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).

Then and Now

BY “Then” I don’t mean the distant past, I mean this past April.  The US stock market had been rising for a year (with the occasional hiccup) and investors had begun to heal some of the psychological scars inflicted by the financial crisis and global recession.  Economic signs had begun to point to recovery. On April 26^th the DJIA closed at 11,206 – it’s highest level since the Lehman/AIG/Merrill Lynch collapse of September 2008.

And then:  news of the gulf oil spill began to hit the public consciousness (the explosion that touched it off happened on April 20^th), the analyst community was “apprehensive” about 2^nd-quarter corporate earnings, and some investors began to think that the recovery in stock prices since March of 2009 was over. So May and June saw plenty of pessimism and markets declined steadily.

What changed? Turns out the sky hasn’t fallen after all.  Corporate earnings have been mostly good, suggesting continued economic recovery. Interest rates have remained low and have helped the housing market. And the stock market has rebounded 9% since it’s low on July 5th, rewarding investors who chose wisely and sat tight. 

Watch for more good earnings news this week.

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).

A Little Good News

This week kicked off with a better-than-expected earnings report from Alcoa, and yesterday saw the same thing from giant chip-maker Intel.  There is of course feverish chatter within Wall Street’s analyst community about what else to expect from 2^nd quarter corporate earnings to be reported over the coming few weeks, but my impression remains unchanged from the last 6 months: the US economy continues to recover, however fitfully, from recession.  Two weeks ago some pundits were nattering about double dip recession fears, and investors sent stocks down 14% from the end of April to the end of June.  It’s nice to find out that the sky isn’t falling after all.  Perhaps that’s why the DJIA is up 700 points since the 4^th of July.

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).

In It to Win It

Last week US stocks had their best week in nearly a year, with the Dow Jones Industrial Average rising 511 points (5.3%).  Economic news has been generally positive, the US Congress has managed to go another week without wrecking the economy, and investors were upbeat about the coming spate of corporate earnings reports.  The latter starts today, with Alcoa poised to report after 4 pm.

There has been quite a bit of investor pessimism over the last few months as the market has drifted. Is the pessimism the cause of the drift, or an effect? Probably some of both.  But it’s important to note that to make money investing you’ve got to stick with it.  A number of studies over the last 20 years have illustrated that if you try to time the market and end up missing just a few good days your return can be sharply reduced. (check out this chart from Putnam)

If your investments are of good quality, stick with them. You’ve got to stay in it to win it.

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).

Waiting for 11,000

That’s Dow 11,000: the oh-so-closely watched barometer of the stock market. Lately Wall Street savants and their media pals have been nattering about whether and when the Dow Jones Industrial Average (DJIA) will reach 11,000.  Yesterday (Thursday) the Dow closed at 10,927 and in recent weeks has been as high as 10,988.  (When I started in the investment business it was at 1,000) But what does it mean? And why should we care?

Two short answers: 1. Nothing, and 2. We shouldn’t.

Early last year the DJIA was hovering above 6,000 and financial panic was the order of the day. By the end of March it hit 7,000 and in late April 8,000.  Remember when the Dow hit 9,000? July. And 10,000 came in October.  So the latest number to fret about is 11,000.  And it doesn’t matter, not a bit. What matters is the health of our economy (getting better) and whether corporate earnings are rising (they will – and next week you’ll hear about it) and if companies can increase their dividends to shareholders (they will do that too). Stock prices are not set by committee, they are set by the willingness of investors to invest. And investors are taking note of economic recovery. 

So 11,000 will be reached and surpassed.  So will 14,000 (we were there in 2007). Those numbers don’t matter. The numbers on your monthly statement do.

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).