POLITICAL CRISIS IN UKRAINE, ISRAEL, EGYPT, SYRIA, IRAQ, LIBYA, and FILL IN THE BLANK
FINANCIAL CRISIS IN ARGENTINA, GREECE, PORTUGAL, SPAIN, ITALY and FILL IN THE BLANK
Putting things in perspective is important. All of the countries above have a total stock market valuation of less than 10% of that of the USA….COMBINED. If all of these countries disappeared economically and the US stock market grew just by 10%, we would create more value than their entire combined loss.
So, I don’t suggest being too pessimistic - as an investor - given the headlines of the difficult problems in the countries listed above. The insane things going on in this world are difficult to stomach, but innovation is winning. Gold bugs are pouting. Just what do we think the market is telling us? There is power in prosperity.
Had you known that in 1999 near the top of the ‘tech bubble’ in stock prices, one almost dormant publicly traded and ignored tech company would reinvent itself into the largest company in the world in just about 10 years (Apple), and a one year old start-up company would not fail in the carnage of the tech bust, would go public in 2004 and today have a market capitalization of about 400 Billion. (Google). If then you were told another startup will form about the time Google went public and 10 years later it would have the same market cap as Coca Cola (Facebook), wouldn’t you have felt the soaring market for tech stocks was warranted? I think even I might have believed the hype! So as we imagine what we don’t know today that is being invented for us to consume in a short number of years, I am pretty sure disruptive and mind-blowing ideas are still on the way.
The Dow Jones average today near all time highs is only about 15% higher than it was in 1999. The market in the late 90’s told you that technology was coming, change afoot, and get prepared. A few years later when the tech market stocks crashed, some amazing bargains appeared. Listening to the market tell you that amazing things are on the way does not tell you it is ok to overpay for amazing.
Today, many corporations have seen their cash hoards grow, increased their dividends and share buybacks, but are just now beginning a shopping spree with acquisitions announced almost daily. We cannot ignore the power of buying earnings streams with debt that costs next to zero on an after tax basis in this current interest rate environment. This phenomenon induces buybacks and merger activity, both of which put upward pressure on the market. This combination with moderate P/E ratios sure does not signal extreme caution to me. You hear lots of chatter of corporate funds offshore that will be taxed if they try to bring them home. Well, I expect only one event can occur that will change that, and it will be a very positive one for the markets if it happens. It would be a tax advantaged repatriation of overseas cash. Many new wealthy Americans are being created, while fewer seemingly are being eliminated. And I believe the new millennial generation will eventually invest in stocks hand over fist at some point in their lives, contrary to reports you might read. Expect prosperity! And at some point, new bubbles will form.
Conclusion:
No one can predict the scenic route the market takes as it moves higher over time. Today, no sector seems to have too large of a concentration of the overall market. Wealth is being created, people are finding jobs and the good news of this can’t help but find its way downstream over time. True unemployment may still be high, but realize we’ve created many more jobs for the larger workforce that has developed over the past 7 years. Many baby boomers may work past age 65, and future workers will realize they will likely want to do the same. Stay with good companies, and prepare for an opportunity to buy on severe dips, or sell some on a steep rise in stock prices. Last year I cautioned (hoped) that we just might see a significant upside move. The DJIA is up about 14% since then. That is nice, but not significant. Stay tuned as the re-pricing of the stock market continues.
I avoid politics for the most part, but as an aside, I would not be surprised if we elect the youngest President ever in the upcoming election. (Kennedy was 43). Millennials are soon to be a major voice and if they act somewhat similarly; a massive force!
Technology will enable ideas that enable ideas and many new companies will evolve as a result. Old line companies delivering great products to a few will be replaced by assertive companies delivering a good product to a bunch. And just think what we are on the cusp of learning based on the new things we have been learning.
I want to focus on the future. I suspect there is reasonable possibility that the Dow Jones Industrial Average will be trading near 150,000 by 2040, just about 25 years away. (See the chart from last year’s report in the archives at www.worthscape.com). While we know if it happens it will not be linear, I suggest you stay focused on higher stock prices over time. If you do, your portfolio should do just fine.
We keep looking for great companies at attractive valuations run by reasonable people that we think will be here many years from now.
-Bobbo Jetmundsen
Disclaimer: Worthscape, LLC does not guarantee the accuracy of completeness of this report, not does Worthscape, LLC assume any liability for any loss that my result from reliance by any person upon any such information or opinions. Such information and opinions are subject to change without notice and are for general information only. This is not an offer or solicitation for the purchase or sale of any security and should not be construed as such. Reference to specific securities, issuers and data for illustrative purposes only.
