technical bull

There were several encouraging technical signs this week from a bullish perspective. Let’s take a look at the major indices individually and see where they stand this morning (May 30, 2014).

S&P 500 Index ($SPX):
Last Friday around this time the SPX was (once again) trading near the top of its recent trading range and it wasn’t entirely clear if it would break out or drop back down into that range. On Tuesday we got our answer as the SPX moved higher by 12 points and closed near the high of the day. After some consolidation of those gains on Wednesday, traders reinforced the price action breakout with some follow-though buying:

Dow Jones Industrial Average ($DJI):
The DJI chart may not be as bullish as the SPX because it didn’t record a new all-time high in concert with the SPX this week, but it appears to be above its old trading range and looks pretty healthy from my perspective. As of early Friday morning the DJI is down roughly 20 points and is about 50 points away from the all-time closing high it recorded back in mid-May

Russell 2000 ($RUT):
The breakout in the SPX appears to have prompted buying, and a corresponding breakout, in the RUT. If you are bullish it was both encouraging and significant to see the RUT breakout of its recent downtrend and validate the move in the SPX. The RUT has actually been outperforming the SPX recently as it has tacked on 3.5% since last Wednesday (vs. +2.5% for the SPX over the same time frame):

NASDAQ Composite ($COMPX):
Similar to the SPX and RUT, the COMPX broke out above the sideways range that it has been confined within since mid-April. The fact that the breakout in the SPX was accompanied with breakouts in both the RUT and COMPX this week is a good sign for the bulls:

Summary:
The bulls appear to be in control as markets finally break out of their respective trading ranges and resolve to the upside.
With markets trading near all-time highs I think it’s fairly safe to assume that the “Sell in May and go away” wasn’t the dominant investing philosophy this year.

high quality or low quality?

aren't high-quality stocks superior to low-quality ones by definition? The short answer: not in all market environments. For example, the lowest-quality stocks tended to outperform the highest-quality stocks when the U.S. economy was coming out of recessions.

"There are times when you want to buy low-quality stocks because they've become very cheap," says Sudhir Nanda, head of the Quantitative Equity Group and manager of the Diversified Small-Cap Growth Fund. "In a recession, investors chase safe, defensive stocks; they become more expensive; and low quality becomes cheaper—and so low quality tends to do well coming off the bottom of a market cycle.

But over the long run, it pays to invest in high-quality stocks because you tend to have smaller down moves, so your returns can compound faster.

-- T. Rowe Price Report, Spring 2014

try blind luck

Putting their alternative take on economics to the world of stock picking, "Freakonomics" authors Stephen Dubner and Steven Levitt have told CNBC that investors might try blind luck rather than follow the advice of their portfolio manager.

"We talk about the ability of experts to predict the future, whether the future is geopolitical or financial. And if you look at, let's say, stock picking advice specifically, you find that the experts, the people that we must revere, the people that we pay the most, are generally about as good as a monkey with a dart board," journalist Dubner told CNBC Thursday. "So if you're a buyer you have to consider what their incentives are, what their research says and how counter intuitive you can afford to be."

invert, always invert

[Looking at Poor Charlie's Almanack,] Charlie Munger is known for using the phrase Invert, Always Invert...

***

Charlie Munger, the business partner of Warren Buffett and Vice Chairman at Berkshire Hathaway, is famous for his quote “All I want to know is where I’m going to die, so I’ll never go there.” That thinking was inspired by Carl Gustav Jacob Jacobi, the German mathematician famous for some work on elliptic functions that I’ll never understand, who advised “man muss immer umkehren” (or loosely translated, “invert, always invert.”)

“(Jacobi) knew that it is in the nature of things that many hard problems are best solved when they are addressed backward,” Munger counsels.

While Jacobi applied this mostly to mathematics, the model is one of the most powerful thinking habits we need in our toolkit.

It is not enough to think about difficult problems one way. You need to think about them forwards and backwards. “Indeed,” says Munger, “many problems can’t be solved forward.”

Let’s take a look at some examples.

Say you want to create more innovation at your organization. Thinking forward, you’d think about all of the things you could do to foster innovation. If you look at the problem backwards, you’d think about all the things you could do to create less innovation. Ideally, you’d avoid those things. Sounds simple right? I bet your organization does some of those ‘stupid’ things today.

Another example, rather than think about what makes a good life, you can think about what prescriptions would ensure misery.

While both thinking forward and thinking backwards result in some action, you can think of them as additive vs. subtractive. And the difference is meaningful. Despite the best intentions, thinking forward increases the odds that you’ll cause harm (iatrogenics). Thinking backwards, call it subtractive avoidance, is less likely to cause harm.

Inverting the problem won’t always solve it, but it will help you avoid trouble. Call it the avoiding stupidity filter.

So what does this mean in practice?

Spend less time trying to be brilliant and more time trying to avoid obvious stupidity. The kicker? Avoiding stupidity is easier than seeking brilliance.

***

So what could cause a stock to crash?  It might be overpriced and earnings dry up.  So don't buy overpriced stocks.  And don't buy stocks without a moat.  [Thus, buy stocks with a moat at a reasonable price.]

down to 330 million

Bill Gates, the former chief executive and chairman of Microsoft Corp, will have no direct ownership in the company he co-founded by mid-2018 if he keeps up his recent share sales.

Gates, who started the company that revolutionized personal computing with school-friend Paul Allen in 1975, has sold 20 million shares each quarter for most of the last dozen years under a pre-set trading plan.

Assuming no change to that pattern, Gates will have no direct ownership of Microsoft shares at all four years from now.

With his latest sales this week, Gates was finally eclipsed as Microsoft's largest individual shareholder by the company's other former CEO, Steve Ballmer, who retired in February, but has held on to his stock.

According to documents filed with the U.S. Securities and Exchange Commission on Friday, Gates now owns just over 330 million Microsoft shares after the sales this week. Ballmer owns just over 333 million, according to Thomson Reuters data.

That gives both men around 4 percent each of the total outstanding shares, making them by far the biggest individual shareholders. Fund firms The Vanguard Group, State Street Global Advisors and BlackRock have slightly bigger stakes, according to Thomson Reuters data.

Spokesmen for Gates and Microsoft declined comment.

Gates owned 49 percent of Microsoft at its initial public offering in 1986, which made him an instant multi-millionaire. With Microsoft's explosive growth, he soon became the world's richest person, and retains that title with a fortune of about $77 billion today, according to Forbes magazine.

Gates handed the CEO role to Ballmer in 2000, and stood down as chairman in February. He remains on the board and spends about a third of his time as technology adviser to new Microsoft CEO Satya Nadella.

For the past six years, his focus has been on philanthropy at the Bill & Melinda Gates Foundation, which is largely funded by his Microsoft fortune.

***

Let's see.  330 million times Microsoft's price of $40.12 = $13.2 billion.  Gates is worth $76 billion.  So what's the other $63 billion in?  Gurufocus lists the Bill & Melinda Gates Trust as being worth about $20 billion.  And almost half of it is in Berkshire Hathaway stock.  I don't know that the Trust counts toward his net worth (I wouldn't think so), but even if it does, that leaves $43 billion.  So where's the rest?  Ah, Cascade Investment, LLC.  But according to this, Cascade was managing only $500 million a couple of years ago.  Here's wikipedia's entry.

too easy?

Here is the chart of McDonald’s PE during the past 10 years:

If you know the business really well, do you have to be a genius to find out that it’s cheap at 13 time forward earnings? And if you have the right temperament, is it that hard to buy something that you know is cheap? And if you buy it cheap, is it unreasonable that you outperform the market?

The above may sound too easy to be true. Yet I can guarantee only a handful investors can do that. In investing, the simplest thing are often the hardest to do.

7 top technical analysts

My first brush with Technical Analysis was not a good one and I was left asking the question “Does Technical Analysis work?”.  There was plenty of evidence to suggest Fundamental Analysis worked (Warren Buffett has Billions of evidence).  But Fundamental Analysis really doesn’t suit my personality so what were the other options?

Everywhere you go online there is another guru selling the latest TA system accompanied with confusing looking charts.  I decided that if there wasn’t a long list of very rich Technical Analysts out there then I had lost enough money using TA and was ready to quit.  To my delight I discovered many successful traders and investors who had the track record to prove that Technical Analysis does work.  Here is a list of the traders I found particularly noteworthy.

David Tepper is nervous

FORTUNE -- The nation's highest paid hedge fund manager is concerned about the market.

"There are times to make money," says David Tepper, who runs Appaloosa Management. "This is a time to not lose money. I think it is a nervous time."

On Wednesday, Tepper cautioned fellow fund managers and other attendees of this year's SALT Investing Conference in Las Vegas. Tepper, who rarely talks about the market publicly, was recently named the highest paid hedge fund manager by Institutional Investor's Alpha magazine. The magazine said he made $3.5 billion last year.

Tepper's biggest concerns hinge on economic growth prospects and its effect on stock prices. He said his opinion would be different if the economy was growing at 4%. But he said that, even adjusting for the weather, the economy looks to be growing much more slowly than he expected. Indeed, U.S. GDP grew by 0.1% in the first quarter of 2014.

That's a problem, Tepper says, because stocks on average are trading at 16 times next year's expected earnings. That means investors are expecting relatively strong bottom lines. But if the economy is growing more slowly than expected, profits are likely to disappoint.

Tepper says he is also concerned about deflation, given the sluggish economic growth prospects. "If we have price pressure as well, then that's really going to push down profits," says Tepper.

Tepper says that while he is normally seen as a bullish investor, he currently has a portion of his money in cash. "I'm not saying go short," Tepper says, which is the Wall Street term for betting against the market. "But don't be super long either."

Giants that have disappeared

The business landscape has changed significantly in the past 25 years — not only in how we work but also with whom we work.

It's sometimes easy to forget that king of the hill isn't a permanent position, and companies that seem invincible might not be around forever in their current form — or, in some cases, any form.

Even icons fall. Click through these pages for a look at five names we took for granted in 1989 that have since faded away.

Dow propelled by one stock

The Dow Jones Industrial Average is at record highs and it's mostly because of just one of its components.

Caterpillar is doing a lot of heavy lifting when it comes to moving the Dow index, a huge change from last year when it was up just 1 measly percent against the Dow's 26 percent gain.

Though it's just 4 percent of the entire average, the equipment maker is up nearly 17 percent this year. To put it in perspective, Caterpillar accounts for more than half of the entire Dow's gains. And, were it not for Caterpillar, Merck and Disney, the Dow would be down in 2014.

the game hasn't changed

"The game hasn't really changed," Buffett continued. "The whole idea in investing is to buy into good businesses and if the business does well, you do well in investing -- if you don't pay too much. That was true 25 years ago and it will be true 25 years from now."

*** 5/16/14

A few years ago, Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B) CEO and Chairman Warren Buffett spoke about one of his favorite companies, Coca-Cola (NYSE: KO), and how after dividends, stock splits, and patient reinvestment, someone who bought just $40 worth of the company's stock when it went public in 1919 would now have more than $5 million.

Yet in April 2012, when the board of directors proposed a stock split of the beloved soft-drink manufacturer, that figure was updated and the company noted that original $40 would now be worth $9.8 million. A little back-of-the-envelope math of the total return of Coke since May 2012 would mean that $9.8 million is now worth about $10.8 million.

The power of patience
I know that $40 in 1919 is very different from $40 today. However, even after factoring for inflation, it turns out to be $540 in today's money. Put differently, would you rather have an Xbox One, or almost $11 million?

But the thing is, it isn't even as though an investment in Coca-Cola was a no-brainer at that point, or in the near century since then. Sugar prices were rising. World War I had just ended a year prior. The Great Depression happened a few years later. World War II resulted in sugar rationing. And there have been countless other things over the past 100 years that would cause someone to question whether their money should be in stocks, much less one of a consumer-goods company like Coca-Cola.

The dangers of timing
Yet as Buffett has noted continually, it's terribly dangerous to attempt to time the market:

"With a wonderful business, you can figure out what will happen; you can't figure out when it will happen. You don't want to focus on when, you want to focus on what. If you're right about what, you don't have to worry about when" 

So often investors are told they must attempt to time the market, and begin investing when the market is on the rise, and sell when the market is falling.

This type of technical analysis of watching stock movements and buying based on how the prices fluctuate over 200-day moving averages or other seemingly arbitrary fluctuations often receives a lot of media attention, but it has been proved to simply be no better than random chance.

Investing for the long term
Individuals need to see that investing is not like placing a wager on the 49ers to cover the spread against the Panthers, but instead it's buying a tangible piece of a business.

It is absolutely important to understand the relative price you are paying for that business, but what isn't important is attempting to understand whether you're buying in at the "right time," as that is so often just an arbitrary imagination.

In Buffett's own words, "if you're right about the business, you'll make a lot of money," so don't bother about attempting to buy stocks based on how their stock charts have looked over the past 200 days. Instead always remember that "it's far better to buy a wonderful company at a fair price."

SOYA investing

most people don't do what Buffett does, which is primarily buy into good, solid companies and then sit on his butt

"All intelligent investing is value investing - to acquire more than you are paying for. Investing is where you find a few great companies and then sit on your ass. - Charlie Munger at Berkshire Hathaway's 2000 Shareholder Meeting

Related articles

99% of Long-Term Investing Is Doing Nothing

My Investment Advice: Do Nothing!

[see also time horizon: long-term vs. short-term thinking]

millionaire survey says...

In the heated debate over inequality, the wealthy are usually portrayed as the cause rather than the solution.

But CNBC's first-ever Millionaire Survey reveals that 51 percent of American millionaires believe inequality is a "major problem" for the U.S., and nearly two-thirds support higher taxes on the wealthy and a higher minimum wage as ways to narrow the wealth gap.

The findings show that-far from being a purely self-interested voting bloc-American millionaires have complicated views when it comes to the wealth gap and opportunity in America. They are unashamed of their own wealth and attribute their success to hard work, smart investing and savings. They also believe that anyone in America can get wealthy if they work hard.

Yet millionaires also believe that cultural and family issues prevent many Americans from climbing the wealth ladder. They advocate improved education, higher taxes on the wealthy and better savings incentives for the poor and middle class as important changes that would reduce inequality.

The CNBC Millionaire Survey polled 514 people with investable assets of $1 million or more, which represents the top 8 percent of American households. The respondents came from around the country and were split between Democrats, Republicans and Independents.

The online survey was conducted in March by Spectrem Group on behalf of CNBC.

When asked about the No. 1 factor in obtaining their wealth, the millionaires ranked hard work first (23 percent), followed by smart investing (21 percent) and savings (18 percent). Education ranked fourth, at 10 percent, followed by frugality and then inheritance. Only 1 percent cited luck as the top reason for their wealth.

Multimillionaires, or people worth $5 million or more, were more likely to cite "running my own business" as their top wealth factor. Women were three times more likely to cite inheritance as their top wealth factor (15 percent vs. 5 percent for men), while men were more likely to cite savings (20 percent vs. 14 percent for women).

Most millionaires still believe in the American dream. Fully 94 percent said the American dream is achievable. When asked to define that dream, the largest number (45 percent) said the American dream is "prosperity and upward mobility through hard work." Only 18 percent defined it as "spiritual and temporal happiness more than material goods." Multimillionaires, however, were far more likely to define the dream as material rather than spiritual (63 percent vs. 4 percent).

Despite being winners in the new economy, U.S. millionaires view inequality as a problem. More than half of millionaires and multimillionaires agreed that "inequality of wealth in our nation is a major problem."

Yet they don't see themselves as a cause. Fully 81 percent said they don't feel embarrassed by their wealth, "because I earned it," and only 5 percent said they feel a sense of guilt about the wealth they possess. More than half said anyone in the U.S. can become wealthy if they work hard.

When asked about the reasons for inequality, most (78 percent) said the wealthy have greater access to education. Two-thirds cited that the "lack of financial literacy" prevents poor households from making better financial decisions.

More than half said cultural issues and broken families also prevent people from attaining wealth. Only 6 percent said that people worth less do not work as hard as those with wealth.

The best way to reduce inequality, millionaires say, is through improved education. Fully 83 percent supported an increase in educational opportunities for the less wealthy. An equal number (64 percent) supported better savings incentives for the less wealthy and higher taxes for the wealthy.

Perhaps surprisingly, a majority (63 percent) also support a minimum wage. Only 13 percent supported reducing unemployment benefits to encourage more work as a solution to inequality.

A millionaire's view on inequality and taxes, however, seems to depend more on their politics than their wealth. Eighty-six percent of Democratic millionaires said inequality is a problem, compared with only 20 percent of Republicans. Two-thirds of Republicans vs. a quarter of Democrats say anyone can become wealthy in America if they work hard.

Democratic millionaires are far more supportive of taxing the rich and raising the minimum wage. Among Democratic millionaires, 78 percent support higher taxes on the wealthy, and 77 percent back a higher minimum wage. That compares with 31 percent and 38 percent, respectively, for Republicans.

Politics even plays a role in how millionaires view wealth creation. Among Republican millionaires,63 percent say hard work is the No. 1 reason the wealthy are wealthy. Democrats were most likely (45 percent) to cite a person's family or place of birth as the top reason for their wealth.

The bottom line: American millionaires, in general, agree that inequality is a problem. But when it comes to solutions, millionaires are just as split along political lines as the rest of the country.

*** 5/10/14 ***

Mitt Romney supports raising the minimum wage

stocks to hold forever

Few people realize these stocks even exist.

But many of the richest, most successful investors, politicians and businessmen have been quietly cashing in on them for decades.

Watch the 90-second video below to see how you can too...

***

Elliott Gue will be a familiar name to longtime Gumshoe readers — he’s been a fixture in newsletter land for as long as we’ve been around (Stock Gumshoe’s sixth birthday was a couple months ago, thanks very much), and he’s got a new home. He ran the venerable Personal Finance letter for a while and built a bit of a name for himself as an energy investing specialist at Energy Strategist before leaving that publisher and signing on with StreetAuthority.

And now Gue is headlining several letters for StreetAuthority, including the StreetAuthority Top Ten Stocks letter that tries to pick out favorite ideas from all the other letters at that publisher. Several of the publishers have these “best of the best” newsletters, and they’re usually treated as inexpensive ways to get people introduced to the letters (and hopefully drive them to “upgrade” to subscriptions to the more expensive services they offer).

But that doesn’t mean they’re not useful or interesting, of course — and one of the ways they’ve pitched this service in the past, back when it was still helmed by founder Paul Tracy, was by teasing a list of their favorite “forever” stocks that you can buy and hold, well, forever. So whenever they trot out this teaser campaign, as they’ve just done under Gue’s signature, I like to have a look.

Why? Well, partly because lots of readers ask about these — and partly because, frankly, buying solid stocks of this ilk and holding for a long time is probably still the easiest way for an investor to do well without great expertise or a big time commitment. The average holding period for stocks is probably down to just a month or two now, maybe less, and that means a lot of individual investors are trying to time little market moves and are probably, on average, failing to keep up with the market — and paying higher commissions and taxes along the way.

I can’t get up here and tell you that “buy and hold” is the best or only strategy for everyone, of course, and it’s not the only strategy I pursue … but buying great companies and holding for many, many years — preferably with a nice, compounding dividend stream that lets the investment grow even faster — has worked better for me, more often, than most of the other strategies I use.

As in past iterations, they “give away” the top two names for free — the first is what Elliott Gue calls his favorite “Rockefeller Stock,” Brookfield Infrastructure Partners (BIP). That’s a publicly traded partnership that owns infrastructure assets, including a lot of utility assets (transmission lines, pipelines, connections) and transportation assets (railroad, toll road, ports), among other things (including a lot of timberland). The stock has been extraordinarily successful coming out of the financial crisis, with a very price appreciation and a solid and slowly growing 4.5% distribution yield.

This is one of those stocks that I’ve missed by always hoping it would get a bit cheaper — if rates rise considerably, it will be hurt, but they do own very valuable and long-lived assets, with regulated payouts, so that’s mostly just an interest rate risk (if you can buy a “safe” bond for 6% yield at some point in the future, the 4.5% yield from BIP will look less impressive).

And the second “freebie” is Google (GOOG). I have owned this one almost “forever” myself (I started buying about six months after the IPO and haven’t ever sold any), and if you can’t formulate an opinion on it for yourself it’s not for a lack of information — I consider Google one of the key utilities of the information age, and increasingly the most important advertising company in history. It’s not cheap anymore, but it shouldn’t have ever been cheap — adjusted for their huge cash balance they trade, on an earnings valuation, as pretty much an average S&P 500 Company. They’re far better than average, and they’re still growing nicely.

Then we get into the teasers …

“‘Forever’ Stock #3 is the most shareholder-friendly company I’ve ever seen. It has raised its dividend 84.8% since 2008… and has bought back 432 million of its own shares (about 20% of all shares outstanding). That’s one reason why earnings per share jumped 20% in 2011 and 6% in 2012. Buy it now and you’ll lock in a solid yield of about 4% (and I expect another dividend increase in the next few quarters). Meanwhile, the company plans billions more in share repurchases this year, which should support the stock price in just about any market.”

That one’s Philip Morris International (PM), the global tobacco company. Yield is down to about 3.6% now thanks to a rising share price, but they have increased the dividend 84.8% since they split from Altria in 2008 (46 cents/quarter to 85 cents/quarter), and they probably will keep raising the dividend and buying back more shares — the debt is low and the payout ratio is low (they pay out 64% of earnings as dividends), so it should be pretty stable. I don’t buy tobacco stocks for personal reasons, but most of them have been excellent income investments over the past decade or more — when Jeremy Siegel looked at the best stock market returns from 1925 to the present, Philip Morris (the original, combined company before the Altria-PM split) was number one, thanks largely to the many decades of reinvesting those dividends.

Next!

“‘Forever Stock’ #4 is a fund with a simple mission — to buy stakes in the most stable utility companies on the earth and pay investors a fat dividend yield. It owns telecoms in Israel, electric companies in Brazil, and water utilities in the United States. It’s returned 11% per year since its inception in 2004… and it has boosted its dividend 28.9% along the way. In total, the fund has paid more than 100 consecutive dividends and currently yields 6.0%. But don’t expect to have heard of this one… it trades only 100,000 shares a day — about what Apple trades in two minutes.”

This one they’ve teased in previous lists, it’s the Reaves Utility Income Fund (UTG), a closed-end fund that holds utilities and uses leverage to boost their returns — they include telecoms in their definition of “utilities”, so you’ll see both Verizon and AT&T in their top holdings alongside familiar utilities like Duke Energy or Entergy, but they have indeed returned an annualized 11% a year since 2004. The fund has actually done better than that on a net asset value basis (12% annual return), but the typical closed-end fund discount means that actual shareholders have gotten an 11% average annual return.

Right now, with folks getting a bit concerned about utilities as they watch the Fed’s chatter about possible interest rate increases, the shares are down a bit and the fund is trading again at a decent discount to net asset value. Right now, you can buy shares at about a 5% discount to the net asset value, and the yield is about 6%, with a monthly payout of 13 cents. You can see their full profile at CEF Connect here.

You can also, if you don’t want to go “forever,” go riskier and higher-yield with utility closed-end funds with, for example, the Gabelli Utility Trust (GUT), but some of the higher yield on that one comes from return of capital — and that particular fund has fallen by more than 25% over the past year even as the net asset value has risen because investors have bumped it down from a huge and ridiculous 50% premium to NAV to a still-high 13% premium. Or go more mainstream with an ETF like the Utilities Select SPDR (XLU), but that gets you a yield below 4%. Utilities are worrisome when investors start to see rising rates in the future, so be mindful that even solid companies that will be needed forever can go down in price if they’re valued by investors based on their dividend yield, as most utilities are, and the interest rate universe changes around them. I’d definitely buy a fund before I bought an individual utility, but I don’t need current income from this sector so I’m just as happy letting Warren Buffett build up his Berkshire Hathaway (BRK-B) utility holdings on my behalf.

Next!

“‘Forever Stock’ #5 was founded in 1966, but you couldn’t buy a stake until six years ago. Since it’s gone public, the stock is up 1,079% thanks to its seemingly unstoppable growth. Maybe that’s what attracted the world’s greatest investor– Warren Buffett– and his investment team. His giant investment firm, Berkshire Hathaway, bought a 216,000 share stake in this ‘Forever’ stock in 2011. And then Berkshire doubled down — buying 189,000 more shares the next quarter.”

This one is MasterCard (MA). Dammit. Every time I see this stock I’m reminded of not having bought it years ago because I was wary of the price. Turns out, a duopoly with a rapidly growing global clientele can be a great buy even when it’s not clearly cheap — I didn’t buy MA when it was at $100, and though it’s not cheap at the moment it might not ever be cheap, you can certainly argue that the valuation is fair with a forward PE of 19 and a near-$600 share price. I might slightly prefer the larger Visa (V) at current prices, but it’s a close call and both are hugely profitable behemoths who will probably continue to rule the world of plastic and electronic payments. Both pay dividends that are almost criminally small, but both are also growing their dividend rapidly.

“Forever Stock #6 tracks an index that has returned 396% over the past 10 years. It does so well because it holds dozens of energy partnerships that are legally bound to pay out the bulk of their cash flow to investors. Best of all, most of these businesses pay zero corporate tax.”

This one looks like it’s a repeat, the “Forever Stock #6″ back in 2011 was teased similarly and they offered more clues that time, so unless they’ve switched to a different fund of master limited partnerships (MLPs) this should be the JP Morgan Alerian MLP Index ETN (AMJ). That’s an Exchange Traded Note, not an Exchange Traded Fund, so it’s a JP Morgan debt instrument that they promise will track the returns of the Alerian index of mostly pipeline and midstream MLPs.

There are also ETFs and closed-end funds that track MLPs. Over the past year the AMJ ETN has done considerably better than the most widely-followed ETF, ticker AMLP — partly because JP Morgan halted creation of new units of this ETN because it was getting so big, so it’s now trading at a premium to its actual value now, and partly because ETNs don’t pay taxes like the ETFs do. So AMJ now has an effective yield of about 4.5%, and AMLP yields closer to 6%, based on effectively the same underlying portfolio and same management fee. Given that, if you want the ETN structure I’d be a bit wary of giant AMJ and consider one of the newer ETNs that is not self-limited and probably isn’t trading at a premium, like AMU from UBS, but I have not double checked the current state of that one. Buying any ETF or ETN to get your MLP exposure basically means you give up some of the tax-deferral advantage of MLP ownership in exchange for some diversification and the absence of those dreaded (by some) K-1 forms for partnership unitholders.

“‘Forever’ Stock #7 is a fund that holds 280 fast-growing companies in emerging markets like Taiwan, Brazil and Malaysia. At first glance you might think that’s risky… until you realize that these economies are growing 2X and 3X faster than ours. This ‘Forever’ idea is a superb way to profit from that fact. Meanwhile, you get a yield close to 4% — surprisingly generous for stocks with such explosive potential.”

I’ll wager that this is another copy-and-paste from their last “forever” list, and that time I guesstimated that this was the WisdomTree Emerging Markets Equity ETF (DEM), which does still yield better than 3% (3.3% at the moment, according to Yahoo Finance), and it has tracked the broader emerging markets ETF (EEM) almost exactly over the past two years while payout out a dividend yield that’s twice as high. That dividend focus means they have big exposure to energy/commodities and banks, which is not unusual for an emerging markets fund — Gazprom, Vale, Lukoil and a few Chinese banks are in their top ten holdings. EEM is far more diversified, for sure (largest holding is Samsung, they index by market cap, not by dividend yield), and has done better than DEM over the past year, but since DEM’s inception about five years ago it has edged out EEM.

“Every $1,000 you invested in “Forever” Stock #8 back in 1972 would be worth a stunning $2,030,000 today. Maybe that’s why it’s one of Congress’ favorite “sweetheart” stocks. In total, more than 50 members of Congress own a stake. All the big banks own a piece of this company, too. Morgan Stanley owns 31 million shares. JPMorgan Chase owns 32 million. Bank of America owns 37 million. And Goldman Sachs owns over 13 million shares of this stock.

“Meanwhile, the company is raising its dividend, spending billions to buy back its own shares, making smart acquisitions, and according to investment research firm Morningstar, owns an ’80% stranglehold on a $30 billion market…’”

This one is Intel (INTC), another stock that I own and am delighted to allow to compound in my portfolio — they get beaten down from time to time as fears rise about the soft PC market, but I wouldn’t bet against Intel’s unmatched manufacturing capacity or their ability to pound their way into the growing mobile market, and they still make lots of money on PC and server chips even if the speed of the collapse of the personal computer business has really shocked most of the players. I’ve built my personal position in Intel over the last couple years with buys between $20-$23, and bought most recently back in March. I don’t know if it will be a forever stock for me, but I think investors are over-worrying when it comes to this dominant company and I like watching those new shares compound and grow my account every few months.

“I like to call ‘Forever’ Stock #9 ‘Baby Berkshire.’ It invests just like Warren Buffett’s Berkshire Hathaway, but there is one major difference…

“This company is still small enough to make nearly any investment it wants, which frees it up to short for big returns. Warren Buffett himself said of his company, ‘Berkshire’s capital base is now simply too large to allow us to earn truly outsized returns.’

“House Majority Leader Eric Cantor (R-VA) owns at least $100,000 of this stock… and for good reason. From its low in March 2009, the shares have more than doubled.”

Looks like this is another repeat and another personal favorite, Markel (MKL), the specialty insurer that does often get compared to Berkshire Hathaway and which just closed a company-changing acquisition of Alterra to almost double their size. Markel is a great company, it was an extraordinarily easy buy when it collapsed on the announcement of the Alterra bid, and I bought some then and wrote about it for the Irregulars (it jumped up to be of my top five holdings this year). There’s still a possibility that the integration of the companies will be trickier and hurt earnings or book value, particularly if Markel wants to increase reserves on the Alterra business to match its more conservative profile, or is slow to adjust Alterra’s portfolio, so I’m trying to be patient and wait for a possible a dip in the stock when they announce their first couple consolidated quarters later this year — but, to be honest, I’ve considered adding to my position recently even without a dip, just because Markel’s more flexible investing mandate tied to Alterra’s now bond-dominated portfolio could generate dramatic performance improvement over the next few years.

And finally, number 10:

“I looked all the way to South America for ‘Forever’ Stock #10, but don’t worry… it trades right on the New York Stock Exchange.

“It’s the largest electricity company in Brazil, boasting more than 7 million customers. Like many utilities, its profits are driven by its monopolistic position. It sells three-quarters of its total power to captive customers who can’t switch to another supplier.

“Meanwhile, the company makes the point of distributing at least 50% of its income to shareholders… good now for a very safe yield of 7.0%.”

Similar picks have been teased by the StreetAuthority folks several times over the last couple years, and the two likely picks are the two largest NY-traded Brazilian electric utilities, CPFL Energia (CPL) and Companhia Energetica de Minas Gerais (CIG). CPFL has been a bit steadier and pays closer to a 7% yield (it would be 7% based on the 2012 dividends and the current share price, though the initial 2013 dividend paid just last month trended lower). Brazilian utilities are having some trouble with regulation and haven’t been able to get pricing increases — in many cases they’ve seen rate cuts as the government wants to lower costs for users — so the regulatory environment might not be as steady as we typically see for US utilities. Both have more than seven million customers and both do generation, transmission and delivery of electricity to end users, though concentrated in different states (CIG in Minas Gerais, CPL in Sao Paolo and Rio Grande do Sul — all three are among the most populous and developed states in Brazil).

So there you have it — not a lot of new names for you, but a reiteration under new editor Elliott Gue that they’ve got ten “forever” stocks to build a future on.

***

Hey, here's the secret report!  (stockgumshoe went 10 for 10.)

***

Forbe's five stocks to hold forever.

So how do you know which stocks are “buy and hold forever” stocks and which are at risk of going the way of BlackBerry or Penney?  There are no rules that are guaranteed to work 100% of the time, but these guidelines will get you close:

So how do you know which stocks are “buy and hold forever” stocks and which are at risk of going the way of BlackBerry or Penney?  There are no rules that are guaranteed to work 100% of the time, but these guidelines will get you close:

1. The company is a leader in its respective industry.
2. The industry is not particularly susceptible to technological disruption.
3. Demand for the company’s products is relatively immune from fickle consumer tastes.
4. The company has a “black swan proof” balance sheet with modest amounts of debt.
5. The company has a long history of prudent shareholder-friendly actions, such as paying and raising the dividend.

You will notice that banks, retail stores, and technology companies are conspicuously absent from the list.  There is a good reason for that.  With few exceptions, technology companies tend to have short lives, and those that stick around for the long haul do so by adapting.  Apple, for example, transformed itself from a struggling computer maker to the dominant consumer electronics company.  But for every Apple, there are a lot more like BlackBerry—companies that fell victim to technological disruption and failed to adapt in time.

Likewise, because they are by nature highly-leveraged and subject to macro shocks, banks are a no-go on the buy-and-hold-forever list.  And finally, JC Penney is a warning to all retailers, even well-managed ones like Wal-Mart and Target.  Penney was once an innovative leader too; its catalogue business was the precursor to online shopping as we know it today.  Wal-Mart and Target were the disruptors that wrecked Penney’s business.  And unless they continue to adapt to fend off competition from Amazon.com, they will eventually succumb to Penney’s fate as well.

The five?  Diageo, Unilever, Heineken, Realty Income, Nestle.

***

Kiplinger's 7 blue chips to hold forever

You need courage to buy stocks nowadays. The market's turbulent start in 2009, coming on the heels of 2008's awful beating, hardly leaves investors feeling warm and fuzzy. The economy is in a deep slump, and the outlook for corporate earnings over the next few quarters is somewhere between murky and miserable.

How do you invest in stocks in the midst of so much turmoil and uncertainty? We suggest you focus on the long term -- say, a minimum of seven years -- and look for high-quality, blue-chip companies that have balance sheets as invulnerable as Fort Knox and can generate wads of cash.

Our thinking goes like this. It will take several years for consumers, the economy and the financial system to recuperate fully. Economic growth and therefore earnings growth are likely to be tepid over the next five or more years. But if you invest in well-managed, financially strong businesses that sell goods and services for which demand is consistently strong (think food and medicine, not arcane financial products), you should do well.

Businesses like these typically display certain characteristics: They carry little or no debt. They generate enough free cash flow (earnings plus depreciation and other noncash charges, minus the capital outlays needed to maintain the business) that they don't have to raise equity or sell debt -- a good thing in today's unfriendly capital markets. They have a proven history of management excellence. They have abundant opportunities for reinvesting capital (or clear policies for returning excess capital to shareholders), and their leaders boast an outstanding record of allocating capital. In addition, they are global in scope. After all, 95% of the world's population lives outside the U.S., and economic growth is likely to be greater abroad than at home.

We suggest that you focus on companies that pay out some of their profits; in a sluggish economic environment, much of your total return will come from reinvested dividends. Judy Saryan, co-manager of Eaton Vance Dividend Builder fund, notes that over the long haul, 40% to 45% of the return on stocks has come from reinvested dividends, a share she reckons will climb to 50% over the next five to ten years.

The seven: Philip Morris (PM), Nestle (NSRGY.PK), McDonald's (MCD), Monsanto (MON), ExxonMobil (XOM), Teva Pharmaceutical Industries (TEVA), IBM (IBM).

***

From Lawrence Meyers, three stocks to buy and hold forever.

There’s a certain category of stocks that I consider stocks to buy and hold until the zombie apocalypse … or 30 years, whichever comes first.

These stocks to buy are so totally tied into the human experience that it would basically take the world’s population becoming zombies for them to cease doing business. They’re great investments because you don’t have to spend all of your time worrying about when to buy and when to sell.

The three stocks: Chevron (CVX), AutoZone (AZO), Berkshire Hathaway (BRK.B).

***

Martin Hutchinson's six dividend stocks to hold forever.

Today, it's all about the fast money. In the market, out of the market... this stock, that stock...

Of course, that's perfectly fine for traders. The good ones earn small fortunes that way. But for folks who don't have that kind of experience, being nimble is simply an invitation to be whipsawed by the markets.

You may be one of them.

For instance, are you fed up with stock recommendations that only seem to last a couple of weeks?

Or do you constantly find yourself buying on a day when the market is hot, because you feel enthusiastic, only to end up selling on a bad day, because the same stock suddenly looked less attractive?

If so, there's a solution to all this day-to-day madness. Despite the rumors of its demise, there are still stocks you can buy and hold forever.

Of course, seasoned income investors have known this for years. That's why the truly rich don't spend their days watching the financial news and trading stocks. They're too smart for that.

They know that investing in steady-income producing dividend stocks is just as rewarding over the long haul.

However, picking successful dividend-paying stocks is not as simple as buying only the stocks with the highest yield. In fact, the stocks with the highest yields are often the ones that trip up investors the most.

When it comes to buying stocks you can truly hold forever, what's important is the company's track record.

Specifically, you're looking for companies that have a decades-long record of increasing dividends and providing value to investors.

These are stocks that can generate profits like clockwork-even in down markets. And here's something you may not realize: even with all of the twists and turns there are plenty of these companies to consider.

In fact, at the moment there are 10 companies that have increased dividends every year for 50 years or more, another thirty-eight that have succeeded in doing so for 40 years and another forty-one companies that have increased their dividends every year for 30 years.

These companies make excellent permanent investments, for four reasons:

1. Their ability to increase dividends every year for several decades indicates that their business is long-term oriented and has the ability to survive recessions without crises.
2. Having established a long track record of dividend increases, these companies are loath to break it, and so will make extra the effort to ensure they can continue paying dividends during recessions.
3. Since we can be confident that these companies will continue to increase their dividends, investors no longer need to worry about their share prices (except as a chance to buy more.) At some point, the increased cash flow to investors will result in a higher stock value.
4. The best thing: we don't have to pay a premium for these track records. Many of these companies are currently trading at a discount to the S&P 500's average of 15 times earnings.

With these kinds of characteristics, these companies are truly the kind of investments you'd be comfortable to leave to your heirs. 

Here are six of them, all with dividend yields above the current 30-year Treasury yield of 2.6%.

Procter and Gamble Co. (NYSE: PG): This consumer packaged goods company is the record-holder among all these heirloom stocks, having increased its dividend every year since 1954. P&G currently yields 3.7%, but its P/E ratio of 20 times historic earnings is higher than I like because of corporate raider Bill Ackman. He is buying shares aggressively through his vehicle Pershing Square. He'll get nowhere with it -- the company has a market capitalization of $179 billion and what possible reason would shareholders have for removing its management? Still, you might as well wait to buy until he's buzzed off.

Diebold Inc. (NYSE: DBD): DBD is a maker of self-service delivery and security systems for the financial services industry (such as ATMs). This company has also increased its dividend every year since 1954. It currently yields 3.2% and trades on 12.1 times earnings. The dividend is 2.6 times covered by earnings.

Emerson Electric (NYSE: EMR): Not only has this electrical equipment company increased its dividend every year since 1957, it's also on only its third CEO since 1954. That's my kind of management continuity, and the current guy is only 57 so he likely has a few years left yet. Emerson's yield is 3.6%, with a trailing P/E ratio of 14.1. Like P&G, this one benefits in a possible U.S. recession by having more than half of its business overseas.

3M Company (NYSE: MMM): This diversified technology company has long-term staying power. In the old days, 3M used to trade at 25-30 times earnings, so it's a real bargain at its current 14.5 times, although with only a 2.7% yield. This company has increased its dividend every year since the 1959 Cadillac was in vogue - the one with the fins!

Johnson & Johnson (NYSE: JNJ): This healthcare products manufacturer has increased dividends every year since 1963. It's had some problems recently so earnings are a little depressed and it's trading at 18.8 times earnings. But with a yield of 3.6% and debt only 15% of its balance sheet, JNJ is a rock solid investment for your grandchildren.

ABM Industries Inc. (NYSE: ABM): This is the relative fly-by-night of the group, having only increased its dividends every year since 1965. The company provides integrated facilities management solutions, cleaning, maintenance, parking lots and security. It has a dividend yield of 3.2%, a P/E ratio of 14.5, and a market capitalization of $1 billion, a considerably smaller company than others on this list.

So there you have it. Buy and hold is wounded but far from dead. Buy these, relax, and enjoy the steady and increasing stream of dividends.

CNBC First 25

Here is our ranked list of the 25 people we judge to have had the most profound impact on business and finance since 1989, the year CNBC went live. They have disrupted industries, sparked change and exercised an influence far beyond their own companies.

As CNBC embarks on its second quarter-century, it faces a world completely altered from when it started. Then, the Dow was below 2,400, Wal-Mart didn't make the list of America's 500 largest companies and there was no World Wide Web. Only four U.S. companies had annual revenue of more than $50 billion. Today there are more than 50, including upstarts such as Apple, Microsoft, Amazon and Google. No dictionary contained the words "e-commerce" or "app." A blog was still archaic slang for a servant boy.

The 25 men and women listed below—from different parts of the world and across different industries—have, for better or worse, been the rebels, icons and leaders in the vanguard of that change.

1. Steve Jobs (Apple)
2. Bill Gates (Microsoft)
3. Ben Bernanke & Alan Greenspan
4. Sergey Brin, Larry Page & Eric Schmidt (Google)
5. Jeff Bezos (Amazon.com)
6. Warren Buffett
7. Oprah Winfrey
8. Mark Zuckerberg (Facebook)
9. Jack Bogle (Vanguard Funds)
10. Larry Ellison (Oracle)

trickling up

There are many reasons why French academic Thomas Piketty’s 685-page tome, “Capital in the 21st Century,” has vaulted to the top of the Amazon.com best seller list and is being discussed with equal fervor by the world’s top economic policy makers and middle class Americans who wonder why they haven’t gotten a raise in years. The main reason is that it proves, irrefutably and clearly, what we’ve all suspected for some time now —the rich ARE getting richer compared to everyone else, and their wealth isn’t trickling down. In fact, it’s trickling up.

Piketty’s 15 years of painstaking data collection—he poured over centuries worth of tax records in places like France, the U.S., Germany, Japan and the U.K—provides clear proof that in lieu of major events like World Wars or government interventions like the New Deal, the rich take a greater and greater share of the world’s economic pie. That’s because the gains on capital (meaning, investments) outpace those on GDP. Result: people with lots of investments take a bigger chunk of the world’s wealth, relative to everyone else, with every passing year. The only time that really changes is when the rich lose a bundle (as they often do in times of global conflict) or growth gets jump started via rebuilding (as it sometimes does after wars).

This is particularly true in times of slow growth like what we’ve seen over the last few years. I’ve written any number of columns and blogs about how quantitative easing has buoyed the stock market, but not really provided the kind of kick that we needed to boost wage growth in the real economy, because it mostly benefits people who hold stocks–that’s the wealthiest 25 % of us. Meanwhile, consumption and wage growth remain stagnant. And as Piketty’s book makes so uncomfortably clear, it’s likely to get worse before it gets better.

(don't) follow this chart

this chart shows how NOT to invest

[though of course it's much easier to see what to do, after the fact]

[via roy]

lousy returns ahead

The unsettling market plunges of two weeks ago have stopped, at least for now, and stock prices have recovered a bit. So now everyone's getting cautiously bullish again.

Everyone except me. I still think stocks are poised to have a decade or more of lousy returns. Why?

Three simple reasons:

• Stocks are very expensive 
• Corporate profit margins are at record highs
• The Fed is now tightening

To be clear, I don't know what stocks are going to do next. They could go higher from today's already high prices, the way they did from similar levels in the late 1990s. They could crash, the way they did in 2000, 2007, and many other periods in which prices were almost this high. They could stay flat for years, the way they did in the late 1960s and '70s. All I know is that unless "it's different this time" -- the four most expensive words in the English language -- stocks are priced to return only about 2.5 percent per year for the next decade, a far cry from the 10 percent per year long-term average.

I own lots of stocks, though, and I'm not selling them. Why not? Many reasons, including:

• I have a diversified portfolio of stocks, bonds, cash, real estate, which will cushion the blow of a crash

• I am psychologically comfortable with the possibility of a 40 percent-to-50 percent market crash, and I know exactly what I will do if we get one (buy stocks). If you aren't comfortable with the possibility of a crash of this magnitude, you should either get comfortable with it or reduce your stockholdings. Otherwise, you might panic and sell after a crash, which is the worst thing you can do.

• No other asset classes are attractively priced, either. Unfortunately, it looks as though we're set up to have one of the worst decades in history in terms of the performance of financial assets.

-- Henry Blodget

three traits of the rich

The funniest thing I've noticed about rich people is how little their income has to do with their wealth. Mike Tyson earned $300 million during his career and went broke. An orphaned, unmarried administrative assistant died with millions in the bank. A lot of rich people aren't exceptionally talented at what they do. They just have quirks and habits that let them think differently about money than the rest of us.

Here are three I've noticed.

(1) They are (mostly pleasant) sociopaths

I'm convinced that nearly every rich person has the characteristics of a sociopath. Not in a cruel, soulless way. But sociopaths can disregard emotional events that cause normal people to worry and panic. Great investors can do that, too. They can watch stocks fall 50% and shrug their shoulders or see 10 million people lose their jobs and remain unshakably calm.

(2) They care about time periods most can't comprehend

There are four ways to invest:

1. Unsuccessfully
2. Long-term (varying degrees of success)
3. Short term, successful due to luck
4. Short term, successful due to manipulation/fraud

That's the complete list. Nos. 3 and 4 eventually become No. 1.

Long-term investing is the only sane choice. But it's unnatural. We're hardwired to grab immediate gains and avoid immediate threats. That's why we eat donuts and watch CNBC.

In August 1929, John Raskob wrote an article called "Everyone Ought to Be Rich." All you had to do was buy stocks and hold them for a long time, he wrote. Two months later, the market crashed. It fell 88% over the next four years. To this day, people cite Raskob's article as a sign of irrational hype. But was it? Anyone who bought stocks the day it hit the stands increased their wealth sixfold over the next 30 years, adjusted for inflation. Missing this is why everyone ought to be rich, but few are.

(3) They don't give a damn what you think of them

The price of being rich is really simple: You must live below your means.

But living below your means is hard. Most people want to be rich to impress other people. They do this by spending money, which is the surest way to have less of it.

Having the emotional backbone to drive an uglier car than you can afford, live in a smaller house you can afford, eat out less often than you can afford, and wear cheaper clothes than you can afford is rare. In my experience, less than 10% of people can do it in a meaningful way. It's the cost of being rich, and most people have no desire to pay the price.

"A miser grows rich by seeming poor," poet William Shenstone wrote. "An extravagant man grows poor by seeming rich." I don't think it's any more complicated than that.

-- Morgan Housel

S&P 501

When Google effectively splits its stock on Wednesday, S&P Dow Jones Indices will do something unprecedented: It will keep both the old Google shares and the new ones in the S&P 500. That means the S&P 500 will technically have 501 components, though it will still have only 500 companies.

In the past, S&P Dow Jones Indices, the company that runs the S&P 500, has not kept the additional shares that more than 40 S&P 500 companies offer in the index.

In fact, in a February press release, the company announced that it would switch Google from the Class A shares (which will trade under the ticker "GOOGL") to the class C shares (which will trade under the ticker "GOOG," and are likely to be more liquid).

But in a March press release, it revised that decision, and said both the Class A and Class C shares will be included in the S&P 500 (as well as in the S&P 100).

7 red flags

Remember March 4, 2014 -- a day that will go down in Wall Street history as the beginning of the end for this latest bull market, which is celebrating its fifth birthday.

On March 4, the Dow Jones Industrial Average ($INDU -0.21%) rose 227 points based on a report that Russian troops were pulling back from Ukraine's border. This "news" lit the market on fire, a sign that the market is heading into a mania stage where it doesn't take much to boost stocks.

Indeed, nowadays instead of the "Nifty Fifty" stocks that defined the late 1960s market, we have the likes of Facebook (FB +3.19%), Tesla Motors (TSLA -2.99%), and Chipotle Mexican Grill (CMG -0.92%) -- the new new things.

Can the market go higher? Sure, although the higher it goes, the more dangerous it becomes. Often, during the latter stages of a bull market, the market separates itself from reality and appears to be on another planet.

Such red flags are everywhere:

1. Retail investors have been pouring money into stock mutual funds. The fear of missing out on the sixth year of a bull market has created something close to a buying panic. Although not as maniacal as we saw in 1999, the stock cheerleaders are back and rooting for their stocks and mutual funds to go higher -- just like they always do before a crash or bear market.

2. The Investor's Intelligence survey is concerning. The closely watched II survey shows a low proportion of bears (less than 20 percent), which some have pointed out is the lowest proportion since just before the 1987 crash.

3. Sentiment indicators are pessimistic. The VIX volatility index, the put-call ratio and other major sentiment indicators suggest that investors and traders are getting complacent. Apparently, market participants believe that the Fed, or their fund manager, will protect them in a worst-case scenario.

4. Fundamentals are being ignored. Obscenely high price-to-earnings (P/E) ratios are passed over, along with soft economic readings (i.e. GDP and ISM). When the fundamentals are weaker than expected, the weather is blamed.

5. The stock market crash of 2008 has been forgotten. Investors forget, but the market never does. Those who do not heed the lessons of the past will once again learn a painful lesson.

6. The Nasdaq is soaring. The three-year chart of the Nasdaq ($COMPX -0.04%) has gone nearly parabolic, hitting a 14-year high of 4,351 on March 4. It's the Go-Go years all over again. (And that late 1960s bull market ended with the 1973-74 bear market.)

7. Fear and greed are taking over. When the market reaches the tipping point (and we're getting closer), investors and traders buy "ATM" (anything that moves). The fear of missing out causes a buying panic.

What to do now
There have been numerous crash predictions over the last five years. As a result, many investors have closed their ears, and who can blame them? The market has ignored the warnings and continued to go up. One thing about crashes: They can't be predicted (but it won't stop people from trying). However, it is possible to recognize a dangerous market, which is what we have now.

The market is wearing no clothes

Just like the emperor, the market is wearing no clothes. Right now, many people see only what they want to believe. It's been a long time since investors felt full-throated fear, and many have forgotten what it feels like. The panic to buy will be replaced by the urgency to get out at any price. No one can know what will cause perceptions to change, but they will.

At the moment, emerging markets are in deep trouble, and what is happening in Ukraine didn't help. Nevertheless, the CEOs of several major brokerage firms have urged investors to "go long" emerging markets because they are so "cheap." Once again, these well-educated salesmen are wrong. Emerging markets will recover one day, but not soon. Urging investors to buy on the dip is disgraceful.

Sit and wait?
If we are in the mini-mania stage of the bull market, the market will continue to go higher based on rumors, hope, and greed. Sitting on the sidelines and waiting for the bull market to top out takes tremendous discipline. Trying to capture that final 5 percent can be costly if you get the timing wrong (and most people do). Be prepared for increased volatility as we get closer to the end.

Of course, it's not easy to sit on the sidelines when everyone else seems to be making money. Although many investors are dreaming of another 30 percent return this year, the odds are good that it will be a difficult year. Yes, during a mania stage anything is possible, but with each passing week, the clock is ticking.

Those who have studied market history have seen this story before, and the ending is always the same. No matter how many warnings you give, no many how you urge people to avoid buying the speculative Go-Go stocks and move to the sidelines, few listen until it is too late.

[on the other hand, Here's how the S&P 500 gets to 2,600 next year]

The S&P 500 is currently at 1877.  We'll see how much it goes up from here before tanking (who knows when)?

***

Some comments:

David Strait The market will go down eventually but believing your prediction is no different than believing others who say it's going to continue to go up. If you say the same thing long enough if will eventually come true. The one thing I find is that there is no where else to put your money and get any kind of return so if you keep it on the sidelines you are losing money already anyway.    

Smeado Trying to predict market tops and bottoms is a fool's game.

robin1620 It's time to go all in.

***

Here's what Hulbert says to do:

Few investors find solace from knowing that, if they wait long enough, stocks will eventually recover from a bear market. After all, as Keynes famously said, in the long run, we are all dead.

Yet history shows that typical bear-market recovery times are hardly “the long run.” Since 1926, it has taken an average of 3.3 years for stocks to surpass their high set before the typical bear market began.

Unless you think the next bear market and subsequent recovery will be worse than average, sticking with stocks is the best response to the certainty that, sooner or later, the current bull market will come to an end.

***

And what am I doing?  I'm taking small profits bit-by-bit as the market goes higher and higher.  What am I selling?  Stuff that I won't really mind purging out of my portfolio plus trimming stuff that is looking expensive.

dividend stocks

Investing in dividend stocks isn't just for retirees. If you're serious about generating strong long-term returns, then dividend stocks need to be a big part of your portfolio.

Not only do dividend stocks have less volatility year-to-year, they outperform non-dividend paying stocks over time too. That's right - those "boring" dividend stocks offer lower risk and higher total returns over the long run than those glamorous non-payers.

After last year's nearly +30% run up in the market, you might have forgotten that total return comes from two sources: price appreciation and dividends.

And believe it or not, over the last 80+ years, dividends have accounted for more than 40% of the total return equation.

A recent study by Ned Davis Research shows that dividend-paying stocks outperform their non-paying counterparts by a dramatic amount. From 1972 through 2013, non-dividend paying stocks earned a measly +2.3% return per year. But dividend-paying stocks crushed it with a +9.3% average annual return. And those that paid a dividend and raised it year after year did even better - generating a compound annual return of +10.1%!

Historically, companies have paid out a little over half of their earnings in the form of dividends, while the stock market has averaged a dividend yield of 4.4%. But the roaring bull market of the 1980s and 90s shifted focus away from dividends. By the year 2000, the payout ratio was hovering around 30%, while the market was yielding just 1.2%.

But after a decade of negative price returns, dividends appear to be making a bit of a comeback. The number of companies in the S&P 500 paying dividends (418) is at a 16-year high. And the current payout ratio of 32% is near a 10-year non-recessionary high as the dollar amount of dividends paid has more than doubled since 2004. Despite record high prices, the S&P currently yields 2.0%.

-- Todd Bunton, Zacks Weekend Wisdom

6 big myths about millionaires

While doing research for my book, "The Eventual Millionaire," I interviewed more than 100 millionaires. They came from all walks of life and made their first million in dozens of different ways, from starting their own businesses to investing in the stock market or real estate. And those aren't the only paths to becoming a millionaire, either: Others hit the mark by simply living below their means and saving portions of each paycheck.

Before you can make a million, though, you need to get past the mystique and the myths surrounding it. Here are six common myths about millionaires debunked.

Myth 1: Millionaires are smarter

People tend to put millionaires on a pedestal: They must be better or smarter than everyone else in order to achieve that goal. But that general statement simply isn't true. Millionaires are ordinary people who have achieved extraordinary goals, but they make mistakes like everyone else. They may misspell words; they may even have learning disabilities. They've likely been in debt and had to dig themselves out. They've had ideas and businesses fail. Most of the ones I interviewed for my book have worked their way up the ladder, learning and stumbling along the way.

Rather than having lots of book smarts, what most millionaires have is a knack for setting goals for themselves and working toward them, without letting excuses get in their way.

Myth 2: Millionaires are just luckier

Millionaires are the luckiest among us, right? They won the lottery, struck gold with their very first attempt at launching a business or haphazardly landed their dream jobs with massive salaries. Not so: Pure luck is not a factor in achieving success. Rather, truly successful people make their own luck. After all, a million-dollar idea is worth nothing without execution.

Myth 3: Millionaires live lavishly

When you think of millionaires, you may picture people living in luxurious mansions and driving expensive sports cars. The reality? Millionaires are often the people next door: They drive Hondas and Volvos. They're frugal (57 percent of the ones I interviewed described themselves as such). They often spend their money on necessities and a few things that are very important to them. Think Warren Buffett: The celebrated multi-billionaire famously still lives in the Omaha, Neb., house he bought in 1958 for $31,500.

In most cases, millionaires have gotten to where they are precisely because they've practiced excellent savings habits and live frugally. They learn to make smart choices, and they don't stop just because they hit the $1 million mark.

Myth 4: Most millionaires were born into money

Another common myth is that millionaires were born into money or inherited it. But that's not often the case. In a recent survey, Fidelity Investments found that 86 percent of millionaires are self-made. And among the more than 100 millionaires I interviewed for my book, each was self-made and only 26 percent of them said they even had connections to important people beforehand.

Myth 5: Millionaires have to be fearless

Though it may seem like the only way to become a millionaire is to forge full-steam ahead and assume a lot of risk, fears are totally normal, even for the ultra-successful. Fifty-seven percent of the millionaires I surveyed said they were scared before starting their own business: scared of failure, disappointing their spouses or their families, scared of losing everything.

Success requires some risk, but wise millionaires don't want to take uncalculated gambles. Millionaires have learned how to examine an opportunity and analyze the risk. They will even do small tests beforehand to see if an idea will work before going all in. They prefer to know as much information as they can ahead of time so they don't make a bad investment.

Most millionaires find a happy medium between optimism and pessimism; they figure out how to examine opportunities realistically. They acknowledge amazing potential, but work tirelessly to learn and predict beforehand to make sure their investments pay off.

Myth 6: They earn million-dollar paychecks

It's true that many millionaires have earned their money by starting (or selling) their own businesses or finding high-paying positions within organizations. But this certainly isn't the only way to amass $1 million. In his book "Millionaire Teacher," Andrew Hallam explains how he saved over $1 million as a teacher well before retirement age, outlining how he used low-cost index funds and a disciplined approach to saving, investing and living on a budget to build a nest egg most of his fellow teachers would envy.

In addition to investing in the stock market, like Hallam, other millionaires boost their bottom lines by adding second jobs or passive streams of income.

*** [10/25/14]

see also 5 Things Most People Don't Realize About Millionaires

Myths about millionaires abound: they're all greedy, or trust-fund babies, or like to flaunt their wealth.

Many people think "that millionaires are a lot like Kim Kardashian," says Cathy McBreen, managing director of Spectrem, which has tracked and polled the nation's richest households for years. "But they tend to be conservative with their spending," she says. "They're not out there buying mink coats and jewelry every day."

In fact, most millionaires spend more on charity than on bling. Spectrem has also found that most millionaires didn't inherit money, and that the percentage that did is actually shrinking as the number of millionaires grows.

When asked how their wealth was created, a whopping 94% of millionaires surveyed by Spectrem credited hard work. The number two factor? Education, cited by 87%. That ranked it ahead of smart investing (83%), frugality (78%) and risk-taking (60%).

Much farther down on the list: being in the right place at the right time (40%), luck (36%), inheritance (31%), and family connections (8%).

The percentage of millionaires who inherited some of their wealth has dropped to 18% as the number of millionaire households hit a record high last year of 9.63 million, McBreen says.

Wall Street should hate Warren Buffett

The best course of action is to take almost no action, in Buffett's view. Stick to what you know, which is probably nothing. Buy a basket of 500 stocks, a smattering of bonds, and forget about it for the next 100 years or so. Treat investing this way and you'll actually beat the experts in the long run, Buffett says.

"The goal of the nonprofessional should not be to pick winners -- neither he nor his 'helpers' can do that -- but should rather be to own a cross section of businesses that in aggregate are bound to do well," Buffett writes. "A low-cost S&P 500 index fund will achieve this goal."

Oh, and you should definitely stop listening to those experts, he writes:

"Because there is so much chatter about markets, the economy, interest rates, price behavior of stocks, etc., some investors believe it is important to listen to pundits -- and, worse yet, important to consider acting upon their comments," Buffett writes, adding: "In the 54 years [partner Charlie Munger and I] have worked together, we have never forgone an attractive purchase because of the macro or political environment, or the views of other people."

This is a direct shot at CNBC, Bloomberg TV and any other outlet full of talking heads claiming to tell you how to make money. It's a direct shot at the hedge funds charging huge fees for their supposed investing wizardry, even as they are consistently trounced by those dumb S&P 500 index funds. It's a direct shot at the brokers who make commissions on unnecessary and unhelpful trades and at mutual funds that rake in fees with "active management." It's a direct shot at the newsletter writers and tea-leaf readers who claim they can time the market using Hindenburg Omens or Death Crosses or zodiac signs or whatever.

Here's another shot at the business model of CNBC, and much of the financial-news industry:

"If you can enjoy Saturdays and Sundays without looking at stock prices, give it a try on weekdays," he advises.

Zing! It's true, though. It's hard to think of information much less useful to you than daily stock prices. Unless, of course, those stock prices are collapsing, in which case it's usually a great time to buy more stocks.

new home sales

New home sales rose 9.6% month-over-month (m/m) in January, to an annual rate of 468,000 units-the highest level since July 2008-from December's upwardly revised 427,000 unit pace, from the initially reported 414,000 rate. Economists surveyed by Bloomberg had expected a decline to a 400,000 rate for last month. Within the report, the median home price was up 3.4% y/y but 2.2% lower m/m at $260,100. The inventory of new homes was 23.5% higher y/y, but unchanged m/m, at 184,000 units. This represents 4.7 months of supply at the current sales rate, from 5.2 months in December and 3.9 in January 2013. New home sales are considered a timely indicator of conditions in the housing market as they are based on contract signings instead of closings. Regionally, m/m sales were higher across most regions, led by a 73.7% surge in the Northeast, but sales in the Midwest fell 17.2%. Compared to the same period a year ago, sales in the Northeast and South were higher, while sales in the Midwest and West were lower.

Schwab Closing Market View, 2/26/14  

*** [then again, comes this from Credit Suisse..]

Reported new home sales up a questionable 10% in January; inconsistent with actual market trends: The Census Bureau reported new home sales of 468,000 in January, an increase of 10% from 427,000 homes in December (revised up 3% from 414,000 homes originally reported). This is well above our expectation for 385,000 homes and consensus for 400,000 homes, and again points to both the volatility (confidence interval was +/- 18%) and the lack of credibility for this Census Bureau report. Trends in sales typically follow trends in construction, and single-family starts fell 16% in January. Especially amusing is the reported 74% increase in the Northeast, which appears odd given the weather. We would expect January sales to be revised in the coming months.

the Mt. Gox shutdown

The reason that Bitcoin plunged on Mt. Gox was similar to a bank run -- there simply weren't enough Bitcoins in circulation to allow everyone to cash out at the same time. Bank runs usually occur when a bank invests too much of its clients' money elsewhere, leaving so little cash on hand that it can't survive a mass withdrawal.

Mt. Gox's possible insolvency, on the other hand, was rumored to be caused by a hack that resulted in the loss of 744,000 Bitcoins ($409.2 million). This isn't the first time it happened, either -- Mt. Gox was possibly hacked in 2011 for 400,000 Bitcoins (now worth $220 million). Mt. Gox customers have also reported troubles since early February, when CoinDesk reported that 68% of its customers had been waiting for months to withdraw their funds.

Therefore, even though exchanges like Mt. Gox might not be making risky bets with their clients' cash, their doors can be pried open by legions of hackers on the Internet instead. In the case of a bank failure or data breach, a depositor is insured by the FDIC for $250,000. In Bitcoin accounts, no such insurance policy exists.

tips from P.T. Barnum

P.T. Barnum knew how to make money. By the middle of the 19^th century, the master showman had become America's second millionaire, and his estate was valued at over $10,000,000 prior to his death in 1891.

Fortunately for us, Barnum – who is still remembered today for his "greatest show on earth" -- shared his secrets for getting rich. In the short work "The Art of Money Getting" published in 1880, he laid out his rules for creating wealth. After reading them, I was struck by how applicable they remain today. Here are nine golden rules for making money, according to Barnum.

1. Spend less than you earn. Barnum writes that the key to wealth is quite simple: "it consists simply in spending less than we earn." Despite the simplicity of this maxim, he notes, "more cases of failure arise from mistakes on this point than almost any other." [see Andrew Tobias]

2. Take care of your health. Good health is the foundation of success in life and is also the basis of happiness, according to Barnum. Without good health, a person is very unlikely to accumulate a fortune – he'll have "no ambition; no incentive; no force." He recommends avoiding alcohol and tobacco, while also making other healthy choices when possible.

3. Persevere. To illustrate this rule, Barnum shares a line from Davy Crockett, "This thing remember: when I am dead: Be sure you are right, then go ahead."

4. Be cautious and bold. This one appears to be a paradox, but it is not, writes Barnum. He believes "you must exercise caution in laying out your plans, but be bold in carrying them out." A man who is all caution won't take on the risks necessary for success, while a man who is "all boldness, is merely reckless, and must eventually fail."

5. Use the best tools. Barnum believes that workers must always have the very best tools to do their work. As a businessman, he feels there is no tool he should be, "so particular about as living tools." When looking for employees, therefore, one "should be careful to get the best."

6. Be focused. Barnum urges the aspiring entrepreneur to focus on "one kind of business only, and stick to it faithfully until you succeed, or until your experience shows that you should abandon it."

7. Advertise your business. Barnum was a remarkable pioneer in the field of advertising. For one of his promotions, he was able to transform a five-year-old dwarf named Charles Sherwood Stratton into "General Tom Thumb, Man in Miniature." Tom Thumb eventually became a gigantic hit in Europe, and was received by Queen Victoria and numerous other crowned heads-of-state.

Barnum with General Tom Thumb

8. Be polite and kind to your customers. P.T. Barnum actually never said "there's a sucker born every minute." Instead, he had great respect for his customers. He writes, "the man who gives the greatest amount of goods of a corresponding quality for the least sum (still reserving for himself a profit) will generally succeed in the long run."

9. Preserve your integrity. Barnum concludes his work by saying to all men and women, "make money honestly." He sincerely believed that the desire for wealth is laudable as long as the "possessor of it accepts its responsibilities, and uses it as a friend to humanity."

Facebook and the S&P 500

Question: I heard that Facebook (FB) will soon be added to the S&P 500 even though the company went public just last year. What are the rules regarding when a company joins or leaves the index?

Answer: Given the S&P 500's role as one of the most widely used measures of U.S. stock market performance, one might assume that the index's composition doesn't change much from year to year, but that's not necessarily the case. In fact, this year alone [2013] the S&P 500, which tracks the stocks of many of the largest U.S. companies and weights them by market value, has already swapped out 15 constituent companies in exchange for others.

Companies added in 2013 include clothing maker Michael Kors Holdings (KORS), Delta Air Lines (DAL), News Corp (NWSA), oil-services company Transocean (RIG), and Vertex Pharmaceuticals (VRTX). Meanwhile, those leaving the index included Dell, Sprint (S), J.C. Penney (JCP), Dean Foods (DF), and NYSE Euronext. The index will change further Dec. 20 as social-media giant Facebook, marketing and loyalty-program services firm Alliance Data Systems (ADS), and flooring manufacturer Mohawk Industries (MHK) join the index, replacing Teradyne (TER), Abercrombie & Fitch (ANF), and JDS Uniphase (JDSU).

According to the S&P Dow Jones Indices website, the composition of the S&P 500 is maintained by a committee of economists and analysts whose goal is "to ensure that the S&P 500 remains a leading indicator of U.S. equities, reflecting the risk and return characteristics of the broader large-cap universe on an ongoing basis."

To be included in the index, companies must meet the following criteria:

• Must be a U.S. company
• Must have a market capitalization of at least $4.6 billion (the limit as of September but subject to change)
• At least 50% of the company must be publicly held
• Must have four consecutive quarters of positive reported earnings
• Stock must be relatively liquid, trading at least 250,000 shares per month for six months
• Company must contribute to the index's sector balance
• Must be listed on the New York Stock Exchange or Nasdaq, or be a non-mortgage REIT or business-development company

Companies may be booted from the index for violating any of the above criteria. For example, J.C. Penney, the struggling department store chain that has seen its market cap plummet from $7.5 billion to $2.6 billion in just two years, got the boot last month (at the same time it was added to the S&P MidCap 400 Index). These criteria also came into play during the late 1990s, when many tech companies saw their stock prices soar, lifting their market capitalizations to well within range of the index. Yet those companies were left out because they didn't meet the index's profitability rules.

The index committee takes into account short- and medium-term historical market-cap trends for a company and its industry before adding it to the S&P 500. The index's methodology states that following an IPO, companies must wait at least six to 12 months before being considered for the index. Members obviously believed that Facebook, with a market cap of around $130 billion, was ready despite its relatively short history as a public company; Facebook's IPO took place in May 2012. Changes to the index are made as needed and not on any set schedule, according to the methodology.