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The Best of What They Said and I Read Week Ending 3/10/19

Short excerpts from articles I found interesting.  I may not agree with the author and the following material is not intended as investment advice

Barron’s – March 8, 2019 – This Stock Market Still Looks Good, Even After 10 Years – Ben Levisohn

  • “… The S&P 500 index finished at 676.53 on March 9, 2009, marking the bottom for its crisis-era selloff. The index has returned 400% since then, including reinvested dividends. Ten years, however, is a long time for a bull market to run, and skeptics have latched onto it as one more reason to predict its imminent demise.”
  • “…Do we have concerns? Absolutely. The S&P 500 has yet to hit a new high following 2018’s fourth-quarter drubbing, which could mean that the market has already topped out and we just don’t know it yet. Last week’s losses—the S&P 500 dropped 2.2%, to 2743.07, while the Dow Jones Industrial Average fell 576.08 points, or 0.2%, to 25,450.24—add to the unease, as they were spurred by disappointing economic data and the European Central Bank’s decision to stimulate Europe’s sluggish economy. And we know that a recession is the one thing guaranteed to kill a bull market.”
  • “…Dennis DeBusschere, head of portfolio strategy at Evercore ISI, notes that economic volatility has been low since the financial crisis. Growth has been slow and steady. That has prevented inflation from rising too quickly or corporate spending from getting overheated. Without those imbalances, it is difficult for the economy to slip into a recession, DeBusschere says.  Subdued economic growth also keeps a lid on interest rates, which eventually pushes even higher the price that investors are willing to pay for stocks. “The most shocking thing for people would be really poor economic growth with an S&P 500 that keeps going up in line with past returns,” DeBusschere says.”
  • “Those past returns haven’t been too shabby. Since 1900, U.S. large-cap stocks have averaged a total return of 6.4% annualized after inflation, according to the Credit Suisse Global Returns Yearbook. That’s 1.4 percentage points better than the 5% average from world stocks. Paul Marsh, a professor at the London Business School and one of the yearbook’s authors, expects real returns to settle around 4% for the U.S. over the next couple of decades—but even that is better than what investors would get from bonds. Investors “would be foolish not to be looking at equities,” Marsh says.Whether you’re a short-term investor or in it for the long term, stay the course.”

Bob Carlson’s Retirement Watch – March 7, 2019 – Your Retirement Finance Week in Review

  • “…The S&P 500, for example, is a capitalization-weighted index, so the stocks with the largest capitalization have the greatest weight in the index.  Today, the 10 stocks with the largest weightings in the S&P 500 comprise almost 21% of the index. Microsoft currently has the largest weighting at 3.69%. The rest of the top 10 are Apple, Amazon.com, Facebook, Berkshire-Hathaway, Johnson & Johnson, Alphabet Class C, JP Morgan Chase, Alphabet Class A and Exxon Mobil.” 
  • “The first months of 2019 ushered in one of the best calendar year beginnings for the stock indexes, especially the S&P 500. The index has returned 11.64% for the year to date.  But suppose we give each stock in the index an equal weight instead of a capitalization weighting? The returns would be higher. The equal-weighted S&P 500 returned 14.06% for the year to date…So far in 2019, you could have outperformed the index by almost three percentage points simply by owning equal shares of each stock instead of relying on a capitalization weighting.” 
  • “…Over the last few years, the largest companies performed the best and drove the index returns. But so far in 2019, the largest 10% of stocks in the S&P 500 are up 10.99% while the smallest 10% are up 19.97%.   Another sign that investors’ preferences have changed is that the stocks which did the worst in 2018 are doing the best in 2019. The 2018 bottom-ranked 10% have returned 21.16% so far in 2019. The top 10% of 2018 have returned 12.55% in 2019.” 

The Economist – March 2, 2019 – The World this Week - Business

  • “The share price of Kraft Heinz plunged by 27% after the food company booked a $15.4bn write-down, in part because its key Kraft and Oscar Mayer divisions were overvalued.  It also revealed that the Securities and Exchange Commission had opened an investigation into its accounting practices.  Warren Buffett, who helped engineer the merger of Heinz with Kraft Foods in 2015, admitted that he had overpaid for his investment company’s stake in the business.” 

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