Welcome to today's live chat! Joining us today is Kiplinger executive editor Manny Schiffres. Manny is the head Kiplinger’s investing coverage and for the next hour, he will be taking your questions about what’s been going on in the markets. Thanks for joining us, Manny.
Hi everyone. Just wanted, first, to let you know that I'm here and to thank you for tuning in (wait, that's a TV term, not right for this medium). I'm going to follow up with a couple of introductory remarks in a sec
I think many, if not most, investors are shocked by the strength of the stock market. It's up about 12% year to date and 27% since bottoming last Oct 3. We've had a lot of discussions internally about the market cause our January issue forecast that the market would return 7% to 9% for the entire year. So what do we do now? We either have to assume the market will drop over the remainder of the year or we have to revise our forecast (by the way, trying to forecast market returns or predict the Dow or some such thing is a great way of guaranteeing that you'll look foolish at some point). My inclination is to revise our forecast. I think 9 months from now the market will be higher than it is today, meaning we'll finish the year with a double-digit gain
You sound like quite the bull, Manny. We'll have to see what our readers think. Let's start with our first question.
The good 'ole saying, "Sell in May and Go Away." Manny, what do you think?
Debbie that old saw about sell in May and go away worked pretty well last year. In fact, the market peaked on April 30, fell 19% and bottomed on Oct. 13. What I've found over the years--and I've been an investing writer and editor since 1985--is that the market loves to confound investors by doing pretty much the opposite of what people expect it to do. Will the same strategy work this year? Who knows? The main causes of last year's summer swoon were EuroWoes and investor concerns about our dysfunctional govt. For now, both of those issues have receded. But now there are new worries: slowing growth in China, rising bond yields, the possibility of a fiscal time bomb here if the already ordained budget cuts and tax hikes go into effect and the ever-present threat of an Israeli attack on Iran touching off a wider war.
That's a great lead into our next question.
Well, China is the fear du jour. In fact, economist Yardeni, one of my favorite pundits, writes about that in his missive today. He acknowledges that growth there is slowing but stresses "China isn't contracting. It isnt' falling into recession." The last number that came out of China on this issue said expected real growth this year is now 7.5%, down from 8% earlier. We should all worry about such a slowing of growth. The gloom and doomers are always looking for something to hang their hats on.
I don't have the exact figures, but Apple is probably responsible for a point or two of this year's gain. But you know, one company having an outsided representation in the indexes isn't new. In Feb 78, eg, AT&T (that's Ma Bell, before it was broken up) was 7.2% of the 500. In Dec 78, IBM was 7.1%. And in Jan 09, Exxon was 5.2%. At the end of Feb 12, Apple was 4.1% of the 500. And I can turn that question around: Where would the Dow be today if Apple were in the index? A lot higher, for sure. Full disclosure, by the way: I own 100 shares of Apple
Jenn, that's nonsense. Phrases like overbought and oversold are utterances that so-called experts use to describe what happened on a particular day when someone from CNBC or the wire services comes to them for a quote that will go into a story that needs to be filed within an hour after the market's close.
The forecast, which comes out in our January issue ( we also do a mid-year forecast for the July issue) was produced by Anne Smith, one of our most experienced writers. Basically, Anne does a lot of reading and interviews a lot of experts and then draws conclusions based on what she's heard. I guess you could call it a weight-of-the-evidence approach. She also, as I said, makes a specific forecast for the market's return. In general, the way that's done is to look at the market's current yield (a pretty solid figure), then look at expected earnings growth for the coming year (they may or may not be useful, depending on what transpire; I guarantee you that there were very few analysts in late 2007 who were predicting that S&P 500 earnings would fall by more than 20% in 2008); and then you try to make a judgment on what investors will be willing to pay for a dollar of earnings over the course of the year--in other words, what will the market's price-earnings ratio be. That is totally speculative, inasmuch as it depends on figuring out the mood of investors over the course of the year.
To follow up the last note, my gut feeling is that the analysis is more useful than the specific market forecast, but everyone does it so we do it, too
Very interesting. Nice to give our readers some insight into what we do here behind the scenes.
Jeremy, this week's Value Added column by Steve Goldberg (and edited by Manny) points to small-cap stocks as a class to beware. I'm sure Manny will have other guidance in a moment...
Jeremy, that's a good question. We posted a piece on kip.com a few weeks ago on 6 stocks to sell. These were mostly troubled companies whose stocks had already fallen a lot and one company, Salesforce.com, that we concluded is ridiculously overpriced. While the overall market is by no means overvalued, there are individual stocks where valuation looks excessive. Salesforce is one. We've written negatively about Amazon.com, too. As for sectors, what you're seeing this year is a worst-shall-be-first type of market. Stuff that did the worst last year--eg, financials, housing, consumer discretionary (stuff you don't really need to buy every day)--is doing the best this year, while the things that did best last year (healthcare, utilities and consumer staples) are lagging. If investors continue to gain confidence in the health of the economy, this trend is likely to continue. By the way, speaking of consumer staples, I'm calling this the Heinz market--it's playing ketch-up. Get it? Groan
The big question about T bonds is whether the hiccup in rates that started last week--meaning rates rose fairly sharply and prices fell--is the start of a signficant reversal in a trend that started around 1980, when long-term T bonds yielded better than 15%. Intellectually, I know that yields are too low. At 2.3%, the 10-year T bond is yielding less than inflation. Plus, with all the money the Fed has injected into the economy, I can't help but think that inflation will heat up and that long term yields will rise further in the bond market and the Fed will eventually have to raise short-term rates. I would never buy a long-term bond today and, in fact, full disclosure again, I own TBT, an inverse leveraged bond fund (it makes money when yields rise). But TBT and its ilk are really not for the average investor. You have to watch it like a hawk. And, in truth, I did lose money on it as bond yields dropped during 2011. I sold, then bought them back a few weeks ago.
Speaking of your portfolio Manny, can you give us a sense of how often you tweak your portfolio? An annual rebalancing? Do you review your portfolio and add/remove investments at regular intervals? Or do you buy and sell individual investments as they strike you as good ideas to do so?
Actually, I'm too busy to do any such thing :-) Seriously, I don't do major rebalancing because, despite advancing years, most of my portfolio is in risky assets--stocks, junk bonds and emerging-markets bonds. It's more a seat-of-the-pants reaction to events. I do have one portfolio philosophy I'd like to share. While I'm happy to look at my investments when the markets go up, I rarely look at them when the markets tank. That way I avoid making rash decisions that could result in me selling at a bottom
Investing is a long-term commitment, right?
Improving economy, analysts are boosting their revenue estimates, decent earnings growth (analysts expect about 8% for the S&P 500 in 12) and a fairly priced market--S&P sells at 13 times estimated 12 earnings. I also think there's way too much bearishness, which is bullish. But as I said earlier, there are risks or potential risks that could upend these rosy forecasts.
Oh, I wasn't kidding about this being a catch-up market. Earnings were just fine in 2011--up about 12%--and the market returned all of 2%. To some degree, this year is making up for last yaer.
This is a question that has come up in a few of our other chats: should investors factor the presidential election into their thinking this year? What effect will the campaign have on the markets?
I'm going to post a quote from Jim Stack in a minute. He's a well-known market prognosticator who currently is recommending 86% in stocks. Hang on.
From Stack: "since the bull market began in 29, it has experienced more 5% corrections in the first threeyears than any bull market in the past 80 years. Every one of those eight corrections was an opportunity to get whipsawed out or panic. One of the toughest tactics in a volatile bull market like this is to sit on your hands and do nothing." Something to keep in mind for those who want to time the market. The key is to get the big picture right.
Chris, there's so much bearishness because 1. investors have been burned numerous times in recent years--00-02 bear market, 07-09 bear mkt, 2010 flash crash and recent 19% drop, to name 4 of the most prominent events. Plus, with the 24 hour news cycle, people are inundated with news, much of it bad (eg, slowing growth or a coup in China) and people have trouble separating the good from the bad or knowing how much weight to give to one piece of info vs another.
Alright, we have time for one more question.
Re the presidential election, that's a tough one. Investors used to think gridlock was good. I don't know if they think that way any more. I think they woudl cheer one party taking full control.
investors would actuaThe one thing I can tell you is that the market's performance in the two months leading up to Election Day
Too quick. The other thought was that the market has an uncanny ability to call the presidential election. If the market is up in the 2 months before Election day, Obama will almost certainly be re-elected. If it's down, expect a Republican win
Gold is such a crapshoot. I own a small amount of IAU, one of the gold ETFs. It's insurance against calamity, I guess, though some would argue that if you really want that kind of insurance you should hold the actual metal, not a financial instrument. One thing I will say is that rising interest rates would be very bearish for gold.
My fingers need a rest :-)
We'll let you have it, Manny :). We're out of time for today's chat. Thanks so much for joining us, and a big thanks to Manny for sharing his expertise today! Lots of good insight here. Manny, want to leave us with any last words?
The Kiplinger philosophy has always been that it's almost impossible to time the markets well enough and consistently enough to make such an effort worthwhile. After the 07--09 bear market, a lot of people started to say that buy-and-hold is dead and that you need to start timing the market. To that I say, beware the conventional wisdom
Thanks again, and be sure to join us again next Thursday for a chat about credit and debt with Editor In Chief Janet Bodnar and credit experts Lisa Gerstner and Joan Goldwasser. Hope to see you then!