Willie and his chocolate factory

There are many ways to value a company and none of them are incorrect. The more valuation tools you have in your tool chest the better. Just understand the company you are looking at and use the most appropriate valuation technique.

10 lessons from elderly Americans

Karl Pillemer is a gerontologist and a self-described person who "goes directly to the self-help aisle in the megabookstore." He combined these two passions and interviewed more than 1,000 elderly Americans -- most in their 80s and 90s -- seeking out advice on how to live a good life. He calls them "the experts." His book, 30 Lessons for Living, is wonderful, and I'd recommend it to everyone.

The experts give advice on everything from raising kids to a proper diet. But I found their advice on money and work the most fascinating, because it goes against so many maxims younger Americans live by. Here are 10 from Karl's book.

1. Young people obsess about making a lot of money. Older people wonder what they were thinking.

When asked about their prescription for happiness at work, what wasn't mentioned spoke the loudest. And fancy statistics aren't necessary because the results are so clear.
No one -- not a single person out of a thousand -- said that to be happy you should try to work as hard as you can to make money to buy the things you want.
No one -- not a single person -- said it's important to be at least as wealthy as the people around you, and if you have more than they do it's real success.
No one -- not a single person -- said you should choose your work based on your desired future earning power.

2. Money is often at war with time. Balance them appropriately.

The view from the end of the life span is straightforward: time well and enjoyably spent trumps money anytime. They know what it means to make a living, and they are not suggesting that we all become starving artists. But they also know firsthand that most people who decide on a profession because of the material rewards at some point look back and gasp, "What have I done." In their view, we all need a salary to live on. But the experts concur that it's vastly preferable to take home less in your paycheck and enjoy what you are doing rather than live for the weekends and your three weeks (if you get that much) vacation a year. If doing what you love requires living with less, for the experts, that's a no-brainer ...
If you are willing to accept a lower income level, you can gain enormous benefits by choosing part-time work as a lifestyle. Imagine if you suddenly had more leisure than work time. Some experts made this decision: living on much less money, renting rather than owning a house, and forgoing expensive consumer goods to pursue a job and a lifestyle they enjoy.

3. Independence at work is crucial.

When the experts discuss their work lives, two themes go hand in hand: purpose (beyond making a salary) and autonomy. Neither one can be found in every job, every time, but without them work can become a miserable burden...
Career satisfaction is often dependent on how much autonomy you have on the job. Look for the freedom to make decisions and move in directions that interest you, without too much control from the top.

4. You'll spend 40+ hours a week at work for half a century. Make sure you enjoy it.

[Expert:] "No amount of money is worth more than having a job that you're glad to get up and go to every morning, instead of one you dread ... I have learned many lessons, but there are only a few that in the long run are meaningful and which I have tried to pass on to my children and students. If you can't wake up in the morning and want to go to work, you're in the wrong job ..."
You know those nightmares where you are shouting a warning but no sound comes out? Well, that's the intensity with which the experts wanted to tell young people that spending years in a job you dislike is a recipe for regret and a tragic mistake. There was no issue about which the experts were more adamant and forceful.

5. Jump at new work opportunities.

I've seen people who turned down a promotion for fear it would be too time-consuming or taxing, or who rejected a chance to spend a year or two abroad because they were "not the adventurous type" ... The experts' view? This approach to life is a huge mistake. Their advice is to embrace new challenges at every turn, saying yes as often as possible. The most frequently reported regrets about work in particular involved times when opportunity knocked and they kept the door firmly closed. According to our elders, the greatest reward you can receive in your career is the opportunity to do more.

6. Not traveling enough is a key source of regret

I learned that whether [the experts] had visited dozens of counties or stayed put in one place, the experts had one thing in common: they wished they had traveled more.
I came away from my interviews with the realization of the profound meaning travel has at the end of life. To sum up what I learned in a sentence: when your traveling days are over, you will wish you had taken one more trip. Often, after a long narrative about trips taken, I heard an elder say wistfully, "But I always wish I'd visited ..." 

7. To succeed at work, you need to be more than talented. You need to be nice.

The experts come from hundreds of different occupations and employers. They have observed people who succeed at work and those who crash and burn. It is on such experiences that this lesson is based. Their consensus: no matter how talented you are, no matter how brilliant -- you must have interpersonal skills to succeed. Many young people today are so focused on gaining technical expertise that they lose sight of this key to job success: traits like empathy, consideration, listening skills, and the ability to resolve conflicts are fundamental in the workplace.

8. Be frugal, but live a little.

[Expert:] "Don't worry so much. There is not enough time in our lives to trade off the gold of our existence for the dust of what-ifs or what-if-nots. I had my first job before I was twenty and saved everything I could from my paychecks. I closed my ears to good advice from a dear woman who told me that I should enjoy my days and not become so absorbed with thrift. I did not understand what she said. Although I used money to attend plays and concerts, I did so knowing that each ticket for a performance meant less money in my savings account. As I grew older, people I knew and loved died, and I began to see how very precious each moment of each day is."

9. Stop worrying about things you can't control.

It seemed reasonable that people who had experienced the Great Depression would want to encourage financial worries ... the reverse is the case, however. The experts see worry as a crippling feature of our daily existence and suggest that we do everything in our power to change it. Most important, they view worrying as a waste of time. They see time as our most precious resource. Worrying about events that may not occur or that are out of our control is viewed by them as an inexcusable waste of our precious and limited lifetime.

10. Long-term thinking is a great way to live as an investor. It's a terrible way to live as a person.

[Expert:} "It seems to take a lifetime to learn how to live in the moment but it shouldn't. I certainly feel that in my own life I have been too future oriented. It's a natural inclination -- of course you think about the future, and I'm not suggesting that that's bad. But boy is there a lot to be gained from just being able to be in the moment and able to appreciate what's going on around you right now, this very second. I've more recently gotten better at this and appreciated it. It brings peace. It helps you find your place. It's calming in a world that is not very peaceful. But I wish I could have learned this in my thirties instead of my sixties -- it would have given me decades more to enjoy life in this world. That would be my lesson for younger people."

Ray Dalio

Warren Buffett once said, "It's never paid to bet against America." The same could have been said for the United Kingdom before World War I or Rome before Commodus' reign. While extrapolating the historical trend line is actually a pretty good prediction strategy, it's not the way to make money. Fortunes are made (or preserved) anticipating big economic shifts, and successful prediction requires good theory. Buffett admits his expertise is not in timing macroeconomic shifts. Ray Dalio's is. And he thinks the United States is an empire in relative decline.

Dalio is probably the best macro investor alive. He has made a fortune anticipating once-in-a-generation shifts, such as the financial crisis, the subsequent bull market in bonds, and the eurozone crisis. His hedge fund Bridgewater Associates is now the world's biggest, and its Daily Observations newsletter is devoured by policymakers and investors alike (your faithful editor included, when he can get his hands on a copy).

Dalio's model is generational. Each stage lasts about 30 years, progressing when the older generation either dies off or retires, allowing the younger generation to set the country's direction. To understand the U.S.' place in the arc of Dalio's model, let's look at each stage in turn.

Countries in the first stage, called early-stage emerging countries, "are poor and think that they are poor." For most people, staying alive is a struggle. Investment usually comes from abroad. Investors demand high returns on their capital as compensation for the big perceived risks. Foreign investors don't trust these countries to maintain the value of their currencies, so the countries peg them to gold or a reserve currency, or even adopt another country's currency wholesale. Much of Africa and parts of Asia and Latin America are in this stage and have been stuck there for decades.

Countries in the second stage, called emerging countries, "are getting rich quickly but still think they are poor." Productivity and income soar, but savings remain high and work hours long because people remember what it was like to be poor. They export more goods than they import and they undervalue their currencies to keep exports cheap. However, the currency peg keeps interest rates too low. As a consequence, debt/income and inflation rise. A country in this stage must eventually break the peg. When a big country goes through this stage, it typically becomes a world power. China is undergoing this transition.

Countries in the third stage, called early-state developed countries, "are rich and think of themselves as rich." Their per-capita incomes are among the highest in the world, and their priorities change to "savoring the fruits of life." They are seen as safe-haven investments. This describes the British Empire during the 19th century and the U.S. after World War II. These countries tend to have big armies to expand and defend their global empires.

Countries in the fourth stage, called late-stage developed countries, are becoming "poorer and still think of themselves as rich." In this stage, debt/income rises in a self-reinforcing cycle. Debt stimulates income and asset price growth, which in turn stimulates even more debt. However, research and development and capital spending decrease; budget and trade deficits increase. Infrastructure is old and less well-maintained. In other words, late-stage developed countries eat the seed corn, setting themselves up for slower growth. In the last few years of this stage, bubbles are frequent because investors extrapolate from recent trends. This stage ends when debt/income can no longer rise; incomes can no longer support bigger debt service.

In the final stage, "countries go through deleveraging and relative decline, which they are slow to accept." The self-reinforcing debt cycle now kicks in reverse: Private actors begin paying down or defaulting on their debts, leading to falling income and asset prices, encouraging more defaults and faster debt repayments. The first phase is dominated by defaults, what Bridgewater calls an "ugly deleveraging." Stocks do terribly; safe-haven bonds soar. Depending on how much monetary and fiscal stimulus is applied, the deleveraging can transition to a "beautiful" phase, where debt monetization, austerity, defaults and wealth transfers from the haves to have-nots are well-balanced. Typically, governments run deficits to make up the slack; central banks slash interest rates to both stimulate the economy and ease the burden of debt service.

It's clear the U.S. from at least 1980 to 2007 was in stage four. Look at our total debt/GDP over time. Since 1980, it rose in two steep jags: first, in the mid-1980s, when the government deregulated financial markets and ran massive deficits and the Federal Reserve began lowering interest rates to bring us out of the Volcker recession; and second, in the 2000s, when the Fed once again aggressively lowered interest rates to prop up the post-dot-com-bubble economy, and the government once again ran massive deficits.

The massive amount of debt the U.S. economy is laboring under will likely take decades to pay off. With more resources going back to paying off creditors, growth will be slower than it otherwise would have been. PIMCO calls it the "New Normal." Dalio calls it a "deleveraging process." Economists call it a "balance-sheet recession."

Dalio's model predicts a decades-long period of relative decline for the U.S. as it deleverages and the eventual graduation of China and other emerging markets from stage three to stage four. Because the U.S. is so rich and China is so big, chances are China will not catch up to the U.S.' average income during this process. The U.S. is not going to turn into a banana republic, either.

The deleveraging phase can be quite graceful, in fact. The U.K. was even more indebted after World War II than the U.S. is today. The British borrowed massively to fund nonproductive (but necessary) goods: guns, boats, tanks, and airplanes to fight the Nazis with. Its total debt/income ratio reached over 400%. How did they pay everything back? They didn't. The U.K. devalued its currency, suppressed real interest rates, and let inflation run a bit. It didn't liquidate its debt with a hyperinflationary bang, but rather let economic growth outpace debt growth over several decades.

I expect the same from the U.S. Not a big bang, but a long slog of low real interest rates and slow debt growth. Investors scared of the debt worry too much about the wrong things: vivid, hyperinflationary scenarios, in which the government's machinations ruin the economy. We have to account for the incentives and the knowledge of our policymakers. Our central bankers do not benefit by driving the economy into the ground. They also know that the debt problem can be slowly defaulted on without throwing the economy into turmoil, so that's likely the policy they'll continue to pursue.

Investment Implications
Intriguingly, it turns out that a deleveraging country's stocks can do quite well. Bridgewater notes British equities returned 13.3% annualized from 1947 to 1959, a period of "beautiful" deleveraging.[1] On the other hand, Japan's equity markets struggled for over two decades since their bubble popped and they entered an "ugly" deleveraging, which they haven't exited yet (though this may be changing with Shinzo Abe's shock-and-awe campaign of fiscal and monetary stimulus coupled with structural reform).

And even with low yields, bonds can do well. If you can leverage up bonds to match the volatility of stocks, you would have received midteens returns in both ugly and beautiful deleveragings because of capital gains from rolling down the yield curve and deflationary surprises[1]. This analysis was why Bridgewater was bullish on Treasuries after the financial crisis, a time when everyone else thought yields would rise. However, if you can't leverage up bonds, they don't offer much return.

Finally, regardless of the type of deleveraging, gold did well against the deleveraging country's currency. Unsurprisingly, Dalio is a big fan of gold. He argues it's a form of money. Many rich-world central bankers don't agree, but, according to data from the World Gold Council, Russia has been a net buyer of gold every quarter since 2007, and both China and India dramatically increased their gold reserves in 2009.

*** [2/16/14]

In many respects, Dalio is the anti-Warren Buffett. Buffett makes big bets on a handful of companies. Dalio makes many small bets on currency pairs, commodities, bonds, and, to a much lesser extent, equities. Buffett grants his subordinates plenty of autonomy and lets them figure out their own way. Dalio imposes a set of principles that his subordinates are to live by and heavily monitors them. Buffett doesn't give much thought to economic cycles. Dalio's investing style is based on identifying and navigating them. Buffett doesn't like gold. Dalio thinks everyone should own a little bit of it.

*** [8/13/14]

Some  billionaires hold onto the secrets to their money-making success with a tight fist. But Ray Dalio is worth $14 billion and is more than happy to share.

Although he isn't a household name, he should be, as he's revealed the secrets to his success in a 123 page paper simply entitled Principles, that is chalked full of great investment advice. And there are five things we should remember when making our own investment decisions.

*** [9/24/14 Grahamites]

One of my all-time favorite readings is “Principles” by Ray Dalio (Trades, Portfolio). I think everyone should read it, whether or not you are an investor. Mr. Dalio stated in the forward that he wanted us to think for ourselves – to decide 1) what you want, 2) what is true and 3) what to do about it.

Among all the principles Dalio generously shared, the principle truth – “more precisely, an accurate understanding of reality” is the one that has the most impact on me. In this article, I’d like to share with the readers a few quotes I jogged down while reading this principle.

Among all the principles Dalio generously shared, the principle truth – “more precisely, an accurate understanding of reality” is the one that has the most impact on me. In this article, I’d like to share with the readers a few quotes I jogged down while reading this principle.

• Truth is the essential foundation for producing good outcomes.
• I have found that observing how nature works offers innumerable lessons that can help us understand the realities that affect us. For example, I have found that by looking at what is rewarded and punished and why, universally – i.e., in nature as well as in humanity – I have been able to learn more about what is “good” and “bad” than by listening to most people’s views about good and bad.
• I believe that we all get rewarded and punished according to whether we operate in harmony or in conflict with nature’s laws, and that all societies will succeed or fail in the degrees that they operate consistently with these laws.
• Understanding what is good is obtained by looking at the way the world works and figuring out how to operate in harmony with it to help it (and yourself) evolve. What is bad and most punished are those things that don’t work because they are at odds with the laws of the universe and they impede evolution.
• I believe that the desire to evolve, i.e., to get better, is probably humanity’s most pervasive driving force. Enjoying your job, a craft, or your favorite sport comes from the innate satisfaction of getting better. Though most people typically think they are striving to get things (e.g., toys, better houses, money, status, etc.) that will make them happy, that is usually not the case. Instead, when we get the things we are striving for, we rarely remain satisfied. It is natural for us to seek other things to seek to make the things we have better. In the process of seeking, we continue to evolve and we contribute to be evolution of all that we have contact with. The things we are striving for are just the bait to get us to chase after them in order to make us evolve, and it is the evolution and not the reward itself that matters to us and those around us.
• Self-interest and society’s interests are generally symbiotic: more than anything else, it is pursuit of self-interest that motivates people to push themselves to do the difficult things that benefit them and that contribute to society. In return, society rewards those who give it what it wants. That is why how much money have earned is a rough measure of how much they gave society what it wanted – NOT how much they desired to make money. Look at what caused people to make a lot of money and you will see that usually it is in proportion to their production of what the society wanted and largely unrelated to their desire to make money. There are many people who have made a lot of money who never made making a lot of money their primary goal. Instead, they simply engage in the work that they were doing, produced what society wanted, and got rich into it. And there are many people who really wanted to make a lot of money but never produced what the society wanted and they didn’t make a lot of money. In other words, there is an excellent correlation between giving society what it wants and making money, and almost no correlation between the desire to make a lot of money and how much money one makes. I know this is true for me – I never worked to make a lot of money, and if I had I would have stopped ages ago because of the law of diminishing returns. I know that the same is true for all the successful, healthy people I know.
• Some of the most successful people are typically those who see the changing landscape and identify how to best adapt to it.
• It is extremely important to one’s happiness and success to know oneself – most importantly to understand one’s own values and abilities – and then to find the right fits. We all have things that we value that we want and we all have strengths and weaknesses that affect our paths for getting them. The most important quality that differentiates successful people from unsuccessful people is our capacity to learn and adapt to these things.
• However, typically defensive, emotional reactions – i.e., ego barriers – stand in the way of this progress. These reactions take place in the part of the brain called the amygdala. As a result of them, most people don’t like reflecting on their weaknesses even though recognizing them is an essential step toward preventing them from causing them problems. Most people especially dislike others exploring their weaknesses because it makes them feel attacked, which produces fight for flight reactions; however, having others help one find one’s weaknesses is essential because it’s very difficult to identify one’s own. Most people don’t like helping others explore their weaknesses, even though they are willing to talk about them behind their backs. For these reasons most people don’t do a good job of understanding themselves and adapting in order to get what they want most out of life. In my opinion, that is the biggest single problem of mankind because it, more than anything else, impedes people’s abilities to address all other problems and it is probably the greatest source of pain for most people.
• Aristotle defined tragedy as a bad outcome for a person because of a fatal flaw that he can’t get around. So it is tragic when people let ego barriers lead them to experience bad outcomes.

printing money?

The government really doesn’t “print money” in any meaningful sense.  Most of the money in our monetary system exists because banks created it through the loan creation process.  The only money the government really creates is due to the process of notes and coin creation.  These forms of money, however, exist to facilitate the use of bank accounts.  That is, they’re not issued directly to consumers, but rather are distributed through the banking system as bank customers need these forms of money.  The entire concept of the government “printing money” is generally a misportrayal  by the mainstream media.

[I don't get it.  So what this about hyperinflation and precious metals?]

So to "create" money, the government buys bonds (from banks?).  So the government gives cash to banks in exchange for a promise to pay it back with interest.  So where does the cash come from?  Haven't they run out of cash yet to buy bonds with?

So how does inflation occur?  I always thought it was because there was more and more money in circulation, causing the value of money to go down (so prices go up).

I guess not.  But I don't really understand these explanations.  And another one.

payback in 2014?

After a great year for equity markets in 2013, investors are looking to next year and wondering whether there will be a "payback" coming, as described in the Schwab Market Perspective. 

We expect the US market to experience a decent pullback at some point during 2014, but still believe stocks will end the year higher. 

Despite the strong returns in 2013, according to our friends at ISI Research, there have been 11 years since 1950 that the S&P 500 has posted 25% plus gains, and with the exception of two recession years, the S&P posted positive results in the following year.

Giving with purpose

OMAHA, Neb. (AP) — A free online course that starts Monday will offer students the chance to learn about giving from Warren Buffett and help decide how to spend more than $100,000 of his sister's money.

More than 4,000 people have already signed up for the course that will also feature philanthropic advice from baseball legend Cal Ripken Jr. and the founders of Ben & Jerry's ice cream, Ben Cohen and Jerry Greenfield. Boston Red Sox Chairman Tom Werner and journalist Soledad O'Brien are other featured guests. The amount being given away could grow if more students sign up.

Buffett and his older sister, Doris Buffett, will be featured in the first class to talk about their motivation for philanthropy. Warren Buffett is gradually giving away all of his $58 billion Berkshire Hathaway stock while Doris Buffett has already given more than $150 million away en route to her goal of redistributing all her wealth before she dies.

"The trick is not to have her give it away faster than I make it," Warren Buffett joked because his family's wealth is tied to the Berkshire Hathaway conglomerate he runs.

Each one of the big-name givers will be featured in videos at the end of each of the six class sessions discussing an aspect of philanthropy.

But everyone involved with the course agrees that the fact students get a chance to give away real money may be more important than the famous speakers because it makes the lessons more powerful.

"It's an experience that gives profound insight into deciding how we meet the needs of our society," said Rebecca Riccio, the Northeastern University professor who will teach the course.

The Giving With Purpose online course is modeled after a class that has been taught at more than 30 universities that allows students to give away $10,000 after evaluating several nonprofits and learning about effective giving. This online offering allowed Doris Buffett's Sunshine Lady foundation to expand the classes without adding staff to manage the program.

"Giving With Purpose allows us to extend the classroom walls to include any individual passionate about philanthropy," Doris Buffett said in a statement. "There are thousands of people with the energy and ideas to make a difference."

simple financial tips to follow (30 years ago)

Sadly, we can't turn back the clock and do things right. We can, however, teach the younger generation to avoid making our mistakes.

Here is a handy, one-page financial checklist that will allow everyone to build their wealth over the long term. If you follow this simple advice, you'll be on the road to financial freedom.

1.  pay yourself first
3.  create a portfolio for all seasons

market valuation

What a great year it was! The market was up 30%, the best year since the go-go years of 1990s.The good news is that our account balance is higher, investors are more bullish. The bad news is that we will see lower future returns.

So where are we with the market valuation and the expected return starting 2014?

The ratio of Total Market Cap over GNP, Warren Buffett’s “the best single measure of where valuations stand at any given moment,” is standing at 115%. This ratio is already higher than the pre financial crisis peak of 107% and is higher than any time except for the go-go years of late 1990s, when it reached 141%. Its historical mean is around 85%.

Shiller P/E, the cycle adjusted P/E ratio, is now at 25.6, 55.2% higher than the historical mean of 16.5.

If we assume that the ratio of total market cap over GNP (Buffett’s indicator) and Shiller P/E will reverse to their mean over time, which they always did in the past, the future market returns do not look good. Using 8 years as time the market will reverse to its mean, both Buffett’s indicator and Shiller P/E suggest that the stock market will average 1% a year (2% dividends contribution included) over the next 8 years. At 1% of total market return, the market indices will be lower than they are now after 8 years.


Howard Marks, one of the smartest investors from Oaktree Capital, describes the three stages of a bull market:

· the first, when a few forward-looking people begin to believe things will get better
· the second, when most investors realize improvement is actually underway, and
· the third, when everyone’s sure things will get better forever

He also wrote the three stages of a bear market:

· the first, when just a few prudent investors recognize that, despite the prevailing bullishness, things won’t always be rosy,
· the second, when most investors recognize things are deteriorating, and
· the third, when everyone’s convinced things can only get worse

In May 2012, he thought we were at the first stages of bull market: a few forward-looking people begin to believe things will get better. In May 2013, he thought that we were somewhere in the first part of stage two.

After a gain of 30% in 2013, investors are more bullish. We don’t know which stage of bull market Howard Marks thinks we are now, but we believe that we are either at late second stage or early third stage.

is the secular bear over?

Here's an interesting video from Kevin Cook at Zacks.

Doing a search, it looks like Kevin is rehashing Doug Short's article.

The first chart is interesting.  It identifies five secular bull markets and four secular bear markets since 1877.

1877-1906 bull (334%)
1906-1921 bear (-69%)
1921-1929 bull (396%)
1929-1932 bear (-81%)
1932-1937 bull (266%) [I call this a bull even though the line is still red on the chart]
1937-1949 bear (-54%)
1949-1968 bull (413%)
1968-1982 bear (-63%)
1982-2000 bull (666%)
2000-2009 bear (-59%)
2009-present (115%)

[from the color on the chart, apparently there was no bull market in 1932-1937 and a secular bear from 1929-1949]

The question seems to be whether we are presently still in a bear market or whether it'll be like 1937 when the market rallied 266%, then pulled back 54%.

The next chart adds a regression line.  The previous bottoms were 33%, 59%, 67%, 59%, 55% below the trend line.  The previous tops were 85%, 81%, 12%, 55%, 151% above.

The 2009 bottom was only 11% below trend and we are presently 77% above.  The bear case is that there is more room to fall since the previous bears fell much further than 11% below trend.

But even if we're still in a secular bear (like 1929-1949), the market went 266% from the bottom, so we could have more room to run too.

investing like Buffett

Investors for years have been searching in vain for a formula to replicate Warren Buffett’s legendary returns over the past 50 years.

The wait could be over.

A new study that claims to have uncovered this formula was published last month by the National Bureau of Economic Research in Cambridge, Mass. Its authors, all of whom have strong academic credentials, work for AQR Capital Management, a firm that manages several hedge funds and other investment offerings and has $90 billion in assets.

The study’s authors analyzed Buffett’s record since he acquired Berkshire Hathaway BRK.A -0.18%   BRK.B -0.17%  in 1964. Their formula, which has more than a dozen individual components, comes in two major parts.                                           

 The first is a “focus on cheap, safe, quality stocks,” defined as those that have exhibited below-average volatility and sport low ratios of price-to-book value — a measure of net worth. In addition, the researchers looked for stocks whose profits are growing at an above-average pace and that pay out a significant portion of their earnings as dividends.

The second part of the formula will raise eyebrows: It calls for investing in these stocks “on margin” — that is, borrowing money to buy more shares than could otherwise be purchased. To match Buffett’s long-term return, the researchers found, a portfolio would need to be 60% on margin — borrowing enough so that it owned $160 of “cheap, safe, quality stocks” for every $100 of portfolio value.

checklists

With U.S. stocks up 27% this year, many investors might already be struggling to avoid getting greedy and making careless mistakes.

By building a checklist—a standardized set of questions you must answer before you commit to any investment decision—you can reduce the risk of making costly errors. The best way to do that is by looking at your past mistakes. That's true no matter how you invest, even if you don't buy individual stocks at all.

The idea, still surprisingly underused in the investment business, is adapted from hospitals and the airline industry. An itemized list of procedures and how to follow them, the surgeon Atul Gawande has written, can "hold the odds of doing harm low enough for the odds of doing good to prevail."

Checklists help fix one of the biggest flaws in the way investors make decisions: inconsistency.

How much you pay for a stock matters. But so do the quality of the company's management, how much debt it has, who its customers and competitors are, how easily it can raise prices, and many other variables.

So which factors should you emphasize the most? Many investors, including professional money managers, just go with what feels right at the time.

As the Nobel Prize-winning psychologist Daniel Kahneman's book "Thinking, Fast and Slow" puts it, "Humans are incorrigibly inconsistent in making summary judgments of complex information." (Disclosure: I helped Prof. Kahneman write the book but don't receive royalties from it.)

Decades' worth of psychological studies show that people are extremely good at figuring out which information they need for a decision—but do a poor job of using that evidence methodically over time. You are likely to draw divergent conclusions from identical data on different occasions, even when nothing fundamental has changed, because of variations in context, alterations in your mood, shifting demands on your attention and memory, and so forth.

No wonder John Mihaljevic, editor of the Manual of Ideas, a website for value investors, says wryly that he uses checklists to combat his tendency to make "the same type of mistake again and again."

Structuring your decisions this way, says Michael Shearn, author of the book "The Investment Checklist," forces you to take "a holistic view" of a stock or other asset. That should reduce your odds of being flummoxed by the unexpected.

"When we look to make an investment, the greed part of the brain is turned on," says Mohnish Pabrai, managing partner of Pabrai Investment Funds in Irvine, Calif., a group of private portfolios with assets of approximately $700 million. "A checklist is like a circuit breaker that helps prevent the brain from being able to flip that switch."

To build his list, Mr. Pabrai studied his mistakes and those of great investors like Warren Buffett. Anyone "can build a customized checklist based on your own history of your own failures," he says. Mr. Pabrai advises investors to review their past decisions that lost money.

"Rub your nose in your own failures," he urges. "Avoiding the mistakes you've made in the past will take your error rate way down in the future."

Mr. Pabrai says he believes that the flubs made by great investors fall into five groups: valuation, or how cheap an investment is; leverage, or risks associated with borrowing; management and ownership; "moats," or how well-fortified business are against competition; and personal biases.

First he does all his other research; then he works through the checklist to make sure he didn't miss anything.

Among the questions on Mr. Pabrai's list: How good is management at allocating capital? Is cash flow overstated because of an unsustainable recent boom? Does the company appeal to me because of personal preferences that might be clouding my judgment?

Guy Spier, managing partner of Aquamarine Capital, a Zurich-based investment firm that manages $160 million, uses his checklist to determine, among other things, how a company makes its customers and suppliers better off. That, he says, helps him figure out how likely the company is to be able to fend off competitors.

Your list, of course, should include only questions you know how to answer; they need only be relevant to your past mistakes and to your current and prospective investments.

Mr. Spier emphasizes that you don't have to be a stock picker to benefit from a checklist. "Even if all you own is mutual funds or municipal bonds, look at the places where you've made mistakes and where you can understand the mistakes of others," he says. "Use that to understand where you don't want to go in your own investing world."

Ponder what you should have asked to avoid those problems to begin with. Those are the questions to add to your checklist.

—intelligentinvestor@wsj.com; twitter.com/jasonzweigwsj

[via this story] [see also]

Buffett has a good year

Warren Buffett gained more wealth than any other U.S. billionaire, adding $37 million a day, according to one study.

Buffett's net worth -- at least on paper -- shot up by $12.7 billion to $59.1 billion in 2013, up from $46.4 billion at the start of the year, according to Wealth-X, the wealth research firm. That works out to a paper gain of $1.5 million an hour.

Bill Gates is still the richest man in America. But he was the No. 2 gainer in dollar terms this year, with his paper wealth soaring by $11.5 billion to $72.6 billion. Casino tycoon Sheldon Adelson was third, with an $11.4 billion gain to $35.3 billion.

Fed to taper in January

WASHINGTON (AP) - The Federal Reserve has decided to reduce its stimulus for the U.S. economy because the job market has shown steady improvement. The shift could lead to higher long-term borrowing rates for individuals and businesses.

The Fed's decision amounts to a vote of confidence in the economy six years after the Great Recession struck. It signals the Fed's belief that the U.S. economy is finally achieving consistent gains.

The central bank said in a statement after its policy meeting ended Wednesday that it will trim its $85 billion a month in bond purchases by $10 billion starting in January. At a news conference afterward, Chairman Ben Bernanke said the Fed expects to make "similar moderate" reductions in its monthly bond purchases if economic improvements continue.

At the same time, the Fed strengthened its commitment to record-low short-term rates. It said it plans to hold its key short-term rate near zero "well past" the time when unemployment falls below 6.5 percent. Unemployment is now 7 percent.

The Fed has intended its bond purchases to drive down borrowing rates by increasing demand for the bonds. The idea has been to induce people and businesses to borrow, spend and accelerate economic growth. The prospect of a lower pace of purchases could mean higher rates.

Nevertheless, investors appeared pleased by the Fed's finding that the economy has steadily strengthened, by its firmer commitment to low short-term rates and by the slight amount by which it's paring its bond purchases.

The Dow Jones soared about 240 points, well over 1 percent. Bond prices rose, too, and the yield on the 10-year Treasury note dipped from 2.88 percent to 2.84 percent.

10 reasons

why you'll never be rich (a slide show from Kiplingers)

Or, more positively, 10 things to avoid if you want to get rich.

and buried in there, you might want to check out the 7 Deadly Sins of Investing.

and, on a related note, 28 ways to waste your money

***

If I had to choose just one rule, it would be from Andrew Tobias' The Only Investment Guide You'll Ever Need: spend less than you make.

Consider the words offered to Charles Dickens by his father .. "Annual income, twenty pounds; annual expenditure, nineteen pounds; result, happiness.  Annual income, twenty pounds; annual expenditure, twenty-one pounds; result, misery."  That's pretty much it.  Spend less than you earn.  Live a little beneath your means.

[6/18/14 - the above is in the revised 2005 edition of the book, I don't see it in my second edition printed in 1986.  Maybe it's in the copy I gave to Timmy.]

Googling, there are others saying the same thing.

Rule #1 (by Trent) [not to be confused with Rule #1]

Get Rich Slowly

WikiHow

a triple top?

Here’s something really scary: The stock market may be forming a dangerous triple top of major long-term significance.

That’s because the Dow Jones industrials, in inflation-adjusted terms, is no higher today than it was at the 2000 and 2007 tops. It should give us pause to note that the market -- strong as it has been -- is only back to the level that turned the market back on two prior occasions.

That puts the market in a “make-or-break” position. On the one hand, it would be a sign of significant strength if the market were able to break through the “resistance” created by the 2000 and 2007 tops.

On the other hand, if the market were to turn down from close-to-current levels -- and thereby form a triple top -- then it would mean that the market on three occasions had tried, and failed, to break through to higher levels. According to the theory behind technical analysis, that would mean that current levels represent particularly strong resistance -- and make it that much harder for the market to break through in the future as well.

In other words, if you believe in technical analysis, the market is at a very critical juncture.

Alphabet ETFs

Vanguard is expanding its ETF lineup with the introduction of the AlphaBet series of ETFs, an innovation in the ever-growing ETF space. Together these 26 portfolios, based on the initial letter of the ticker symbol of each company in the Standard & Poor’s 500 Index, provide investors with U.S. equity market beta building blocks by covering the index from A to Z.

Because of the transparent, rules-based nature of the portfolios—constructed with equal-weighted components of all current securities in the S&P 500 whose tickers begin with a particular letter of the alphabet and rebalanced monthly—we have been able to model the historical performance of these portfolios over time to assist investors in understanding how these portfolios may perform. Some observations and strategies:  Each of the 26 portfolios outperformed the overall S&P 500 Index.

Buffett is the best

Warren Buffett isn’t just a great investor. He’s the best investor, an economic study has found.

An index measuring returns adjusted by price fluctuations shows the billionaire chairman and chief executive officer of Berkshire Hathaway Inc. (BRK/A) has done better than every long-lived U.S. stock and mutual fund.

Looking at all U.S. stocks from 1926 to 2011 that have been traded for more than 30 years, a paper published this week by the National Bureau of Economic Research calculated that Buffett’s so-called Sharpe ratio is 0.76 since 1976. That was about twice the stock market’s 0.39.

The ratio is also larger than all 196 U.S. mutual funds that have been around for 30 years. The median Sharpe ratio for them is 0.37.

The review of Buffett’s investments concluded he has been rewarded for his use of leverage, coupled with a focus on cheap, safe, quality shares.

The study said Buffett is willing to take on borrowing to finance investment, then picks stocks that have low volatility, are cheap -- with low price-to-book ratios -- and are high quality, meaning they are profitable and have high payouts.

By breaking down Berkshire Hathaway’s portfolio into ownership of publicly traded stocks versus wholly owned private companies, the authors also found the tradable equities performed best. That suggested to them that Buffett’s returns are due more to stock selection than to the pressure he puts on companies he has stakes in to improve their management.

“Buffett’s performance appears not to be luck, but an expression that value and quality investing can be implemented,” said Andrea Frazzini and David Kabiller of AQR Capital Management LLC and Lasse H. Pedersen of Copenhagen Business School. “If you travel back in time and pick one stock in 1976, Berkshire would be your pick.”

abolish the minimum wage

The U.S. Secretary of Labor Thomas E. Perez wants to raise the minimum wage.

In fact, the vast majority of Americans -- 91 percent of Democrats, but also 76 percent of Independents and even 58 percent of Republicans -- are in favor of raising the minimum wage.

This is an understandable position. After all, the gap between richest and poorest has grown very wide in recent years. But in my view, minimum wage laws are not good laws at all. That’s not out of lack of compassion for low-wage earners, or because I like inequality. That is because I think that there is a better way to achieve a decent standard of living for the poorest in society.

The minimum wage is a factor in creating unemployment. Despite what's often said to the contrary, it's true: Countries with no minimum wage tend to have much lower unemployment. Right now, America is suffering a serious deficit of jobs, with over three jobseekers for every available job. We need all the jobs we can get.

So how does the minimum wage create unemployment? Minimum wage laws are a price control. They dictate the minimum level that a company can pay a worker. If the minimum wage is $10, and a company wants to take on a new employee that they determine will be worth $8 an hour, they have a choice -- either pay $10 an hour, or not hire the employee. Sometimes, the company will accept a hit to their profit margin, and pay the employee $10 an hour.

Sometimes they will just not hire a new employee at all. Or, increasingly, sometimes they will go overseas and hire an employee elsewhere -- like China -- where wages are far lower. This is a particularly cruel scenario because it discriminates most against the poorest and youngest workers in society.

Empirically, the minimum wage has failed to reach its goal of ensuring a fair wage for low wage workers. Worker productivity in America has risen and risen, yet the minimum wage has not.

I propose abolishing the minimum wage, and replacing it with a basic income policy, a version of which was first advocated in America by Thomas Paine. Individuals would be able to work for whatever wage they can secure, meaning that low-skilled individuals -- especially the young, who currently face a particularly high rate of employment -- would have an easier time finding work. And the level of basic income could be tied to the level of productivity, to reduce inequality.

There are two kinds of basic income policy. The first is a negative income tax -- if an individual’s income level falls beneath a certain threshold (say, $1,500 a month) the government makes up the difference. Funds for this could be accessed by consolidating existing welfare programs like state-run pension schemes and unemployment benefits, and by closing tax loopholes and raising taxes on corporate profits and high-income earners. Germany has enacted a similar policy -- called the"Kurzabeit" -- and it's been credited with shielding the German labor force from the worst of the recession and keeping their unemployment rate low since.

The second is a universal income policy, where everyone receives a payment irrespective of their income. This would obviously require more funds -- meaning higher taxes -- but in a future where corporations are making larger and larger profits while requiring fewer and fewer workers due to automation, such policies may become increasingly feasible. There are already very serious proposals to initiate such a scheme in Switzerland.

*** [12/18/13 Cramer on the minimum wage]

When I first broke in at Goldman Sachs (GS +2.55%) in the early 1980s, I was in charge of tabulating turnover in what was then known as the Securities Sales Department. It was my job to keep track of who stayed and who went, and to be sure I knew the details of each departure. I was told that, historically, Goldman Sachs tried hard not to lose anyone it wanted to keep, even as it was willing to see the others depart -- and, for the time when I did the tallying, the division's record was perfect on that score.

When I was first assigned the project, I had no idea why it was so important to keep track of how few people actually left the firm, other than for boasting rights vs. the competition, which always seemed to be losing people left and right.

But once I was in the fold, I realized the reason Goldman closely observed this number had to do with the tremendous cost of training people, and how departures -- any departures, of good people -- meant a total loss on an important human-capital investment.

In the division in which I worked, Goldman Sachs aspired for zero turnover because the firm spent, on average, six months teaching associates how to do their job -- and, during that period, these trainees were dead-weight losses to the firm. Trainees were sunk costs; you couldn't afford to lose the good ones. It could really hurt your firm's P&L, or profit and loss statement.

Few issues could be more bedeviling to profitability than turnover, and Goldman Sachs did everything it could to discourage it, including paying people more, teaching people better and offering them more benefits than you could get elsewhere.

It worked. The firm was by far the most lucrative investment house on Wall Street then, and to a large extent it still is now, perhaps because it maintains an excellence in training.

Now fast-forward to Tuesday's interview with John Mackey and Walter Robb, co-CEOs of Whole Foods (WFM +0.44%), at the opening of their Brooklyn store.

Both execs spoke intently and intensely about how turnover is the bane of their existence because it hurts all stakeholders, the remaining associates and managers left behind, the customers and the shareholders. In their opinion, paying people much more than the minimum wage, while offering them some of the best perks and benefits in the retail world, has led to a remarkable cost advantage -- not disadvantage -- vs. many retailers, where the goal seems to be to squeeze as much out of their workers as possible. Mackey and Robb know there's a big cost to the firm when people leave. They know that turnover is a killer to the bottom line.

Is 15% growth sustainable?

Beautifully summarized by the following “test” from Warren Buffet.

“Here’s a test: Examine the record of, say, the 200 highest earning companies from 1970 or 1980 and tabulate how many have increased per-share earnings by 15% annually since those dates. You will find that only a handful have. I would wager you a very significant sum that fewer than 10 of the 200 most profitable companies in 2000 will attain 15% annual growth in earnings-per-share over the next 20 years.

***

I used the year 1990 Fortune 500 and the year 2013 Fortune 500 for my criteria. (Yes, I used 23 years instead of 20 but don't think much difference is made)

I manually sorted through the list for companies that were both in the top 200 in 1990 as well as the top 86 in 2013. I found 28 that had over 13% revenue growth for the last twenty-three years or 14% of the 1990 Fortune 200.

How many of the 28 companies had over 15% annual E.P.S growth for the last twenty years? Buffett’s wager was that fewer than 10 had done so. I used net income as a proxy for E.P.S.

[Among the companies were]

Intel (INTC) was another company with over 15% growth for the last 23 years, growing from 391 Million net income in 1990 to 11 Billion in 2013. Intel managed a 15.614% CAGR for the last 23 years.

Apple (AAPL) was one of four in the 20%+ club, growing from 454 Million 1990 net income to a phenomenal 41.733 Billion in 2013 or a 21.72% CAGR.

Berkshire Hathaway (BRK.A) (BRK.B) is really no surprise here considering the CEO and team who are running the place. Berkshire had 1990 net income of 447.5 Million and 2013 net income of 14.824 Billion or a 23-year CAGR of 16.44%.

Looks like Buffett’s bet would have paid off with only 7 companies from the 1990 Fortune 500 growing both revenue at 13%+ and net income at 15%+.

***

So to get 15% or higher growth, the implicatons is that one must either invest in smaller companies, invest for a shorter term (than 20 years), or invest in undervalued stocks.

in a zone of reasonableness

As bulls and bears fight it out over Dow 16,000 and S&P 1,800, and Carl Icahn says he’s cautious on equities (but doesn’t want to predict where stocks will go in the short term), Warren Buffett is sticking to the middle of the road.

He told CBS This Morning:

“I would say that they’re in a zone of reasonableness. Five years ago, I wrote an article for The New York Times that said they were very cheap. And every now and then, you can see that that they’re very overpriced or very underpriced. Most of the time, they’re in an area where maybe they’re a little high, a little low, and nobody really knows exactly. They’re definitely not way overpriced. They’re definitely not underpriced.”

[via trbabyb]

10 numbers investors should know

Savvy stock pickers know that a few simple formulas and a little math can reveal the difference between a buy and a bust. Here are 10 key investing ratios, what they mean and how to use them.

stocks are cheap? / stocks are expensive?

Despite hovering around record highs, stocks are "cheap on stock valuations alone," said billionaire buy-and-hold investor Ron Baron in a CNBC interview on Friday from his annual investment conference in New York City.

To make his case, Baron provided a history lesson: "From 1999 to now, companies' earnings have about doubled. And the stock market is up 20 or 30 percent. From 2007, it's up maybe 10 percent. People say how much it's up, but it's only up from where it crashed."

As for valuations, he said on Squawk Box that at the height of the Internet bubble "in 1999 the stock market was selling for 33 times earnings." Stocks are now selling for around 14 times, he said. "They're cheap on stock valuations alone."  [well cheaper than 1999 anyway]

*** [11/23/13 from the December Profitable Investing]

Objective signs of an overvalued market have been with us for some time. On a number of occasions, I’ve called your attention to the Cyclically Adjusted Price–Earnings (CAPE) ratio, devised by Prof. Robert Shiller of Yale. To smooth out the sharp earnings fluctuations that occur around recessions, the CAPE ratio takes 10 years of corporate profits and adjusts them for inflation.

As you can see from the chart, the Shiller P/E now stands at more than 24X. Since 1881, this benchmark has averaged 16.5X. Merely to return to fair value, the S&P 500 index would have to drop approximately 32%, to around 1200. An undervalued reading, at 12X, would take the S&P down to less than 900 (from a recent high of 1798).

While I don’t expect to see either 900 or 1200 in the near future, the increasingly noisy “bubble babble” among institutional investors tells us something. Many influential members of the Big Money herd are already nervously pawing the ground. Sooner or later, some incident, perhaps quite minor in itself, will arouse a critical mass of fear among the leading animals. A selling stampede will result.

flashing red

In the go-go days of 1999, Warren Buffett grew very concerned.

Not because his value style of investing had grown unpopular, but because investors were becoming delusional in their zeal for further gains.

In a speech he made to friends, as recounted in a 1999 article in Fortune magazine (that was published just a few months before the market peaked and then plunged), Buffett warned that "once you reach the point where everybody has made money no matter what system he or she followed, a crowd is attracted into the game that is responding not to interest rates and profits but simply to the fact that it seems a mistake to be out of stocks."

A simple test of how much stocks were loved: The aggregate value of the largest 5,000 U.S. companies (as measured by the Wilshire 5000) exceeded the GNP of the U.S. economy. In fact, a market melt-up took this ratio up to 150% by early 2000 (meaning the Wilshire 5000 was 50% larger than the U.S. economy), which set the stage for one of the most painful corrections ever for investors.

This ratio eventually dipped well below 100%, which for Buffett has been seen as a time of deep value for stocks. "If the percentage relationship falls to the 70% or 80% area, buying stocks is likely to work very well for you," he told Fortune in a 2001 follow-up.

Indeed stocks went on to deliver solid gains into that decade, but by 2007, Buffett's handy ratio again flashed red. Stocks were becoming so frothy that this measure once again exceeded 100%. The resulting market blow-off in 2008 was another painful lesson for investors, but at least put the market deep into value territory, setting the stage for the bull market we've been enjoying ever since.

Yet as we head towards the end of 2013, investors need to once again tread cautiously, because Warren Buffett's market valuation tool is again in the red zone. [109%]

The Wilshire 5000 has risen 68% since the end of 2009. Yet the economy has grown just 17%, throwing this key ratio out of whack.

Action to take: The Wilshire-to-GNP ratio is stretched, but it could well go even higher for a while, as was the case in 1999. Yet a clear margin for error has been removed from this market, and there is ample reason to shift your portfolio into a defensive posture. That means missing out on further upside in the aggressive growth segments of the market, but also means a greater chance of capital preservation.

Principles of Long-Term Investing

This is a basic overview by David Chang, but it doesn't hurt to review...

Part 1

1) Focus on total return

2) Invest for longevity

3) Avoid chasing the crowd

Part 2

4) Be flexible and diversified

5) Buy value, not future economic outlook

6) Take the proper amount of risks

Part 3

7) Learn from your mistakes

the Womack Strategy

Back in 1978, market observer and money manager John Train wrote an article for Fortune magazine titled, How Mr. Womack Made a Killing. The article should be mandatory reading for investors who seem to have an almost desperate need to learn how to buy low and sell high.

The article tells of a young investor meeting a man who never on balance had lost money in the stock market. In fact he had made quite an enormous amount of money over the years. The investor was not a fund manager or trader of great renown, but a farmer who grew rice and raised pigs.

Mr. Womack had a simple approach to the stock market. When he read in the papers that the market was down and the pundits of the day were predicting further collapse and calamity, he would take a break and sit down with a copy of the Standard & Poor's Stock Guide. He would find a bunch of solid dividend-paying companies with strong financials that had dropped to single digits and drive into town and buy a package of them. If they fell a bunch more, he would add to his package.

When he was done buying, Mr. Womack went back to the farm tended the fields and fed the pigs and did not spend much time thinking about stock except to cash his dividend checks. In a few years' time when the daily paper was full of exciting comments about the stock market and predictions of eternal prosperity, he would drive back into town and sell all his stocks.

Mr. Womack told his young friend that stocks were much like pigs. If he could buy them when prices were depressed and keep them until market prices were much higher, he stood to make much more money from his farming operations.

***

I was familiar with this story, but never thought of it as the "Womack strategy" (never realized the guy had a name).  I believe I first read about in John Train's book, The Craft of Investing, where it is included in the appendix.

The other thing I note now, is that in the last paragraph, Train writes "I remind the reader that although this feeling for the rhythm of markets is a useful one to acquire, it is ont the only strategy or even the best strategy.  Probably Mr. Womack would have done just as well by buying and holding growth stocks.  [like Berkshire Hathaway for example, had it been available at the time]

See Grace Groner and Hetty Green and Anne Scheiber as examples of long-term investors.

Joe Granville

When the stock market prognosticator Joseph E. Granville talked, his subscribers listened.

In early 1981, for instance, the Dow Jones industrial average dived 2.4 percent, on what was then the heaviest trading day in history, after Mr. Granville urged his newsletter followers to “sell everything and go short.” It rebounded in the following weeks before tumbling more than 20 percent over the next 15 months.

Mr. Granville, who died on Sept. 7 at 90, was perhaps the most famous of a generation of market seers who made their own fortunes in the less risky venue of the newsletter business, in his case The Granville Market Letter, which he began publishing in 1963.

“I’m paid to put you in at the bottom and take you out at the top,” he declared as he barnstormed the country with a showman’s flair, drumming up subscribers at investment seminars choreographed like Broadway shows.

He once slid to the stage on a 100-foot-long wire wearing his standard After Six tuxedo. He used puppets and clown outfits. He often played a blues song on the piano with lyrics that underscored his contention that Wall Street brokerages were just out to make money off their customers.

Mr. Granville wrote a daily market letter for E. F. Hutton & Company before striking out on his own. At its peak, in the early 1980s, his near-weekly newsletter had 13,000 subscribers. They paid $250 a year — and $500 more for urgent alerts by phone and Telex — as Mr. Granville sought to time the biggest gyrations in the markets.

Louis R. Rukeyser, who often had Mr. Granville on his PBS program, “Wall Street Week,” told People magazine in 1981 that Mr. Granville was “the most controversial man in American finance.”

But while Mr. Granville correctly called a bear market in the late 1970s and the implosion of technology stocks in 2000, he missed other major turns, like the start of an epic bull run in 1982.

And like many other market forecasters, his overall performance was “very poor” compared with that of basic stock index funds, said Mark Hulbert, editor of The Hulbert Financial Digest, which has tracked the performance of investment advisory newsletters since 1980.

Mr. Hulbert said that from 1980 through January 2005, Mr. Granville’s stock tips for investors lost 0.5 percent on an annualized basis, compared with an 11.9 percent average yearly gain for a general stock index. Mr. Granville’s tips for more aggressive traders lost an average 10 percent a year over that period, Mr. Hulbert said.

Mr. Granville, who continued to produce the newsletter until his death, did not provide enough trading details after January 2005 to track his performance as precisely. But he got enough of the broad turns in the market right, Mr. Hulbert said, that if investors had ignored his stock picks and bought or sold an index fund with each major call, they would have earned 8.5 percent a year since 1980.

“He deserves some credit for insight into the market,” Mr. Hulbert said, adding that Mr. Granville created technical indicators still used by many market analysts.

He died in a hospice in Kansas City, Mo., where he was being treated for pneumonia, his wife, Karen E. Granville, said.

Obama to name Yellen as next fed chair

(Reuters) - President Barack Obama will announce his choice of Federal Reserve Vice Chairwoman Janet Yellen to be the next head of the U.S. central bank on Wednesday, putting her on course to be the first woman to lead the institution in its 100-year history.

If confirmed by the U.S. Senate, Yellen would replace Ben Bernanke, whose second four-year term as head of the Fed expires on January 31.

Obama is due to make the announcement at the White House at 3 p.m. EDT, a White House official said on Tuesday. Bernanke is also scheduled to attend.

Yellen has been a forceful advocate of aggressive action to drive down unemployment and would provide continuity with the policies the Fed has established under Bernanke. Now her main challenge will be to steer policy back to a more normal footing and slowly wind down the extraordinary measures taken in the five years since the financial crisis.

does Obama want a market selloff?

President Barack Obama's best friend could be Wall Street's worst nightmare.

A little market crisis -- not enough to crash the economy into recession but enough to stir public fear that would push Republicans to the negotiating table -- could be just what settles the impasse in Washington and reopens the government, according to investing pros and market observers.

In an exclusive interview with CNBC, the president warned Wall Street that this shutdown could be different. Previous halts in nonessential government activities have caused little market reaction, with major averages actually rising most of the time in the month after the shutdowns are settled.

Obama's remarks indicated to some observers that he is trying to push investors out of the relative complacency they have shown so far. Futures were broadly lower Thursday, indicating markets may be taking heed.

"They feel that a severe market selloff would be helpful to break the logjam," said Greg Valliere, chief political strategist at Potomac Research Group in Washington. "It would be helpful in making the Republicans sue for peace. Obama and [Senate minority leader] Harry Reid believe that."

Twitter was abuzz about the interview, with some sharing Valliere's opinion.

car sales rebound to pre-recession levels

DETROIT (AP) — For the U.S. auto industry, the recession is now clearly in the rear-view mirror.

New car sales jumped 17 percent to 1.5 million in August, their highest level in more than six years. Toyota, Ford, Nissan, Honda, Chrysler and General Motors all posted double-digit gains over last August.

The full-year sales pace rose above 16 million for the first time since November 2007, the month before the Great Recession officially started. Exuberant automakers said sales will likely remain at that pace for the rest of this year.

U.S. car and truck sales totaled 16 million in 2007, then plummeted during the recession. They bottomed out at 10.4 million in 2009 and have been rising ever since. In August, they seemed to pick up speed. Mohatarem said he expects the year to end with sales closer to 15.8 million vehicles, which is higher than GM's official forecast of 15.5 million.

home sales on the rise?

Existing home sales increased last month to a seasonally adjusted annual rate of 5.48 million homes. That equates to a 1.7% increase over July and a 13.2% jump over the same month last year. It's the highest level in six and a half years.

While many analysts and commentators had feared that the recent rise in interest rates would weigh on the housing recovery, it now seems as if the trend had an opposite effect. "Rising mortgage interest rates pushed more buyers to close deals," said Lawrence Yun, NAR's chief economist.

The news was similarly upbeat when it came to home prices. According to the trade association's data, the national median existing home price for all housing types was $212,100 in August. That equates to a 14.7% increase on a year-over-year basis and was the strongest such gain since October of 2005, when the median rose by 16.6%.

August marked the 18th consecutive month of year-over-year price increases, and the ninth month in a row that they shot up by double-digits.

***

yeah, but what about new home sales?

New home sales plunged 13.4% in July, in one of the first signs that higher mortgage rates may be cutting into home demand.

Sales fell to a seasonally adjusted rate of 394,000 a year, from 497,000 in June, the Census Bureau reported Friday. Analysts' consensus estimate was 487,000.

Sales were 6.8% higher than last July.

The median price was $257,200, up from $249,700 last month, and there were 171,000 homes for sale at the end of July, representing a five-month supply at the current sales pace, Census said.

The report was concerning because sales fell even though more homes were for sale, said Jed Kolko, chief economist at real-estate Web site Trulia.com. Previously, new home sales have stayed well short of pre-recession highs because of a shortage of homes on the market.

Warren Buffett on the estate tax

Buffett made his position on the estate tax clear when he signed a document stating he believes it is "right morally and economically" because it "promotes democracy by slowing the concentration of wealth and power." In short, he says, dropping the estate tax would wrongly enable the ability to "command the resources of the nation based on heredity rather than merit."

stock performance on the way up

In six weeks, the trailing five-year figures on investments will change dramatically. Today's numbers support the nation's Great Investment Funk.

[For example, U.S. large growth gained 0.70% for the five years ending August 31, 2013]

Once October 2008 disappears off the trailing five-year period, however, the picture will greatly improve.  While I can't provide the figures through Oct. 31, 2013 (that would be a neat trick, wouldn't it?), we can measure the first 58 months of the upcoming 60-month period. They have been kind to stock funds.

[For example, U.S. large growth gained 13.07% for the period November 1, 2008 to August 31, 2013.]

Barring a sudden market collapse, all standardized performance time periods for mutual fund advertisements will soon look strong: one year, five years, and 10 years. (The latter remains burdened with 2008 but no longer carries any trace of the 2000-02 bear market.) In other words, it will become much easier to sell stock funds. When the performance numbers are good across the board, they give the overwhelming visual impression of consistent success.

That strikes me as mixed news. On the one hand, investors could use probably use more stock funds (although recent market action has helped to boost their stock exposure.) Also, I am relatively bullish on long-term stock prospects. But I do admit to feeling a bit nervous about embracing stocks now--especially U.S. stocks. It's been a great run, but, I suspect, the stock market may need to catch its figurative breath. I worry that U.S. stock funds will once again be fashionable just as alternative funds finally become the better performers.

Reitmeister 2013

[12/8/13] Some will argue that stock returns this year are a mirage caused by the extremely accommodative monetary policy of the Fed, specifically QE. Many investors seem to think when QE is taken away, the market will tank and the economy will head back into a recession. I disagree with this notion, as QE has not done what it was intended to do. Certainly it has helped with sentiment, which is part of the reason for the stock rally, but the intent of the Fed was not to just boost sentiment. The purpose was to increase money supply by keeping interest rates low. However, that money has not made its way into the economy because QE has had the effect of flattening the yield curve, which gives banks less incentive to lend, not more.

I believe the stock market rally this year had more to do with improving fundamentals than QE. Heading into 2014, I remain optimistic on stocks and the direction of the economy. I do not see anything on the horizon that should cause an investor to make wholesale changes to their portfolios, as long as the portfolio in question is a well-diversified, properly constructed portfolio. I do not see any major shifts in leadership in the stock market. So, just because it is a new year, I am not changing my forecast, because the date means nothing to me and it should not to you either.

I believe 2014 will be a year of accelerating growth in the economy and another up year for stocks. Since WWII, the S&P 500 has had 18 annual gains of 20% or more and 78% of the years immediately following those great years have been positive.

-- Mitch Zacks

[9/20/13] Investors partied all day and into the night on Wednesday thanks to the No Taper Parade. As they woke up Thursday morning they took a couple aspirins, looked in the mirror and decided they would do it all over again. Meaning that no taper = plenty of reason to rally in the short run.

Very little was given back Thursday as investors digested recent gains and are likely building up the energy to move towards 1750. Recent economic reports add to the luster of this rally such as evident in another very low Jobless Claims report and a Philly Fed report more than double its expected level.

Here is my prediction. I expect stocks to rush up to 1800 this year and then go a bit flat next year. Which is not such a bad thing 5 years into a bull rally. We had a flat year like that in 2011 and stock pickers like us did just fine.

Interestingly, there are parts of the globe where stock markets will push ahead 20%, 30%, even 50% next year. And many of the top stocks there will double and even triple that mark. If you have a good track record chasing down these top opportunities around the globe, then you are all set.

[9/16/13] Stocks are up for 8 out of the last 9 sessions including Friday the 13th in the plus column. And this is on top of a bull rally that has been charging ahead since March 2009.

Too often people underestimate how hard it is to turn a bull into a bear. You need much stronger ammo then what is available right now... especially as economic data is pointing to an accelerating economy.

Reity, any worries about the start of QE tapering at the 9/18 Fed meeting?

NO!!!

My guess is the QE taper will be announced at the 9/18 meeting. And given all the forewarning and market movement to date, then there should be NO reaction to the news. My guess is that the slate of Fed Governor speeches on Friday are there just in case investors get the wrong idea about their policy changes. So they will be at the ready to smooth out the message.

As you know I have no problem with the QE taper and continue to have my pedal on the floor as stocks are still the most attractive investment option at this time. Thus, I will be miffed if the weak hands loosen their grip on the bull once again.

Regardless, I am playing the obvious trend in front of me. If further gains get delayed, then I can patiently wait for them to come around.

[8/30/13] Recently strong economic activity has been met with lower stock prices because it meant the QE taper is coming sooner rather than later. Now we all know the taper is on the way. And so we can get back to a more NORMAL reaction to positive economic news as we did with Thursday's gains.

In particular, I am talking about Q2 GDP being revised up from 1.7% to 2.5%. That's a big deal. Also we got another printing of the weekly Jobless Claims under 350K which bodes well for another month of 150-200K jobs added. That will hopefully be on display next week when the key employment reports come out.

With Syria, the debt limit and a new Fed chair still unknowns, the market may not roar higher just yet. That is why choppy, range bound activity is likely in the of fing. But beyond this period of uncertainly lies greater odds for stocks to move higher.

I am 100% long in preparation for whenever other investors want join me in this logical conclusion.

[9/15/13 Mitch Zacks] There are plenty of reasons to believe the bull market that's been in place since March, 2009 is about to come to a crashing end. The market is up almost 150% since hitting a bottom. The earnings growth last quarter was sluggish. The Fed is about to begin the end of its third iteration of Quantitative Easing ( QE ). Energy Prices are rising. The uncertainty surrounding the situation in Syria, which could end without any military action taken against Bashar al-Assad's regime, is still fluid and could escalate further. Even without military intervention from the U.S. or its allies, the Syrian civil war that started in 2011 will continue. Investors pulled more than $20 billion from ETFs in August, the largest monthly outflow since the first ETF was launched 20 years ago. Historically bull markets last five years on average and were not too far away from hitting that mark. The unemployment number is staying stubbornly high.

Pessimism Reigns

Any investor could be forgiven for wanting to sell their stocks and flock to the comfort of cash or short-term treasuries given all the pessimism that abounds right now. But right now might be time to be a contrarian.

The items mentioned above have made for scary headlines, which the media is won't to do. But there are also many positives regarding the economy and global markets that are being ignored, or at least not talked about much in the media. Not to mention the fact that these reasons for the market and economy to crash have been talked and written about for a some time now. At this point, they are most likely already priced into the market.

Overlooked Positives

You'd have a hard time finding the following positive developments in the mainstream media. Europe's economies rose out of a 22-month recession two months ago. July's manufacturing PMIs broke 50, the expansion number. August PMI's were even stronger. Japan's QE has rekindled strong GDP growth. China's +7.5% annual growth is picking up retail and industrial strength. Stock market highs have stimulated discretionary purchasing.

Furthermore, the August JP Morgan Global Composite Output Index rose 1.2 points to 55, hitting a two and a half year high. The August U.S. employment report showed aggregate hours worked rising 2.4% from last year, despite disappointing job creation. The boost in hours worked is consistent with the strength in the U.S. ISM production indices which were the strongest since 2011. U.S. banks are healthy, with strong balance sheets and rising profits. The U.S. is producing its own energy resources and could become energy independent due to new technologies in oil extraction and our huge supply of natural gas. Corporate profits are at all-time highs and continue to rise. In the U.S. and abroad, manufacturing is improving and retail sales are growing. Falling inventories and rising new factory orders suggest growth is poised to continue.

Putting it All Together

At the end of the day, there will always be weakness somewhere in the economy. Right now however, I believe the positives far outweigh the negatives and thus feel the economic expansion and bull market should continue for the foreseeable future. I don't believe a full-blown market crash is imminent, but you should expect more volatility ahead. When we do finally see a correction, the headlines will get even scarier and natural instinct will be to sell your stocks and take a defensive position. It will be difficult but try to deny that urge and stick with your long-term investment plan.

[8/28/13] Just as stocks seemed ready to head back to 1700+, investors got spooked by a new boogeyman... that being a potential armed conflict with Syria. The investment concern of such a venture, would be that oil prices would likely rise creating a burden for the economy. Also a new debt limit debate is starting to escalate.

Add the two together and it decreases visibility, which leads to greater caution, which leads to a pullback as you have seen the past two sessions.

Reity, how low do we go?

I remain long term bullish, but appreciate there is some short term concern. Tuesday's drop could be the end with a bounce coming. However, a quick shot down to 1600 followed by a bounce is probably more likely. If that doesn't hold, then the next serious level of support is the 200 day moving average at 1560. I am not terribly concerned about heading lower than that at this time.

However, as stated in the past... I don't want to bet on that happening. Too often we see the market jump a lot sooner as investors are still generally in a bullish mood (as they should be 4.5 years into a bull market). So I am willing to suffer the potential for some short term loss in my portfolio, just so the market doesn't jump higher without being properly 100% on board.

You can time the market if you like... I just won't be joining you at this stage for the reasons provided above.

[8/15/13] Bass Ackwards

I thought we were done with this backwards thinking. Yet it reared its ugly head again on Thursday as solid economic data means QE taper coming sooner which means that more chumps are bailing out of stocks.

AND WHERE WILL THEY GO?

Bonds offer too low of a yield. And their value will slip further as rates rise. NO THANKS.

Cash is still paying nothing. NO THANKS.

Gold is a store of money and with no inflation, then not much reason to rise. NO THANKS.

Real Estate has been tempting some folks out of the wood works. But rising mortgage rates may likely stall the advance in prices and thus dampen the investment returns. Plus not everyone enjoys the complications of this illiquid asset. NO THANKS.

So we are back to stocks being the belle of the investment ball. And when this consolidation is over, expect the bull market to continue with 1700 being a weighing station... not final destination.

[7/9/13] Friday's Government Employment Situation did the trick to get stocks back above their 50 day moving average for the first time since mid-June. And that bullish continued on Monday. 

This begs the question: Is the Correction Over?

I believe the answer is YES based upon 3 simple, yet powerful reasons.

1) US economy continues to grow which will aide corporate earnings.

2) Bonds finally losing money with investors moving more money to stocks.

3) The trend is your friend til proven otherwise. Meaning the 4 year bull rally needs to be pushed out of the way for good reason... and that reason doesn't currently exist.

Fight the trend at your own risk.
[6/7/13] There are many ways to access value. But one of best time tested methods is reviewing the earnings yield of stocks versus Treasury bonds.

Traditionally there is a 3% spread between the 10 year Treasury and the earnings yield of the stock market. Right now the 10 year is only at 2.1%. However, I suspect that as QE melts away the rate will float up to more like 3%.

So that would mean that stocks should have a 6% earnings yield, which translates into PE of 16.7 as fair value. Now multiply that by the $115 per share estimate I gave you for next year = 1920 fair value for the S&P 500.

I am not saying it is worth that today. I am saying that is a reasonable target for next year given the likely inputs on earnings and bond rates.

[6/5/13] The see-sawing market continues as we just endured our 7th straight session without stocks moving in the same direction for two consecutive days. Plus the decline on Tuesday marks the end of a 20 week streak of positive gains for stocks. That is the longest such streak since 1900 (not a typo). 

Here is what I see happening now. The Fed is being incredibly transparent about their future intentions. Investors are making most of their portfolio changes now so there will be little disruption when the actual QE tapering begins.

When the smoke clears investors will realize that QE will be removed S-L-O-W-L-Y as to insure that each incremental reduction does not derail economic expansion or employment gains. And even with 10 year Treasury rates floating back up to around 3%, stocks will be hard to overlook given a healthy combination of dividend income and capital appreciation. That is why I took Tuesday's dip as an opportunity to get back to 100% long.

Note that the long term bull market is still intact. We are just going range bound for a little while. However, if you focus on stocks with ingredients to outperform (like Zacks #1 Ranks) then you can produce attractive returns while most other investors come away empty handed.  
[6/3/13] Kevin Cook here to start the week off for Steve...

Last week I made the argument that all the Fed QE3 "taper talk" would bring enough worry and volatility to equity markets to make June the worst month of the year (so far) for stocks. But this was also in the context of one of the best bull runs ever for the first 5 months.

It seems the last day of May got a jump on June with a 1.4% kerplunk. So does Friday's sell-off and crack of short-term support at 1635 mean the big correction is finally coming? I still don't think so.

There is STILL pent-up demand for stocks in an environment where the US growth story is the best place on the planet for investors' money. This means that a dip to S&P 1600 will be bought aggressively after the weak hands are shaken out.

Bottom line: Yes, there will be more worry and caution as we head into the Fed meeting in 2 weeks. But my bet is that 1560 will mark the lows for the summer and therefore building positions anywhere near 1600 will be a good buy.

[5/28/13] Friday was the second straight session that started in a deep hole. Then tick by tick stocks worked their way back to nearly breakeven. There are 2 ways to interpret this action: 

1) Last Throes of this Bull Rally: Often when you have a market that has been on a long bullish run, you will have a couple days just like these. And when the bull has to fight back this hard, it often runs out of steam leading to further declines in the days ahead.

2) Bullish Bias Continues: Sometimes these tea leaves mean that investors REFUSE to become bearish. So they turn every dip into a buying opportunity with more upside on the way.

Reity, which is it?

I have to admit that it's a close call. But if you put a gun to my head and demanded answers I would say 55-60% odds that the bullish bias is the right choice. Unfortunately that means decent odds that we could be in for a more prolonged pullback.

[5/26/13 Mitch Zacks writes] Japanese shares experienced their biggest drop since the Fukushima nuclear disaster in March of 2011. There were two forces spurring the sell-off. Most importantly, Chinese manufacturing data unexpectedly contracted. Additionally, Bernanke indicated that the quantitative easing, like all good things, must eventually come to an end. The result was that the TOPIX Japanese index fell a disconcerting 6.87% in a day.

The magnitude of the selling in Japan shows investors are having trouble believing in the staying power of the rally. There is nothing that happened fundamentally in one day to justify a nearly seven percent downward movement in the Japanese market. With the TOPIX index up around 40% year to date, what essentially happened is that Japanese investors are nervous because of the run-up and were looking for a reason to sell.

There is an undercurrent of skepticism built into this market. This skepticism extends from institutional investors to individual investors. Almost every investor I come in contact with believes, at some level, that the current rally is not sustainable and that a sell-off is due. My belief is that until this skepticism recedes, the market will continue to move higher. What we saw in Japan on Thursday is this skepticism combined with profit taking. It was not a rational response to what Bernanke said, and it wasn’t a rational response to the Chinese manufacturing data. It was selling based on a catalyst because investors believe the market has come too far too fast.

The wall of worry that has been built using the bricks of the 2008 financial crisis remains strong. This bull market will likely continue to climb this wall of worry until there is an almost euphoria regarding the stock market. We are not even close to being there yet. Bull markets don’t end with a bang but with a whimper. Bull markets, in my experience, end when there is almost universal acceptance that the market is heading higher. For this reason, I am far more concerned by the growing herd of Wall-Street strategists raising their end of the year price-targets than with the Japanese sell-off.

Most substantial bull markets are also accompanied by new theories trying to explain why the market should be hitting all-time highs and why traditional P/E multiples are no longer a valid valuation metric. If you think back to the bull market of the late 90’s there was an attempt to try to find a means of valuing stocks that justified the high prices. Even with the current rally, P/E multiples remain in line with average levels. Although the market is hitting new highs, valuation multiples are not hitting new highs.

As a result, if the economic recovery in the U.S. continues, then the market should continue to appreciate at its annual historical rate of roughly six percent above the risk-free rate of return. While some consolidation would not be unheard of, as trees never grow to the sky, ultimately the selling is relatively healthy and the events in Japan do not change the underlying fundamentals of the U.S. recovery.

[5/20/13] At this stage we would need a clearly negative catalyst to stop the market from advancing to 1700 which is only 2% above Friday's close. 

My sense is that stocks will make it there and then a consolidation will ensue with stocks trading in a range between 1600 and 1700. That means you should start taking some trading profits as we approach 1700. Then buy back lower in the range.

[5/5/13] Stocks blasted above 1600 on a strong monthly jobs report. Not only was this month above expectations, but even more impressive, last month was revised higher by 50,000 jobs. This had stocks off to the races. 

I know it is hard to fathom how a higher than normal 7.5% unemployment rate translates into stocks reaching record highs. That boils down to the following:

1) The direction of the economy is more important than the absolute strength of the economy. It has been improving for 4 years and that creates a positive investment environment.

2) Don't Fight the Fed: QE has effectively pushed down bond rates to levels that make all other forms of investment more attractive. Namely real estate and stocks.

These are the trends that matter. It doesn't mean that stocks will go up every day or week or month. And yes, this bull may tire soon. But with the evidence in hand, then I will not be selling this May. Nor will I be walking away. I am here for the stay.

[4/10/13] The S&P 500 climbed to its third highest close in history in eager anticipation of Q1 earnings. Making new highs should be a good thing, but why am I still so uneasy?

•  Soft Economic Reports: Last week provided a Royal Flush of 5 soft economic reports including services, manufacturing and, most importantly, jobs.

•  Every Bull Must Rest: The market is up 10% year to date. Yet earnings growth will only be in the mid-single digits. Yes, stocks can go up by more than earnings growth as long as PE's expand. But there is only so much elasticity in that equation.

•  History Repeating Itself: In 2010, 2011 and 2012 the market raged higher up til April earnings season only to get thwarted. And here we are in April 2013 sitting on a fat 10% gain. It is eerily too similar to the recent past.

•  Large Caps Leading the Way: That is not a positive sign. Rather it says investors are more interested in safety than risk taking. That is often a harbinger of a bearish turn on the way.

This is my short term view of a consolidation or modest correction in the midst of a long term bull rally. Get ready to buy on forthcoming dips.

[2/7/13] Breakeven is Better Than ... Down.

That is the lesson from Wednesday's breakeven showing for US stocks. Even better is that shares were actually down a good spot early in the session before rising to the second highest close since the Great Recession.

What it tells you is that investors can’t find many good reasons to sell stocks. Even when they have rallied almost continuously for the last 3 months. The natural outcome of shares not wanting to go down is that they will probably keep heading higher.

1500 is becoming solid support. Next stop is likely the all-time highs at 1565. At that time I suspect stocks will be ready to rest.

[2/4/13] Friday provided a Royal Flush of economic data to push stocks to a new closing high at 1513. Most important of the bunch was impressive revisions to November and December job adds that proves to be a very positive trend. Then ISM Mfg told a tale of a re-accelerating manufacturing sector. 

Simply the bears are finding fewer reasons to stay committed to their ill-fated cause. Plus fresh investor money is starting to come off the sidelines. This likely spells more upside.

We are only 3.4% away from the all-time highs at 1565. There seems to be a tractor beam pulling us in that direction. Yet when we do arrive, expect serious resistance and a likely good spot to take profits.

[1/16/13] Stocks started in the dumps Tuesday thanks to bad news from across the Atlantic. There we find that Germany is not immune to the economic malaise happening in the rest of Europe. Yes, their economy contracted -0.5% in the most recent quarter.

US investors saw the red from overseas' markets and decided that was the place to start for the States. Yet as the day progressed, stocks moved back into the black. And now we find ourselves just 2 S&P points away from the highs.

Typically a market that fights back from the red intraday is often on its last legs. Then add in the uncertainty coming down the pike from the Cliff 2 debt debates and it makes a case for a consolidation or contraction period. As such, I started taking some profits on Tuesday.

Note this is just my short term read for the market. I still expect the long term bull rally to continue once we get through the debt debates. Trade accordingly to your investment time horizon.

[1/11/13] On Thursday we enjoyed the highest close since the Great Recession at 1472.12. That's just a smidge below the intraday high made on September 14th of 1474.51. We'll be there, and above, soon enough.

So Reity, it's just up and up and up from here?

Not so fast my friends. The next round of concerns will come when the Fiscal Cliff 2 debates heat up in a couple weeks. That being the government cost cutting measures, we should have tackled already, and hitting the debt ceiling once again.

I suspect we will have more of the same kind of kerfuffle as with the Cliff 1 discussions. That being a lot of faux anger and mock gnashing of teeth by both political parties. Then in the final hours a deal will be struck. During this "play fight" investors may get a little spooked with a modest pullback in the works.

Likely stocks will continue their rise towards 1500 in the short run. Then we might want to lighten the load a notch as the Cliff 2 theatrics commence. And then we buy the dips with full expectation for the 4 year bull market to continue on its merry course.

[1/3/13] Stocks soared to start off the New Year thanks to a Cliff deal finally being in hand. The basic construct seems like a reasonable compromise between the desires of the two parties. For me the spending cuts are too light, hopefully we can see the appropriate level of belt tightening in the next round of discussions.

All in all, this deal allows the US economy to stay on its Muddle Through course. That, in conjunction with the attractive valuation of stocks, should equate to more upside in 2013. That's because the market will keep on the long term bull run until a recession is on the horizon or stocks become overpriced.