this 2nd Week of September 2020 thoughts
Updated: Feb 4
What is enough? Each of us determines for ourselves, where this is. When we have everything we want and need and nothing in excess. Few of us can recall moments in life when we have felt like that. Lynne Twist.
In her book, The Soul of Money,” Lynn Twist talks about the concept of “sufficiency” and that it is not a specific amount. Instead, she says; “sufficiency is an experience, a declaration, a knowing that there is enough: that we are enough.” Our society conditions us to want more…more money, more “stuff” and to look outside for happiness. Have you hit a goal but then, felt a little empty…let-down? Worse, is reaching a goal, only to set another goal for more. This concept of sufficiency might be a great dialogue to have with your partner or spouse, with your kids, or with someone you are close enough to share thoughts that really matter most to you. A mindset of sufficiency could be a key to a more enjoyable life and bring you a curious sense of elation. 😊 Why does this matter to you? If Covid 19 has taught us anything, it is that money only buys the things that money can buy. Of course, there are times when NOT having enough is really serious…but if you do have enough…and you have good health and people you care about, then can you exhale, knowing you have what really matters in this world.
While we grapple with physical challenges in our world, we also have financial realities. #1: What is a safe withdrawal rate? Over the last 50 years, stocks have averaged annual returns of 10% and bonds have averaged 7%: a portfolio of 70% stocks and 30% bonds would have averaged 9.62%. Is this a reasonable expectation for these sorts of growth-oriented portfolios today? The KEY? “Valuations will be the key.” As of July 2020, the 10-year government bond yielded 0.68% and the Shiller P/E, (a measure of stock valuations with 15.8% being fair value) was 29. Based on this, the average annual returns for stocks will be 4.32% going forward. Do the math on a 70/30 portfolio and you get an annual return of 3.23%. Not enough, you say. Returns of 3.58% are most likely not enough, considering inflation will reduce your purchasing power even more. 😲 Why does this matter to you? The most important thing we need to do to accumulate wealth and fund your retirement is to focus on value. In the market, and in your lives. Watch this space as we focus on the ways we will spend our time for the rest of 2020. Spoiler Alert: we can do this.
"The most striking similarity between the 1920s and 1990s bull markets is the notion that traditional measures of stock valuation had become obsolete." – Edward Chancellor, Devil Take the Hindmost You know it’s a bubble when valuations have broken above every historical peak. One of the things to remember about investing is that the higher the price you pay today, for a stream of future cash flows, the lower the long-term returns you can expect. It is exactly when past returns are most glorious that future prospects are most dismal.
Over the last few weeks we have looked at how 5 big-tech stocks could do no wrong and had made up a sizeable portion of the S & P 500’s 2020 return. What a difference a few days makes! Today all hell has broken out and the headlines are a “Silicon Valley Peyton Place! As the Justice Department, Federal Trade Commission, Congress, and state attorneys general dig deeper into a variety of antitrust probes, Apple, and Epic Games duke it out in court. A quick recap: Facebook is targeting Apple amid its fight with Epic over 30% fees on the App Store. In TV commercials and brand messaging, Apple repeatedly takes swipes at the privacy policies of Facebook in its pursuit of targeted advertising. Meanwhile, questions surface about business systems at Google and Amazon, ahead of charges against those companies expected soon. All the while, Big Tech employees and executives increasingly are grumbling about Microsoft seemingly getting a free pass from the Trump administration. Big Tech is turning on one another amid antitrust probes and litigation. Facebook and Microsoft are mad at Apple, Google and Amazon are being targeted by high-profile tech execs, and everybody wonders why Microsoft is staying clear of the fray. 😊Why does this matter to you? You really cannot make this stuff up! If you thought petty bickering and backbiting was something you left behind in high school, think again. Only this time, a bajillion dollars are on the line, for companies…and their shareholders. A big part of ESG…Environmental Social and Governance is the “G.” When ethics and antitrust violations fly, expect for lots of volatility. At least there is something fun to watch on TV!
Last week we talked about Apple and Tesla splitting and the volatility that can bring but beneath the surface, something else was going on. Three new companies were going to be added to the S&P 500 index this month, but none of them were Tesla! S&P Dow Jones Indices announced Friday afternoon that it will add three companies to the S&P 500 — Catalent, Etsy and Teradyne. Tesla was thought to be in line for being added to the S & P after it had met all of the requirements and the word on the street was that it was a “done deal….the champagne was on ice, it was baked into shares.” Tesla not getting into the S&P 500 club was part of the reason for the 25% loss this week, but the reality was only 22% of sell-side analysts tracked by FactSet considered Tesla a “buy” as of Friday afternoon. The price has suffered this week in the wake of the stock split and the plan to sell up to $5 billion more in fresh shares…amongst insider selling 😲 Why does this matter to you? When your hairdresser and Uber driver are talking about the money they are making in stocks…know, there is too much froth to get into the water. Stocks make meaningful price increases when the fundamentals of the company, and the economy, are solid.
Fall is here, and I am hoping you are safe, warm, and far away from the dangers facing so many today
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