Price is what you pay. Value is what you get. -Warren Buffett Here’s a chart showing the relationship between the S&P 500’s Price-to-Earnings (P/E) ratio and annualized returns over the next 2 years. It simply shows that your expected return is high when you buy something cheap, and low when you buy something expensive. On…
Chain Reaction: Dominoes 3 & 4
Well that didn’t take long. On Thursday afternoon France’s President, Francois Hollande, announced that he will not be seeking re-election. Could it be from his approval rating of less than 10%? Then the Italians voted against the reformation of their constitution in yesterday’s referendum, leading their Prime Minister, Matteo Renzi, to step down after just…
The Challenges Ahead for Long-Term Investors
I suppose this is my annual warning to long-term investors to tread carefully in the investment markets. 2016 has been a year of rotations with the net composite of a balanced portfolio not moving a whole lot (i.e. things that did well in the first half of the year have done poorly during the second half,…
How Systematic Investment Management Can Improve Returns
I made the decision this week to switch half of our Income Allocation within portfolios to a systematic management system. As I mentioned last week, I’m not totally sold that interest rates have bottomed but there’s a strong chance that they have, marking the end of the 35 year bull market in bonds. If rates…
Impact of the Presidential Election: The 2nd Domino has Fallen
I know this was a very emotional election so, as always, I preface this post by saying that my comments are purely from an objective point of view regarding the impact on the economy and investment markets. I realize there are many other very important social ramifications beyond just finance but I’ll leave those topics…
Chart of the Week: Index vs Active Fund Flows
Here’s an interesting chart showing the cumulative change of money going into index funds and coming out of actively managed funds over the last 15 years. I’ve commented in the past on indexing. In short, I think it makes sense in some instances but not in others. Most of my concerns revolve around stock index…
Update on Quarterly Earnings Season & the Election
We’re in the heart of companies reporting their Q3 earnings and it’s been a bit of a mixed bag. There are a handful of small pockets doing well (cloud related services, electronic payments, cybersecurity, etc.) but overall I would sum it up as stagnant. The consumer is hurting from rising costs like healthcare while incomes…
Chart of the Week: US Interest Rates vs. Japanese Rates
Here’s a chart I saw over the weekend comparing the current path of the US Federal Funds Rate (blue line) to the path of the Japanese Policy Rate (red dotted) 16 years ago. The United States is not Japan. But our demographic structure today is very similar to Japan’s 15-20 years ago, and demographics ultimately…