Schwartz Financial Weekly Commentary 11/10/14

  

The Markets

 

Is it a melt-up?

 

You’re familiar with the word melt. Ice cream melts. Snow melts. You may have seen someone melt down (or have done it yourself). Right now, markets may be experiencing a melt-up, according to Barron’s. Melt-up is a counterintuitive term which describes a sharp, emotion-driven improvement in market performance. Last June, The Wall Street Journal blog described the melt-up phenomenon like this:

 

“Money managers and analysts are beginning to talk about an idea that dates from the roaring ’90s: a rapid stock gain known as a melt-up. In the late ’90s, people thought a melt-up, or a sudden double-digit percentage rise, was a fine thing. Set off by some exciting event, melt-ups feed on their own gains as people rush to avoid missing out. In late 1999 and early 2000, the Nasdaq Composite Index surged to 5000 from 3000 amid the Internet frenzy. It then collapsed. Melt-ups, investors learned, can lead to meltdowns.”

 

Markets did move higher last week. In fact, several major U.S. indices finished at record highs on the same day. That’s a rare occurrence and one that hasn’t happened since 1998. What was behind the move? Barron’s reported investors were encouraged by mid-term election results, strong third-quarter earnings, and the European Central Bank’s promise to spend $1.25 trillion on quantitative easing.

 

Investor optimism also gained ground. Last week’s American Association of Individual Investor’s (AAII’s) Sentiment Survey found a majority of investors were feeling bullish. Almost 53 percent believed stock prices would increase during the next six months. The bears were in retreat with pessimism about market performance falling to a nine-year low. “At current levels, optimism is unusually high and pessimism is unusually low. Historically, such occurrences have been followed by lower-than-average levels of market gains,” reported the AAII’s blog.

 

So, is it a melt-up? It’s difficult to know. What’s really important is this: Melt-ups are buy first, think later situations which sometimes lead to melt downs, which are sell first, think later situations. Needless to say, it’s always better to think first.

 

Data as of 11/7/14	1-Week	Y-T-D	1-Year	3-Year	5-Year	10-Year
Standard & Poor's 500 (Domestic Stocks)	0.7%	9.9%	16.3%	17.2%	13.2%	6.0%
10-year Treasury Note (Yield Only)	2.3	NA	2.6	2.0	3.5	4.2
Gold (per ounce)	-0.8	-3.9	-11.7	-13.5	0.9	10.3
Bloomberg Commodity Index	-0.1	-6.4	-4.1	-7.7	-2.5	-2.5
DJ Equity All REIT Total Return Index	0.1	23.7	21.2	15.5	17.9	8.8

S&P 500, Gold, Bloomberg 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 Total Return 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, Barron’s, 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.

 

Let’s hear it for family businesses! Family-owned and family-controlled businesses are a pretty important part of the global economy. McKinsey & Company recently noted:

 

“In many ways, family businesses are stronger, more vital, and more important than they have ever been. Various estimates peg their share of global GDP [gross domestic product] at between 70 and 90 percent. While many family businesses are private, about a third of the Fortune Global 500 companies are founder or family controlled, as are 40 percent of the major listed companies in Europe. Family businesses are especially important in emerging markets accounting for about 60 percent of private-sector companies with revenues of $1 billion or more.”

 

According to The Economist, the largest family firms in the world span industries ranging from retail to automobiles to electronics to pharmaceuticals. The top 10 include four companies in the United States, along with firms based in Switzerland/United Kingdom, Germany, Italy, Russia, South Korea, and Taiwan.

 

One of the most important challenges for family firms is succession. McKinsey & Company reported many businesses falter as they transition from the founder to the next generation, and most perish before the third generation can take the reins. Successful succession requires founders to look ahead, formulate a vision, and plan to that vision. In general, family-owned businesses have three basic options. The founder can:

 

·         Give the business away and start a foundation.

·         Sell the business and invest or divide the proceeds.

·         Keep the business and pass it on to the next generation.

 

McKinsey & Company predicts family companies are likely to become even more influential over time, especially in emerging markets.

 

Weekly Focus – Think About It

 

“Total spending by political parties in the British general election was £31.5m ($49.9m). Total spending by outside groups was £2.8m ($4.4m). So all in all: $54.3m. With 45.6m registered voters in Britain, that comes out at $1.19 per voter… That is less than the seventh most-costly Senate race (Arkansas), which cost $56.3m, or $26.47 per Arkansas voter. So the seventh costliest Senate race cost more than the entire 2010 general election in Britain.”

--The Economist

Value vs. Growth Investing (11/7/14)

Name	1-Week	YTD	4-Week	13-Week	1-Year	3-Year	5-Year
US Market	0.70	10.99	5.42	6.57	17.99	19.69	16.47
Large Cap	0.72	11.76	4.99	6.90	18.59	19.69	15.70
Large Core	1.36	14.19	6.70	9.73	19.12	22.53	17.02
Large Growth	0.04	12.64	4.84	6.80	21.74	19.68	16.50
Large Value	0.80	8.50	3.43	4.19	14.85	17.03	13.66
Mid Cap	0.80	10.38	6.13	5.87	17.61	19.99	18.55
Mid Core	0.53	12.86	6.32	6.11	19.77	20.76	19.65
Mid Growth	0.92	8.89	6.96	6.95	17.07	16.86	17.73
Mid Value	0.97	9.62	5.06	4.50	16.19	22.50	18.25
Small Cap	0.16	4.57	8.12	5.06	12.45	18.66	17.86
Small Core	0.22	6.17	7.95	4.82	14.06	18.83	17.13
Small Growth	-0.62	-0.03	7.71	4.95	7.38	16.86	17.70
Small Value	0.87	7.53	8.69	5.39	15.88	20.23	18.71
US Core	1.12	13.34	6.70	8.65	18.89	21.93	17.61
US Growth	0.16	11.03	5.42	6.71	19.82	18.92	16.90
US Value	0.84	8.66	4.10	4.34	15.20	18.36	14.94

 

 ©2004 Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar; (2) is not warranted to be accurate, complete or timely. Morningstar is not responsible for any damages or losses arising from any use of this information and has not granted its consent to be considered or deemed an “expert” under the Securities Act of 1933. Past performance is no guarantee of future results.  Indices are unmanaged and while these indices can be invested in directly, this is neither a recommendation nor an offer to purchase.  This can only be done by prospectus and should be on the recommendation of a licensed professional.

 

Office Notes:

 

November is the Office Beneficiary Form Review Month

 

As is the case every year, we designate one month a year as “Beneficiary Form Review Month”.  For the entire month of November we are happy to review anybody’s beneficiary form for their 401k, 403b, Life Insurance policies, IRA’s, etc.  Please call Lyndsey at 215-886-2122 or Lyndsey@schwartzfinancial.com to schedule an appointment.  Once again according to the latest statistics over 40% of contracts payable by death end up going directly to estates which means that Uncle Sam benefits.  According to latest word, Uncle Sam is not related to anyone except the IRS.  The latest to make it into the top ten of Beneficiary Form mistakes is “according to the will dated”.  This will always become a taxable event.  Please do not end up like the following case:

 

All it takes is an email or phone call.

 

Regards,

,

Michael L. Schwartz, RFC®, CWS®, CFS

 

P.S.  Please feel free to forward this commentary to family, friends, or colleagues.  If you would like us to add them to the list, please reply to this email with their email address and we will ask for their permission to be added. 

 

Michael L. Schwartz, RFC, CWS, CFS, a registered principal offering securities and advisory services through Independent Financial Group, LLC., a registered broker-dealer and investment advisor.  Member FINRA-SIPC. Schwartz Financial and Independent Financial Group are unaffiliated entities.

 

This information is provided for informational purposes only and is not a solicitation or recommendation that any particular investor should purchase or sell any security. The information contained herein is obtained from sources believed to be reliable but its accuracy or completeness is not 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.

 

* You cannot invest directly in an index.

 

* Consult your financial professional before making any investment decision.

 

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