consider in health care and the following article brings many of them up-http://www.nytimes.com/2013/01/06/business/despite-new-health-law-some-see-sharp-rise-in-premiums.html?pagewanted=2&_r=0&hp
David Rosenberg is a perpetual bear on the stock markets and always talks up bonds, but you need to pay attention to all points of view so here is his 2013 outlook-http://www.businessinsider.com/david-rosenbergs-2013-outlook-2012-12
The idea of traction capital in venture capital is illustrative of the idea to wait until you have proof of concept-http://techcrunch.com/2013/01/06/iterations-traction-capital/
Y H & C Investments, Yale Bock, and the family of Yale Bock own positions in securities mentioned in the blog post. Investing in stocks can lead to the complete loss of your capital. As always, on any company mentioned here, past performance is not a guarantee of future returns. Investing involves risk of losses on invested capital. One should research any investment and make sure it is suitable with your objectives, risk tolerance, risk profile liquidity considerations, tax situation, and anything else pertinent to your financial situation. Also, the CFA credential in no way implies investment returns will be superior for any charter holder.
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