Schwartz Financial Weekly Commentary
December 10, 2012
The Markets
Another week is history and we’re another week closer to the
“fiscal cliff.”
You can’t turn on the TV or surf the internet without some
reference to the fiscal cliff. But, consider this. Remember all the fuss about
Y2K back in 1999? Everybody was worried about planes dropping from the sky at
midnight, ATMs freezing up, and the power grid shutting down on January 1.
Well, the clock struck midnight and, poof, like Cinderella’s glass slippers, nothing
changed.
Perhaps it was all the preparation ahead of Y2K that ensured
it would be a non-event. In fact, one could argue that all the upgrading of
equipment and intense preparation that went into the buildup toward Y2K helped
propel the economy and fan the tech bubble that culminated at the turn of the
century. Then, as you may know, it was right after Y2K that the stock market
went over its own cliff and fell into a bear market.
Now, here’s where it gets interesting. While the overall
stock market has been weak during the 13 years since Y2K, corporate earnings
continued to rise. As a result, the Shiller PE10 ratio, a measure of valuation
of the overall stock market, has dropped from 44 at the end of 1999 to 22 at
the end of September of this year. In other words, the overall stock market is
a lot less “expensive” than it was 13 years ago.
This could mean a couple things:
1.
If we go over the fiscal cliff, the
stock market may not fall as much as it did after Y2K because the overall
market valuation level is much lower now.
2.
Investor psychology and Federal
Reserve policy are still wildcards. How investors and the Fed respond to
whatever happens with the fiscal cliff could have a significant impact on the
markets – good or bad.
No matter what happens with the cliff talks, we’re keenly
focused on the situation and we’ll make adjustments to your portfolio as
appropriate.
Data as of 12/7/12
|
1-Week
|
Y-T-D
|
1-Year
|
3-Year
|
5-Year
|
10-Year
|
|
Standard
& Poor's 500 (Domestic Stocks)
|
0.1%
|
12.8%
|
12.5%
|
8.7%
|
-1.2%
|
4.8%
|
|
DJ
Global ex US (Foreign Stocks)
|
0.9
|
10.8
|
7.6
|
0.7
|
-6.2
|
7.4
|
|
10-year
Treasury Note (Yield Only)
|
1.6
|
N/A
|
2.0
|
3.5
|
4.1
|
4.1
|
|
Gold
(per ounce)
|
-1.4
|
8.1
|
-2.0
|
14.2
|
16.5
|
18.0
|
|
DJ-UBS
Commodity Index
|
-0.9
|
0.6
|
-2.1
|
1.7
|
-4.5
|
3.0
|
|
DJ
Equity All REIT TR Index
|
1.4
|
17.0
|
21.3
|
18.8
|
3.6
|
11.6
|
Notes: S&P 500, DJ Global ex US,
Gold, DJ-UBS Commodity Index returns exclude reinvested dividends (gold does
not pay a dividend) and the three-, five-, and 10-year returns are annualized;
the DJ Equity All REIT TR Index does include reinvested dividends and the
three-, five-, and 10-year returns are annualized; and the 10-year Treasury
Note is simply the yield at the close of the day on each of the historical time
periods.
Sources: Yahoo! Finance, djindexes.com, London Bullion
Market Association.
Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested
into directly. N/A means not applicable.
THE OLD SAYING “THERE’S SAFETY IN NUMBERS,” may work in some settings, but not
necessarily in the financial markets. Doing what everybody else is doing in the
markets might make you feel more comfortable, but it’s not a way to get ahead. Famed
investor Howard Marks pointed this out in his recent book titled, The Most Important Thing: Uncommon Sense for
the Thoughtful Investor.
Marks said,
“Unconventionality is required for superior investment results, especially in
asset allocation.” Further, he said, “You can’t do the same things others do
and expect to outperform. Unconventionality shouldn’t be a goal in itself, but
rather a way of thinking.”
To frame this way
of thinking, Marks developed the following matrix:
|
|
Conventional Behavior
|
Unconventional Behavior
|
|
Favorable
Outcomes
|
Average good
results
|
Above-average
results
|
|
Unfavorable
Outcomes
|
Average bad
results
|
Below-average
results
|
Source: Howard
Marks
The matrix says
conventional behavior will get you average results – either good or bad. By
contrast, it’s only through unconventional behavior that we can be in position
to achieve above-average results. But, do you see the rub here?
At times,
unconventional behavior may lead to below-average results and, since you’re not
part of the “safety in numbers” crowd, you could stick out in an uncomfortable
way.
As it relates to
managing investments, striving for a mix between conventional and
unconventional behavior seems like a good strategy. You don’t want to always go
against the crowd because the crowd is often right. But, there are times when
it makes sense to take a stand, perhaps a more conservative stand than the
crowd, and be a little unconventional.
If our portfolio is
at times a bit unconventional, it’s because we’re trying to look out for your
best interests.
Weekly Focus – Think About It…
“If everyone is thinking alike then somebody isn’t
thinking.”
–
George S. Patton, U.S. military leader
Value vs. Growth Investing (12/7/12)
|
0.22
|
15.21
|
2.03
|
-0.75
|
14.90
|
11.58
|
1.54
|
|
|
0.11
|
15.41
|
1.93
|
-0.99
|
15.30
|
10.65
|
0.88
|
|
|
0.62
|
17.08
|
2.11
|
0.78
|
17.16
|
11.40
|
2.10
|
|
|
-1.15
|
17.58
|
2.24
|
-3.06
|
16.01
|
11.52
|
2.12
|
|
|
0.99
|
12.00
|
1.40
|
-0.49
|
13.05
|
9.01
|
-1.83
|
|
|
0.58
|
15.06
|
2.34
|
0.46
|
14.06
|
13.90
|
2.80
|
|
|
0.66
|
16.59
|
2.82
|
1.57
|
16.76
|
16.09
|
4.31
|
|
|
0.20
|
13.59
|
1.78
|
-1.89
|
10.03
|
14.10
|
1.37
|
|
|
0.91
|
15.17
|
2.49
|
1.92
|
15.58
|
11.48
|
2.57
|
|
|
0.33
|
13.37
|
2.27
|
-1.48
|
12.93
|
13.79
|
4.00
|
|
|
0.26
|
13.39
|
2.42
|
-1.33
|
13.31
|
12.66
|
3.57
|
|
|
0.00
|
11.10
|
1.67
|
-3.73
|
9.05
|
14.59
|
2.56
|
|
|
0.73
|
15.69
|
2.72
|
0.65
|
16.50
|
14.12
|
5.86
|
|
|
0.60
|
16.75
|
2.27
|
0.78
|
16.84
|
12.53
|
2.77
|
|
|
-0.81
|
16.30
|
2.12
|
-2.87
|
14.30
|
12.36
|
2.06
|
|
|
0.96
|
12.88
|
1.71
|
0.07
|
13.80
|
9.86
|
-0.42
|
©2004
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Regards,
,
Michael L. Schwartz, RFC®, CWS®, CFS
P.S.
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Allied Advisory Services, A Registered Investment Advisor.
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This information is provided for informational purposes only
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purchase or sell any security. The information contained herein is obtained
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guaranteed. Any opinions expressed
herein are subject to change without notice.
An Index is a composite of securities that provides a performance
benchmark. Returns are presented for
illustrative purposes only and are not intended to project the performance of
any specific investment. Indexes are
unmanaged, do not incur management fees, costs and expenses and cannot be
invested in directly. Past
performance is not a guarantee of future
results.
* The Standard & Poor's 500 (S&P
500) is an unmanaged group of securities considered to be representative of the
stock market in general.
* The DJ Global ex US is an unmanaged
group of non-U.S. securities designed to reflect the performance of the global
equity securities that have readily available prices.
* The 10-year Treasury Note represents
debt owed by the United States Treasury to the public. Since the U.S.
Government is seen as a risk-free borrower, investors use the 10-year Treasury
Note as a benchmark for the long-term bond market.
* Gold represents the London afternoon
gold price fix as reported by the London Bullion Market Association.
* The DJ Commodity Index is designed to
be a highly liquid and diversified benchmark for the commodity futures market.
The Index is composed of futures contracts on 19 physical commodities and was
launched on July 14, 1998.
* The DJ Equity All REIT TR Index
measures the total return performance of the equity subcategory of the Real
Estate Investment Trust (REIT) industry as calculated by Dow Jones.
* Yahoo! Finance is the source for any
reference to the performance of an index between two specific periods.
* Opinions expressed are subject to
change without notice and are not intended as investment advice or to predict
future performance.
* Past performance does not guarantee
future results.
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