Magic Numbers?

What happened to the “news” story that was Dow 13,000?  Over the last few weeks as US stock markets rose and the Dow Jones Industrial Average flirted with 13,000 stories filled the financial media.  Their content was a typically breathless “will it or won’t it” close above that magical mark. Experts opined on the “psychological importance” of this and other market measures.

And then what? US financial markets have been up for 7 straight trading days, the Dow is solidly over 13,000 (13,200 as I write this) and it’s not a topic anymore. Why not? My view: it was never a legitimate topic in the first place.

I started in the investment business when the Dow was at 1,000 and can remember when some people predicted that the Dow would reach 5,000, or 7,000, or even 10,000 – some day.  I also remember the “experts” who denounced those predictions as crazy, impossible fantasies.  Marks don’t move based on the level of some arbitrary index. Markets move, in the long run, based on dollars and cents: sales, earnings, dividends. The rest is noise. I’m bullish on the US economy, and I’m bullish on our stock market. Ignore the noise; enjoy the ride.

GTC

(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp.  The author’s opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).

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• Did I Miss Something? (brightonsecurities.wordpress.com)

Did I Miss Something?

Apparently I did. Last week, while I was going about the business of business – analyzing & advising, mainly – the Dow Jones Industrial Average closed over 13,000 for the first time since before the financial crisis gripped the global economy back in early 2008. I was informed of the Dow crossing this “psychologically important level” by a radio broadcast in the evening.  That made me think: I’m up to my neck in the stock markets every day, have been for nearly 30 years, and hadn’t even noticed. 

Even when I finally did notice, my reaction was simply, “Great.” Since starting in the investment business when the Dow was around 1,000 I have seen many milestones reached.  In some cases, they’ve been reached again and again as the Dow would flirt with a level, over and back a few times before breaching it and moving to higher ground, in some cases permanently. But the fact that I didn’t know we were at Dow 13,000 isn’t the story. The fact is that the market doesn’t know what 13,000 means. Neither do individual stocks. It’s only a “psychologically important level” for people who consider it so, and those people are in the minority worldwide.

Long-term investors needn’t concern themselves with the level of an index like the Dow Jones Industrial or the S&P 500. Of genuine importance are the financial strength of your investments, prospects for growth, and let’s not forget: cash flow. Interest and dividends are tangible, meaningful results that come from investing your capital. An index is a good way to gauge the level of the broad market, but it’s easy to miss a market move. Cash flow is good way to enjoy life, and it’s hard to miss.

GTC

(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp.  The author’s opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).

Sweet

I’m not sure why the quarterly earnings reports from Hershey are more blogworthy than others.  Maybe it’s because I like chocolate, so the very name Hershey always makes me smile.  But Hershey shareholders have plenty to smile about today, too. That’s because the company reported higher earnings today and projected that 2012 will keep kids and customers (and their dentists) smiling with even better results.

The roots of Hershey’s current success go back a few years. The company made a few acquisitions to broaden their confectionary product lines, and transformed their supply chain to get their products to market more efficiently. With cash dividends to shareholders raised 9 out of the last ten years (including a 10% increase announced today) that makes for a sweet time all around.

GTC

(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp.  The author’s opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).

Dividends and Inflation

Inflation is often the most pressing problem for retirees living on a fixed income.  It forces us to divert a potion of the portfolio away from the safety of bonds because we know that without growth the portfolio’s purchasing power will slowly decline.  Such are the pernicious effects of inflation.  A typical retirement for a 62 year old, non-smoking couple is 30 years.  Over that period of time prices will typically double.  There are good reasons to believe that going forward the heavy hand of government in our national economy could make that worse.  For example, the price of a stamp today is $0.44; in 1980 it was $0.15.

Fixed income is just that, fixed.  It does not go up in time.  In fact, with time it declines in real terms causing the safety of bonds to turn into a sure loser.  In my opinion the best alternative available to bonds are high quality, dividend paying companies.  Over long periods of time the dividends of our great American and international companies have been the only investment that has consistently bested inflation.

With interest rates so low the relative attractiveness of dividends over bonds is compelling for several reasons.  The first is absolute: the yield on the ten-year treasury is about 2.63% while the yield on the S&P 500 index is 3.36%.  The second reason is the prospects of the two asset classes.  When interest rates rise off their historical lows the price impact on bonds will be negative.  Therefore, bond investors have a historically high chance of seeing principal values decline.  At least with high quality, dividend paying companies an investor would at least have a chance (a good chance if you ask me) of growing the value while collecting a more generous income.  Of course, even high quality dividend paying stocks come with risk of loss.  For most investors, a balanced approach is the best approach.

Brennan Redmond

(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp.  The author’s opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).