Friday, September 30, 2016

Buffett-like funds

while every manager desires Buffett’s results, most do not mimic his investment approach. Concentrated, low-turnover portfolios are not for everybody. There are, however, two dozen U.S. stock mutual funds that could reasonably be called Berkshire Hathaway hopefuls. They have large-value or large-blend investment styles, fewer than 25 stock positions, and annual turnover of less than 50%.

Their collective results stink.

*** [10/1/16]

Well, how about YAFFX (Yackman Focused Fund), which is a fund I own?  I'm looking at the semi-annual report (and data from Morningstar).

The fund has 20 stock holdings with turnover of 6%.

The fund has returned 15.38%, 11.74%, 10.02%, 12.29% for 1, 5, 10, 15 years.
The S&P 500 has returned 15.43%, 16.37%, 7.24%, 7.15%.
Berkshire Hathaway has returned 10.75%, 15.15%, 8.48%, 7.81%.

Morningstar rates the fund three stars silver.

Thursday, September 29, 2016

John Szramiak

Who is John Szramiak?  I never heard of him before.  He writes the Vintage Value Investing blog and Gurufocus saw fit to ask him 15 Questions.

1. How and why did you get started investing? What is your background?

I got started investing in a sort of roundabout way... actually, I owe it all to Google. In middle school and high school I was probably on Google for several hours every day - searching different topics and learning about whatever I was curious about that day (it was basically my equivalent to hanging out in a library and trying to read every book). I loved Google the search engine and how you could think of any question and then find the answer to it within a few seconds. And I also loved Google the company - its vision, its culture, its philosophy, its other products, and its success.

So when the financial crisis hit in 2008, I remember looking up Google stock on Google Finance. And it was trading somewhere around $150 per share (adjusted for stock splits) compared to a high of $357. I knew next to nothing about investing, but I knew enough to think to myself "there must be something wrong here" So I did a little research and it didn't take long to figure out that (a) Google as a company was doing fine, but (b) we were in a recession - the worst recession since the Great Depression! So I opened a brokerage account and bought as many shares as I could using all the money I had saved from birthdays and summer jobs.

The stock must've gone up a bit soon after I bought it, because I then became very excited about investing and started doing research (using Google of course) about how to become a better investor. And if you want to teach yourself about investing (and you want to do it for free), then you're pretty much required to start with the writings of Warren Buffett - who just so happens to be the greatest teacher of investing of all time, as well as the greatest investor of all time. In college I studied finance and economics, but I continued to read and teach myself all about value investing outside of class (most value investing concepts are actually never even mentioned in business schools), and I would research stocks and manage my portfolio in my spare time.

As it turns out, I still own all the Google shares I bought and have no plans of selling.

2. Describe your investing strategy
I'm a long-term value investor. What does that mean exactly? Well, first it means that I think that every investment decision absolutely must be based on the comparison of price vs. intrinsic value, and that intrinsic value must be calculated using conservative, fundamental analysis. And second, it means that I like to buy-and-hold for very long periods of time.

On a more tactical level, I really try to follow Warren Buffett's strategy as much as possible: find stocks that are attractively priced, with good free cash flow characteristics, with good long-term prospects, and that I'd be happy to own if the stock market shut down for 5 years starting tomorrow.

3. What drew you to that specific strategy?
I think for some people, when they first learn about value investing, it either clicks right away and makes total sense, or it doesn't and they never really get it. I think it might come down to how some people's brains are hardwired. For me, it just clicked. I'm always baffled when I see people trying to time the stock market, or day trading, or speculating - even the people that end up making tons of money using those strategies, because I have no idea how they do it (in my opinion most of these people end up being lucky, rather than good). So I think intrinsically I've always been a value investor.

10. What kind of checklist do you use when investing?
I don't have a standardized checklist, although I recognize the importance of having one and I plan on writing one out for myself in the near future. But I do have a checklist in my head when I invest. Some of the questions I ask myself are: Is the stock attractively priced? Do I have a margin of safety? Does the company generate strong FCF? Will the company be able to generate as much or more annual free cash flow going forward as it has in the past? Would I be happy to own this stock if the stock market shut down tomorrow and didn't reopen for 5 or 10 years?

Finally, and this is my most important piece of advice, I would recommend that you read everything written by and written about Warren Buffett. Like I said before, he is the greatest investor of all time and the greatest teacher of investing of all time - surpassing even his own mentor, Ben Graham, in my opinion. Buffett has also written so extensively on so many topics and has given so many interviews on current events that you could spend almost a lifetime just reading his works.

So always keep price vs. value in mind, invest for the long-term, and read everything by and about Warren Buffett. Do that, and keep learning, and you'll be a successful investor in no time!

Where are the customer's yachts?

[a book review by Kyle Ferguson]

Earlier this year, I attended my first Berkshire Hathaway meeting that was held in Omaha. During the meeting, Warren Buffett described a book, which he claimed that he read back in 1940 when he was 10 years old, called “Where are the Customers' Yachts?" or "A Good Hard Look at Wall Street."

The book is a fairly fast read at 170 pages. The book was originally published in 1940. It is interesting to note that certain human behavioral tendencies remain the same some 76 years after the book was originally published.

The author, Fred Schwed Jr., challenges the reader early on in the book to answer six questions to determine whether or not they could handle a career on Wall Street.
  1. Do you perceive quite clearly what is the objection to playing a roulette wheel that has two zeros on it? (If not, don’t bother to be a financier; be a roulette player.)
  2. If a man has tossed a coin “heads” four times in succession, which do you think he is more likely to toss the fifth time, heads or tails? (If you think he is more likely to toss either heads or tails, look into the interior-decorating game. You have that instinctive type of mentality which might do very well at that.)
  3. When do you consider that it is a good purchase to draw one card to an inside straight? (Answer when you are playing for soybeans.)
  4. If you have answered (3) correctly, do you find that when you are actually playing poker for money, you can always resist making that draw? (If not, stay home with your money and start practicing being a miser.)
  5. If a stock which is not paying any dividend is split two for one, how much good does that do the stockholder? (If you think it does him any real good come down and join our sales department, but steer clear of our trading department.)
  6. What is the primary purpose of a business enterprise? This question is specifically for young men considering entering the banking field, where they will have a constant parade of business propositions passing before them, and they will be required to plump for a few of them and say “no” to the others. The answer is elementary and obvious: the primary purpose of a business is to make money.
At the time the book was written, there wasn’t the same modern day information that we have available today. During the 1920’s-1930’s, many people irrationally believed that the best stocks were the ones that were the most talked about and the most expensive. These thoughts occurred before a lot of modern day ratios were invented. A time before modern technology had evolved, and before financial ratings such as the Piotroski F-Score, the Altman Z-Score, and the Beneish M-Score were all invented. These scores and rating give modern day investors a much bigger advantage, which allows them to use rational thought, as well as statistical analysis on their investments that enable them to make the “best” most calculated decisions. Instead of irrationally believing that a company is the “best” because it is trading at a high in price or because it is the most talked about security.

Schwed talks about a large number of people set to play a game of pure chance against each other.

“Let us have 400,000 men (and women) engage in this contest at one time. (Something like the number in this country who try being speculators.)

We line them up, facing each other in pairs, across a refectory table miles long. Each player is going to play the person facing him a series of games, the game chosen being a matter of pure luck, say matching coins.  Two hundred thousand on one side of the table face 200,000 on the other side.

If the reader is at all mathematically inclined he should cease reading and work out for himself what is now bound to occur. Otherwise:

The referee gives a signal for the first game and 400,000 coins flash in the sun as they are tossed. The scorers make their tabulations, and discover that 200,000 people are winners and 200,000 are losers.

Then the second game is played. Of the original 200,000 winners, about half of them win again. We now have about 100,000 who have won two games and an equal number who have been so unfortunate as to lose both games. The rest have so far broken even.

The simplest thing from now on is to keep our eyes on the winners. (No one is ever much interested in the losers, anyway)

The third game is played, and of the 100,000 who have won both games half of them are again successful. These 50,000, in the fourth game, are reduced to 25,000, and in the fifth to 12,500. These 12,500 have won five straight without a loss and are no doubt beginning to fancy themselves as coin flippers. They feel they have an “Instinct” for it. However, in the sixth game, 6250 play on and are successively reduced in number until less than a thousand are left. This little band has won some nine straight without a loss, and by this time most of them have at least a local reputation for their ability.

People come from some distance to consult them about their method of calling heads and tails, and they modestly give explanations of how they have achieved their success. Eventually there are about a dozen men who have won every single time for about fifteen games. These are regarded as the experts, the greatest coin flippers in history, the men who never lose, and they have their biographies written.”

I have been studying Warren Buffett for more than 5 years now. After I read Where are the Customers' Yachts?" I remembered that had his own version of a coin flipping story that can be read here.

Conclusion
I thought that "Where Are The Customers Yachts?" was a good book, and I believe that it was a great help in Buffett’s ability to think rationally starting at the age of 10. The book is filled with wisdom, has some comedic value and I understand why it is one of Warren Buffett’s all time favorite books.

Friday, September 23, 2016

8 biggest mistakes investors make

In the stock market, as in life, nothing is certain. The vast opportunities for creating wealth by investing come with plenty of risks, such as the 2008-2009 stock market collapse and plenty of sharp contractions since.

Mistakes? Investor, behold thyself. Here are the most common investing screw-ups, along with advice on how to avoid them.

1.  freaking out in market drops
2.  getting swept up in market euphoria
3.  trading too frequently
4.  putting all your eggs in one basket
5.  treating your home as an investment
6.  failing to rebalance your portfolio regularly
7.  borrowing against stocks
8.  miscalculating a fund's tax basis

Tuesday, September 20, 2016

How Wells Fargo’s High-Pressure Sales Culture Spiraled Out of Control

Hourly targets, fear of being fired and bonuses kept employees selling even when the bank began cracking down on abuses; ‘not a team player’


Saturday, September 17, 2016

Will Yellen raise rates in September?

Once upon a time the only spokesperson for the Federal Reserve System was the Chairperson. Responding to a call for more transparency, former Chairman, Dr. Ben Bernanke, allowed the Fed's communication policy to change.

Now-a-days, Fed Governors and Presidents of Federal Reserve Banks can say whatever they want regarding matters related to the Fed. Unfortunately, the opinions expressed by these officials have caused more confusion than clarity on what the Fed is likely to do. [See my essays of May 20, 2016 and June 17, 2016.]

In an August 28th editorial, entitled "The Federal Reserve's Politicians," The Wall Street Journal (WSJ) said, "The Fed's decision making is so ad hoc and arbitrary now that no one has any idea of what the Fed will do in December - including Ms. Yellen."

As I see it, even the WSJ editors are confused. Ms. Yellen knows exactly what she's going to do. She's stirring the pot for a potential interest rate hike in December and will not raise interest rates in September. Ms. Yellen remembers what happened after she raised rates last December. In case you forgot, the dollar got stronger and stock markets plummeted.


Even under the best of circumstances, she wouldn't risk upsetting financial markets around the world prior to the November's Presidential election. Ms. Yellen Is Not Raising Rates In September.

-- VectorVest Views Essay: by Dr. Bart DiLiddo

a look at the ACA

We know readers fall on both sides of the aisle, with some despising the ACA and others loving it. We offer no opinion on the validity of either side, but simply look at the economic and investment developments.

Proponents of the ACA, including many in the health care industry, promised that consumers would have more choices for insurance, use emergency rooms less and have lower costs. And investors believed many of those assurances, as stocks in much of the health care sector rallied in the years following the 2010 passage of the ACA.

Unfortunately for investors, those promises haven’t come to fruition yet.

There is no doubt that more Americans now have insurance: The nation’s uninsured rate has dropped to 8.6%, the lowest level on record, according to the Department of Health and Human Services. The department credits the ACA with adding 20 million to the ranks of the insured. But many have not ended up with more insurance options.

The problem stems from the estimated 30 million that remain uninsured. Many who have failed to get insurance are healthier, younger consumers. Insurance companies were expecting that group to seek insurance and help subsidize the costs of consumers with immediate health care needs who were quick to seek insurance coverage on the exchanges.

With a lower-than-projected number of younger, healthier patients seeking coverage, several major insurers have taken financial losses and exited the so-called ACA health care exchanges. This has resulted in a projection of about 31% of rural customers having only one insurance provider option in 2017, up from 7.8% in 2015, according to Healthcare.gov.

It doesn’t appear the ACA has led to fewer emergency room visits or lower health care costs either. A 2015 survey of the American College of Emergency Physicians shows emergency room visits rose over the previous 18 months.1 And the average insurance premium increase requested for 2017 is roughly 23%.2 It’s not just insurance premiums that are rising. Out-of-pocket health care payments are increasing at an annual rate of 5.1%,3 more than twice the rate of inflation.

So now there are growing calls to “fix” the ACA, with one group calling for more government intervention and another calling for completely scrapping the system. And the recent EpiPen controversy has dragged politicians even further into the fray, with politicians from various corners calling for price caps and more regulation. This raises our level of concern as government involvement typically doesn’t bode well for corporate profitability.

But while things have looked dour recently, we aren’t quite ready to throw in the towel on an industry that means so much to the vast majority of consumers and are keeping our marketperform rating on the group … for now.

Drugmakers have quickly responded to the government threats by walking back some recent price increases and promising more restraint in the future, which could lessen the furor toward the group.

Additionally, we are seeing great potential in the biotech area, where stocks have fallen recently, but are starting to look more reasonably valued.

And there are few doubts that given the above demographic trends, demand for health care services will increase in the coming decades. In fact, the Bureau of Labor Statistics estimates that 50% of the fastest-growing occupations between 2012 and 2022 will come from health care industries. With that amount of industry growth forecasted, it is difficult for us to downgrade the group, despite recent disappointing performance.

But if the tide toward more government involvement grows, we would likely be forced to do just that.

buy the dips?

Tuesday's Wall Street Journal published a nifty little chart, courtesy of LPL Financial, that showed the U.S. stock market's improving powers of recovery. For 70 years, a one-day market decline of at least 2% elicited no visible reaction: On average, the market reacted to the drop by matching its long-term norms for the next one-week, two-week, and one-month periods. Buying after a steep one-day loss was neither a help nor a harm.

That has changed since the bull market started in 2009, in a big way. Since then, a one-day market dip has been followed by an average one-week gain of 1.3%. For one month, the profit is just more than 3%. Annualized, those figures amount to 45% for the one-month period, and double that (90%) for the one-week measure.

Thursday, September 15, 2016

The 5 Biggest Stock Market Fears

... Debunked

If there’s one thing I think the market and market participants lack most today, it’s confidence. As a Principal and Portfolio Manager at Zacks Investment Management, I spend a lot of time interfacing with the financial media, clients and prospects. A common theme I’ve seen pretty much all year is a reluctance to believe that the market has substantial upside left, for a variety of reasons. Over the past few weeks, I’ve been notating the most frequently mentioned fears and concerns, and I’ve compiled a list of five. Here they are:

1. Election Fears

No matter what your political preference, there is a lot of uncertainty floating around this election cycle. But let’s forget about hypothetical “what if’s” for a moment, and look at how the stock market has historically reacted in election years, and in the year following the election.

For an election year, history suggests the market should hold up just fine. In the last 22 election years, there have only been four years where the S&P 500 index finished negative:

    1932 Roosevelt v. Hoover: -8.2% (part of the Great Depression)

    1940 Roosevelt v. Willkie: -9.8%

    2000 Bush v. Gore: -9.1% (part of the tech bubble bursting)

    2008 Obama v. McCain: -37% (part of the most recent financial crisis)

As you can see, three of those election years occurred amidst fairly extraordinary economic times. So if you strip those away, history tells us that election years are almost always positive. I expect this to be the case in 2016 as well.

The next year [2017], however, may be a different story. History tells us that the year following an election year is the weakest for stock market performance, which makes sense from a theoretical standpoint—the year following an election is typically the one where the new president is most aggressive about policy setting, and the market gets agitated when there’s a higher probability of regulatory changes and/or a shift in taxes or property rights. With the outcome of this election cycle too far off to call, it’s also too early to start making portfolio adjustments. We’ll have to wait and see.

2. The Monetary Policy Trap

In the developed world, central banks have done something that’s never been done before in history—lowered interest rates to near zero across the board. In some cases (Europe and Japan), they’ve implemented negative interest rate policies, which essentially means that banks lose money if they keep it parked at the central bank. There are two problems with this approach. First, it doesn’t seem to be working very well as banks have seen margins get squeezed, loans go up only marginally, and economic growth and inflation are currently not showing signs of taking off. Second, what happens if another financial crisis hits soon? Central banks will have already used many of their essential tools, and they could trap themselves into a corner. I actually see this as a legitimate concern in the markets today and another reason to favor U.S. stocks since the Fed has long ended QE and should be ‘normalizing’ interest rate policy soon.

3. The Geopolitical Threat

It often feels like the world is under siege and the threat of terror is imminent. For any readers that have been directly affected by an attack, we cannot begin to empathize with your experience. For the rest of us, we would do well to take a lesson from the market when it comes to terrorism—don’t let it shake you. Apart from the September 11th attacks, there has not been a terrorist attack that has coincided with or caused a bear market. Stocks have almost always shaken off attacks within a matter of days, and even as I write here today the market continues to reach new highs, even in spite of a string of terror attacks over the last couple of years.

4. China’s Economic Hard Landing

China’s economic restructuring is underway, but the long-feared economic hard landing has yet to be felt. Non-manufacturing PMI (Purchasing Managers' Index) has been running well over 50 for over a year. Additionally, manufacturing PMI, which was expected to feel impact of the restructuring, has recently recovered to expansionary territory over the last few months. With consumer prices rising at a healthy 1.8% clip, and GDP still over 6%, the China fears are losing steam.

5. The Bull Market is Too Old

At 90 months, this is now the second longest bull market in history. The longest was the 1990–2000 stretch, where economic growth levels were much higher than they are now. This has many investors worried that “something’s gotta give soon.” But that’s a weak reason to be bearish on stocks. Bull markets don’t have to die of old age, there has to be a confluence of negative forces occurring that few people are talking about, and that most investors are ignoring. When you have positive investor sentiment overshadowing negative fundamentals, that’s when the bull is usually ready to break. We don’t have that now.

Bottom Line for Investors

With equity investing, there will always be fears and worries. The volatility in the market that accompanies these fears can often dupe investors into thinking the next bear market has arrived. But, I can tell you from my decades of experience as a portfolio manager that for every bear market, there are dozens upon dozens of “events” that analysts claim is the end of a bull, but they end up being wrong. The five concerns I’ve listed above, while relevant, I do not believe are powerful enough to drive the next bear market.

Having debunked these bearish fears, the question on many of your minds is: should you increase your presence in the stock market? And if so, which sectors now offer the most promise for gain? To help you consider these pressing questions, you can download Zacks' latest Stock Market Outlook report free of charge. You'll see at a glance which sectors and industries are best for starting your stock search, and which are red flagged and best avoided. Read more by clicking on the link below...

-- Mitch Zacks

Thursday, September 08, 2016

Wiped Out

This is an obscure little book published in 1966. The title is direct, simple, and descriptive. A more flowery title could have been, “Losing Money in the Stock Market as an Art Form.” Why? Because he made every mistake possible in an era that favored stock investment, and managed to lose a nice-sized lump sum that could have been a real support to his family. Instead, he tried to recoup it by anonymously publishing this short book which goes from tragedy to tragedy with just enough successes to keep him hooked.

In this book, the author knows little about investing, but wishing to make more money in the midst of a boom, he entrusts a sizable nest egg for a young middle-class family to a broker, and lo and behold, the broker makes money in a rising market with a series of short-term investments, with very few losses.

Rather than be grateful, the author got greedy. Spurred by success, he became somewhat compulsive, and began reading everything he could on investing. To brokers, he became “the impossible client,” (my words, not those of the book) because now he could never be satisfied. Instead of being happy with a long-run impossible goal of 15%/year (double your money every five years), he wanted to double his money every 2-3 years. (26-41%/year)

As such, he moved his money from the broker that later he admitted he should have been satisfied with, and sought out brokers that would try to hit home runs. The baseball analogy is useful here, because home run hitters tend to strike out a lot. The analogy breaks down here: a home run hitter can be useful to a team even if he has a .250 average and strikes out three times for every home run. Baseball is mostly a game of team compounding, where usually a number of batters have to do well in order to score. Investment is a game of individual compounding, where strikeouts matter a great deal, because losses of capital are very difficult to make up. Three 25% losses followed by a 100% gain is a 15% loss.

In the process of trying to win big, he ended up losing more and more. He concentrated his holdings. He bought speculative stocks, and not “blue chips.” He borrowed money to buy more stock (used margin). He bought “story stocks” that did not possess a margin of safety, which would maybe deliver high gains if the story unfolded as illustrated. He did not do homework, but listened to “hot tips” and invested off them.

As he lost more and more, he fell into the psychological trap of wanting to get back what he lost, and being willing to lose it all in order to do so. I.e., if he lost so much already, it was worth losing what was left if there was a chance to prove he wasn’t a fool from his “investing.” As such, he lost it all…

but there are three good things to say about the author:
  1. He had the humility to write the book, baring it all, and he writes well.
  2. He didn’t leave himself in debt at the end, but that was good providence for him, because if he had waited one more day, the margin clerk would have sold him out at a decided loss, and he would have owed the brokerage money.
  3. In the end, he knew why he had gone wrong, and he tells his readers that they need to: a) invest in quality companies, b) diversify, and c) limit speculation to no more than 20% of the portfolio.
His advice could have been better, but at least he got the aforementioned ideas right. Margin of safety is the key. Doing significant due diligence if you are going to buy individual stocks is required.

This book will not teach you what to do; it teaches what not to do. It is best as a type of macabre financial entertainment.

-- book review by David Merkel, gurufocus 9/6/16


So where can you get this book?  Checking Amazon.com, the lowest price (used) is $33.50 plus $3.99 shipping.  Checking eBay, I see two offers for $75 and $95.  Checking paperbackswap, I don't see it listed.  Googling, I see a listing at AbeBooks for $24.00 plus $4.00 shipping.  And here's one for $800!  and another one.

If you don't want to spend that much (and will settle for a tamer, somewhat scientific but amusing approach), you might be interested in John Rothchild's A Fool and His Money.  Available used for .01 plus shipping at Amazon.com.  Surprisingly, not currently available for order at paperbackswap (but you can put your order in).

Sunday, September 04, 2016

Calvin Coolidge number 1?

The facts are inescapable: The Obama years have been among the best of times to be a stock investor, going all the way back to the dawn of the 20th century.

Consider that had you been prescient enough to buy shares of a low-cost stock index fund on Mr. Obama’s first inauguration day, on Jan. 20, 2009, you would now have tripled your money. Stock market performance of this level has rarely been surpassed.

Yet this performance has not been as widely celebrated or appreciated as past bull markets have been, nor is it a major issue in this year’s presidential campaigns. The main reason may simply be that the current bull market is suspect because it came after one of the worst declines in stock market history.

“Politicians almost seem embarrassed to talk about the stock market,” said Paul Hickey, co-founder of the Bespoke Investment Group. “It’s not a popular thing right now. But when you look at it, the record of the market under Obama is kind of incredible.”

Buying stock wasn’t the obvious thing to do when Mr. Obama took office. The United States was still in the grips of the most severe economic downturn since the Great Depression, and the Dow Jones industrial average had already declined 34 percent over the previous 12 months — and it was still dropping.

People were fleeing the stock market. Many of them never returned and so never benefited from the last seven and a half years of rising asset prices. Federal Reserve data and Gallup poll data both indicate that direct and indirect stock ownership by American households is lower than it was at the beginning of President Obama’s first term in office.

I asked Mr. Hickey to run the historical numbers, and he found that since 1900, the Obama presidency has so far been the third best for stock investors. Using the Dow Jones industrial average, market performance has been better only during the presidencies of Calvin Coolidge, a Republican, in the Roaring ’20s; and Bill Clinton, a Democrat, from 1993 to early 2001, years that encompassed the tech bubble.

The market under President Obama has risen 11.8 percent, on an annualized basis, without dividends. That compares with 25.5 percent for President Coolidge and 15.9 percent for President Clinton. It exceeds the Dow’s performance for everyone else, including three Republicans who were known for being pro-business and for tenures that coincided with strong stock markets: Ronald Reagan, with 11.3 percent; Dwight D. Eisenhower, with 10.4 percent; and George H. W. Bush, with 9.7 percent.

It’s also noteworthy that since 1900, the market has performed better under Democrats, with a 6.7 percent annualized gain for the Dow, compared with a 3 percent gain under Republicans.

That said, there are two obvious reasons for the market’s stellar performance in the Obama years.

One is simply that, from a stock market standpoint, Mr. Obama had fortuitous timing. The market and the economy were already in such bad shape by the time he arrived in office that any signs of recovery were likely to result in a market rebound. Stocks did relatively well during much of Franklin Delano Roosevelt’s tenure, for example, partly because they had done so badly during Herbert Hoover’s presidency at the start of the Great Depression.

The second crucial factor is that the Federal Reserve, which the president does not control directly, embarked on an extraordinarily accommodative monetary policy, starting even before Mr. Obama took office. On Dec. 16, 2008, for example, one month after the presidential election, the Fed brought short-term rates sharply lower, close to zero.

Fed interest rate policy may be the single most important factor behind the stock market boom. And even if Mr. Obama does not control the Fed, he did reappoint Ben S. Bernanke as Fed chairman in August 2009. In October 2013, the president appointed Janet L. Yellen as Mr. Bernanke’s successor. Under both, the Fed has held interest rates very low, which is helping to buoy the stock market and may be affecting the presidential election, as Ned Davis Research suggests in a recent note to clients.

10 reasons you should never own stocks again

1. You’re not that good at it.
Its really hard to buy stocks. Its not just picking stocks and watching it go up 10,000%. Its buying them and watching them go down 80% before they end up going 20% from your original price. Its waiting. Psychology is at least 80% of the game. I don’t need to go over the statistics. Most people sell at the bottom and buy at the high.

The average return of the market over the past 70 years: 10.7%. The average return of the individual investor? 1.9%. And that’s probably generous.

6. True wealth in the stock market comes if you can hold forever and not diversify.
Warren Buffett says, “Wide diversification is used only by investors who don’t know what they are doing.”

I’ll give you an example: imagine having 100% of your portfolio in one stock, never ever diversifying for 20 or 30 years, and watching it sometimes go down over 50%, maybe even in a day. Guess who makes mistakes like that. Bill Gates (MSFT stock) and Warren Buffett (BRK-A stock) [See, 8 Unusual Things I’ve Learned About Warren Buffett].

So the guys who make real stock market wealth never diversify and never sell. You know how many guys get rich like that? Less than 100. Then there’s the other 100 million people who own stocks.

9, Well, what about daytrading?
A lot of people claim to do that successfully. They are lying.
Please see my article “8 Reasons Not to Daytrade”. I got a lot of criticism after that. People wanted to show me their tax returns to show me how good they daytraded. Get lost, punks. Some people make millions playing the violin also.

Doesn’t mean the other six billion people on the planet should perform in Carnegie Hall. In any case, we’re talking about investing in stocks. Not scalping like a little kid with eight terminals in front of him. And guess what, even the best daytraders in the world with twenty year track records go broke sometimes.

-- James Altucher  [linked from this article]