Home Posts tagged Investors
Banking and Financial Services

And Why Investors Should Consider Re-evaluating This Strategy

By Jeff Liguori

 

Humans are historically bad at long-term thinking. In the world of finance, that behavior has dramatically worsened over the past 50 years.

Today, the average investor holds an individual stock for less than six months; in the late 1990s, that period was approximately two years. Go back to the 1950s, and investors were holding individual stock for nearly eight years on average.

What has caused such a drastic shift in investor behavior? First, access to markets has never been greater, which creates ample amounts of liquidity for trading. Second, ever-growing reams of information are disseminated at lightning speed, preying on our psyches. Finally, the cost to trade shares of a stock is negligible — in many cases, zero. Each of these trends is quite beneficial to the average investor. However, the combination of these factors promotes behavior that does not support a long-term view of investing.

For the sake of analysis, let’s look at the performance of Target Corp. (symbol: TGT). From July 1, 2013 through Nov. 30, 2021, the total return of Target’s stock (price appreciation and dividends) was 350%. During that same timeframe, the S&P 500 had a total return of 230%. However, shares of Target largely underperformed the broader market in the five years following July 1, 2013, returning 29% vs. 86% for the S&P 500.

Jeff Liguori

Jeff Liguori

“Ever-growing reams of information are disseminated at lightning speed, preying on our psyches.”

There was no lack of bad news in that five-year period, including a change in leadership with a new CEO and a failed plan to expand into Canada that cost the company more than $5 billion. But a patient investor with a long-term view, who believes in owning solid businesses, has been handsomely rewarded by staying with Target.

A recent article in the Wall Street Journal highlighted a little-known mutual fund manager, Wilmot Kidd, who has had exceptional investment performance.

“Over the past 20 years,” it notes, “Mr. Kidd’s Central Securities Corp. … has outperformed Warren Buffett’s Berkshire Hathaway Inc. Over the past 25, 30, 40, and even nearly 50 years under Mr. Kidd, Central Securities has resoundingly beaten the S&P 500. The keys to his success? Patience, concentration, and courage.

“If you had invested $10,000 in Central Securities at the end of March 1974, when Mr. Kidd officially took over,” the article continues, “you would have had nearly $6.4 million by the end of this October, according to the Center for Research in Security Prices. The same amount put into the stocks in the S&P 500 would have grown to $1.9 million.”

Analysis on Kidd’s fund suggests an average holding period north of 10 years. But some of the companies in which Central Securities is invested have been part of the fund for more than 30 years. And during Kidd’s tenure, the fund has underperformed the S&P 500 several times. But having the courage of his convictions, and staying invested through market cycles, has served his clients very well, despite periods of underperformance.

Investing today is about constant measurement. Companies produce quarterly earnings reports, compelling Wall Street analysts to change projections and adjust ratings, which forces investors to rethink their investment ideas. Add in exogenous events to amplify anxieties, and it is no surprise that the investing public has become so shortsighted. No, I don’t worry about the potential ramifications of Russia invading Ukraine on my stock portfolio (an actual assertion from a client!).

As a kid, I remember my grandfather diligently keeping track of the few stocks he owned, writing the end-of-month prices in a journal. He didn’t have the luxury of technology; his analysis was straightforward and pragmatic. He invested in companies with which he was familiar. He had no formal degree, having to forgo college to support his family during the Depression. The son of immigrants, he owned and operated a small grocery store whose customers were almost entirely working-class or even working poor.

One of his suppliers was a company called Corn Products Inc. The company still exists, now called Ingredion (symbol: INGR). For him, investing was about owning a piece of this company that he had a personal connection to, in the hopes of growing a nest egg. Whenever there was ‘extra’ money from his earnings, he would add to his positions. My grandfather retired in 1982 having never earned more than $30,000 in any given year. The value of his portfolio exceeded $600,000 prior to his death in 2011.

He didn’t know he would live for nearly a century, passing at age 97, but he sure invested like it. u

 

Jeff Liguori is the co-founder and chief Investment officer of Napatree Capital, an investment boutique with offices in Longmeadow as well as Providence and Westerly, R.I.; (401) 437-4730.

The Western Mass Real Estate Investors group is excited to announce that we are hosting our first annual Real Estate Investors Summit here in the Greater Springfield area on Saturday October 19th, 2019. Join other North East Real Estate Investors at the Mass Mutual Center in Springfield, MA for the REI event of the fall. Whether you are a seasoned investor or just starting out, this event will bring the value and change that you may be looking for to succeed in real estate and your business.

This is a fully educational and networking type event and will not be a pitch fest of services. For more info and to grab a ticket, head over to our site we recently launched at https://nereisummit.com/. Hope to see many of you there!

Buy Tickets here!: https://nereisummit.com/register/
Ticket Prices : $75

Agenda: https://nereisummit.com/agenda/
Travel/Parking: https://nereisummit.com/travel/

Wealth Management

Stay the Course

Jean Deliso, CFP said she started calling her investment clients several days ago to gauge how they’re feeling amid some growing turbulence for the economy — and on Wall Street.

As she talked with BusinessWest about this initiative, she paraphrased the message she would leave if she encountered voicemail. “We just want to check in to see how you’re doing. The market has done very well, but we’ve seen some volatility in the market, and want to know how comfortable you are. On a scale of 1 to 5 (with ‘5’ representing the highest level of anxiety), how are you feeling about volatility, because there’s a political environment going on, we have China going on. Are you comfortable that your assets are positioned well?”

Again, that was the gist of the call. Deliso, owner of Agawam-based Deliso Financial and Insurance Services, said the firm has contacted about half the investment clients, and so far, there have a lot of 1’s and 2’s and generally nothing higher than a 3. And she’s not exactly surprised.

She believes those numbers tell her she’s doing a good job of helping her clients not just invest, but create and execute a plan. It also means she’s done well explaining to people that volatility — and yes, the markets have seen some this year amid trade turmoil, interest-rate movement, the dreaded inverted yield curve, and recession talk — is part of investing and nothing to really be feared.

“It’s important to keep their timeline in mind and not panic,” said Deliso, adding quickly that matters change the closer one is to retirement. “If you have 20 years … take a long-term perspective, don’t panic, don’t sell, and learn to live with volatility, because you can benefit from it because there are opportunities.”

That last comment is a perfect segue to the three words investment managers and financial planners always summon at times like these, especially for people with a long time window — ‘stay the course’ — as well as the seven words they also put to frequent use — ‘you shouldn’t try to time the market.’

“My job is to make sure, when these clients go into retirement, or are in retirement, that they have peace of mind. I want to make sure they’re not going to be emotional when the market drops. I want them to be secure that they know that, if it drops, they’re OK.”

Karen Dolan Curran, MBA, CFP, a principal with the Northampton-based firm Curran & Keegan Financial, used both phrases, and turned the clock back to 2008, the start of the Great Recession, to get her points across.

“In 2008, most portfolios lost an average of 30% to 40% of their value,” she recalled. “But if you stayed in those portfolios, they fully recovered after close to 18 months; you had to play the cycle out. And if you tried to go or if you tried to time the market as to when to go and when to jump back in, most people failed — because the most challenging part is trying to figure out when to jump back in. Those who stayed did fine.”

Neither Curran nor anyone else we spoke with is predicting anything close to 2008 again. In fact, some are hedging their bets on whether there will be a recession, not only this year but next year.

“In 2008, most portfolios lost an average of 30% to 40% of their value. But if you stayed in those portfolios, they fully recovered after close to 18 months; you had to play the cycle out. And if you tried to go or if you tried to time the market as to when to go and when to jump back in, most people failed.”

“We don’t believe that recession is coming necessarily in the next 12 months,” said Curran, noting that, while there a number of matters contributing to tension nationally and globally, overall, the economy is quite solid and unemployment and interest rates remain quite low, and investors should keep this in mind moving forward.

Still, the dreaded ‘R’ word is being heard and read more frequently these days, and that’s one of the reasons why Deliso launched her survey, noting that it’s a good conversation to have and she has it at least annually with clients.

The results of her polling, as noted, show there is not a high level of fear, a reaction that seems to mirror what’s happening on Wall Street, where, despite some turbulence and uncertainty, the S&P is up nearly 20% (or was at press time; things can change quickly), and when most of those ‘fear/greed’ gauges are tilting more toward the latter.

Beyond that, the comments seem to indicate that she’s doing well with what she considers her primary assignment. And that is to take fear out of the equation for her clients, even at times, like this one, in some respects, when one might be tempted to show some fear.

“That’s how this practice works; we provide a tremendous amount of education,” she explained. “And we make sure clients are positioned well with fixed assets and investment assets, because when we set people up for success, there’s a balance between the two.

“My job is to make sure, when these clients go into retirement, or are in retirement, that they have peace of mind,” she went on. “I want to make sure they’re not going to be emotional when the market drops. I want them to be secure that they know that, if it drops, they’re OK.”

Curran said her firm works in much the same way, with an emphasis on financial planning, not simply investing. As a result, she said she rarely gets a ‘panic’ call from an investor when the market takes a tumble, as it’s done a few times this year, or even when it takes a hard fall, as it did in the fourth quarter of last year.

She told BusinessWest that her firm helps clients plan against the backdrop of what she called the ‘worst-case scenario,’ meaning what happened in 2008.

“We do a lot of stress-case analysis,” she explained. “Saying, ‘well, what is the basic assumed market return? What if the market fluctuates downward during a particular time? What if it is nothing but positive for a particular time?’ And in certain cases, we replay 2008 right at a point of retirement, because that is the worst-case scenario — the moment you retire and you draw on your investment, the market comes down.

“We do all those simulations with clients so, when there are swings, like that 800-point drop recently, we get few, if any, calls, because we’ve already considered the worst-case scenario,” she went on, adding that, when people retire, they have more free time and spend some of it watching — and worrying about — the markets and their investments. “We don’t want them to have those reaction swings.”

Thus, the firm, like Deliso’s, recommends that those entering retirement do so with six months or perhaps a year’s worth of cash reserves to draw on, rather than their retirement savings.

Curran said effective planning, not to mention a willingness to stay the course, or “play the cycle out,” as she called it, is critical in this environment where interest rates on CDs and other very conservative forms of investing are far too low to generate real returns.

“The new norm is that people can’t go to a conservative portfolio of bonds and cash in retirement and live comfortably,” she said. “They have to be in the market, and they have to feel the weight of the ebb and flow of the market and understand that, if they stay long enough, the market will give them a positive return.”

Deliso agreed and reiterated that a big part of her job is to remove fear from the equation through proper planning and an effective mix of investments and fixed assets.

That’s why she hasn’t had anything over a 3 yet from her phone poll, and why she isn’t expecting any, either.

— George O’Brien

buy ivermectin for humans buy ivermectin online
buy generic cialis buy cialis
payday loans online same day deposit 1 hour payday loans no credit check