November in Review


More market volatility


I read an excellent analogy for the relationship between stock markets and the economy, which you can find below. In short, he compares the two to a woman walking a dog through Central Park. The woman is the economy; she's walking in a straight line at an even pace from point A to point B. No matter what the dog does; she'll complete the walk. The dog is a hyperactive Russell Terrier or something, and he's darting back and forth, chasing butterflies, digging holes, peeing all over the place. That's the stock markets (the dog also eventually gets from point A to point B, just takes a longer path). Anyway, it's a good short read:



While we, as long-term investors, look at a 10% correction as simply a "blip" in the markets and are more just in fascinated by the movements than terrified or impoverished by them, they are claiming some victims.



The above hedge fund manager's video made its rounds in the second half of November. Some actually initially thought it was fake, but sadly it is very real.


While crypto currency actually was looking like a diversifier against the markets in October (Bitcoin at least slowed down its descent, even though it also dropped 5% in Oct), it seems the various cryptos have sped up their descent again. The total damage year to date can be seen in the table below (you might have to click on it to see the whole thing).



The Financial Noise Media

I've stated here before, in my newsletter, and directly to my clients that I do not subscribe to any of the financial networks on my home cable package, nor listen to them on SiriusXM, nor have a TV spewing their noise in my office. I, as a financial professional, gain absolutely nothing in terms of knowledge or current events by watching them. You, as an investor, likewise gain nothing from watching them. If there's one habitual change I can recommend to any and all readers, to make themselves better investors, it's to completely tune out the circus that is financial news media (and 24 hour news for that matter too).


Recently, in a twitter conversation about which way interest rates should be headed, I sided with an economist whom I greatly admire, Brian Wesbury, whose economic updates are often spot-on and oozing with facts proving the economic miracle the U.S. is currently in, refuting the fear-mongerers of the day (I highly recommend reading his weekly newsletter he puts out every Monday). Another very outspoken market commentator is TV's Jim Cramer. Wesbury is of the belief that the economy is strong and can withstand further rate hikes, at least until we reach more historical norms. Cramer is well known to go into temper tantrums when he disagrees with the Fed Chairperson as in this hilarious video from 2008 (mind you, he was right back then).



I respect Cramer and where he's coming from. He has a lot of experience in the markets and is incredibly intelligent (who knew he had a Harvard Law degree?), I even watched his show fairly regularly when I first started trading stocks in the early to mid-2000s (still hanging on to the Citigroup shares he recommended in 2007 in hopes they'll quintuple and I'm back in a gain position). A point needs to be made though, in order to warn and protect other investors, that his show is nothing more than a part of the financial news circus. It's not advice. Based on the tweet-replies to the above, he has a lot of sheep following him and hanging on his every word, and that's sad.


His claim of 24% compound returns, if that's what he's regularly telling his followers, is either a complete untruth OR, if he truly did compound 24% over a period of time when the S&P 500 total return index compounded 8.7% (Oct 31, 2004 to Oct 31 2018) good for him! Not necessarily a boon to his followers though, as according to this article, entitled "Chasing Mad Money", the average investor following Cramer's Actions Alert Plus recommendations vastly under-performed the index. The study was apparently done not too long ago by academics at Wharton and is referenced in the article.


For a simpler example of how following TV pundit "advice" can put a bulldozer to your long-term investing success (thankfully that purchase of Citigroup was only a small part of my portfolio and shortly thereafter I became a financial planner and started making smarter decisions with my money), let's look at a longer term example. Back in 2000 Cramer made 10 stock picks for the new millennium. These were supposed to be 10 companies that would profit on the new economy of the new millennium or something. This article links back to the original speech by Cramer and reviews each and every pick he made and what the outcome was thereafter.


He did make these picks pretty much at the height of the tech bubble, but there are other companies out there that have survived since then (Amazon?). Here's the kicker though: every single one of his picks either was bought out at a much lower price or - if they're still around 18 years later - now trades at a fraction of the price.


Meanwhile - and this is the point I'm trying to make here - the average investor who tuned out the financial noise media completely and just stuck all their money into a boring S&P 500 ETF at the beginning of the millennium compounded 5.24% annually. That's not huge, but keep in mind the first 9 years of this period were a secular bear market during which the financial pundits had many, many opportunities to scare you out of your investments, or tell you to buy tech stocks... or Citigroup...

More Stuff


RBC Global Asset Management's One Minute Market Update for Fall 2018 CLICK HERE

RBCGAM's One Minute Market Update is a short quarterly overview of the markets. What I especially like is their "Fair value range" charts on the right side, taking very long term views of various markets and where stocks are trading relative to long-term fair value.


JP Morgan's Guide to the Markets for 4Q 2018 CLICK HERE

This 60+ page slideshow is chock full of charts, facts and figures, that give you pretty much everything about everything you could possibly want to know about the economy and markets. Want to know how U.S. stock valuations compare either historically or with the rest of the world? Want to know how much the U.S. government is borrowing? You'll find it all here.

Top Tweets for November


Some of the top stuff I read this past month, and a few graphs and videos. Want to see more? Follow me on Twitter!


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