When debating whether stocks are cheap or expensive, most Wall Street analysts use the S&P 500’s historical price-to-earnings ratio to support their argument. The P/E ratio is a measure of how valuable corporate earnings are to market participants. The more valuable they are, the higher the multiple will be. For the past 25 years, the P/E ratio using expected future earnings has averaged 18.4. That is if the S&P 500 were a single company, its price traded for more than 18 times its expected annual earnings. With today’s P/E hovering near 22x, it might appear on the surface that stocks ..read more

4 years That’s how long it’s been since we’ve had a normal environment for investing. It’s hard to believe it’s been that long, but considering everything we’ve been through, I wouldn’t argue that it feels longer for you. In December of 2019, our economy had been in expansion mode for nearly eleven years, one of the longest periods of growth on record. Inflation was averaging less than 1.5% per year. Interest rates on savings and investments were even lower. Then Covid happened. By March 23, 2020, the S&P 500 index, a benchmark representing the 500 largest publicly traded companies in Amer ..read more

Nothing confuses people more than trying to understand what’s happening in “the market” these days. To make sense of it, you first have to understand two very simple distinctions. First off, “the stock market” is what the media refers to as one big ball of publicly traded stocks all lumped in together.  Inside that ball, there are big companies, small companies, good companies, not-so-good companies, US companies, foreign companies, and so on. It’s no wonder you can’t make sense of it.  The second distinction is that you can’t really own “the market” itself. It’s just a general prox ..read more

Imagine you are presented with the following opportunity:  An Olympic-sized swimming pool is filled with plastic Easter eggs, around 64,000 of them. Most eggs contain nothing, but a small number (2.4%) include $100 dollar bills. If you were allowed to select 100 of the eggs randomly, how do you think you would fare? The odds are not in your favor. There’s a high probability you’d end up with a pile of empty plastic eggs. We’re using this example to highlight a fascinating new study on investing. In short, analysts studied investor returns over the thirty years from January 1990 through D ..read more

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In our recent reading, we ran across some pearls of wisdom from investment manager Howard Marks of Oaktree Capital. Marks ranks right up there with Warren Buffett as a voice to heed on investment philosophy. (He’s on Forbes list of billionaires.)  We thought we’d share his remarks to provide some perspective on market fluctuation:   “It’s clear from observation that security prices fluctuate much more than economic output or company profits. What accounts for this? It must be the fact that, in the short term, the ups and downs of prices are influenced far more by swings in investor p ..read more

With the passing of the halfway point for the year, we would like to provide you with an update on the financial markets along with other notable topics we’re following. Financial Markets The S&P 500’s all-time price value (not including dividends) peaked on January 2nd, 2022. By October 11th, the index had declined 24.7 percent. It turns out that happened to be the day the market started its recovery. Here we are in the third week of June, and the index is up 22.9 percent off its low. We’re not quite back to even, but we certainly seem to be fulfilling the message we’ve shared with you al ..read more

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If the year 2022 were a fish, we’d throw it back. Between the spike in inflation, the historic rise in interest rates, the deepening geopolitical saga in Ukraine, and the less-than-optimal performance of virtually all assets around the globe, we thought we’d take this opportunity at year-end to reflect on the future a bit. And while we’re at it, add in a dash of perspective. As we’ve noted before, the daily firehose of information coming at us through multiple news sources and social media tends to flatten our perspective; it makes us focus on the short term, wondering what will happen in the ..read more