Newsletter
March 3, 2007
Want More? Then Give More
Market & Sector Review
Predicting the Markets of Tomorrow
Largest Changes In Raw Numbers (21 Days)
This Week's Economic Reports
Member Update: There are two new sections in the members area. First a Communique where I am asking for your feedback on setting priorities for new features to this site, along with a listing of my current thoughts. Secondly a section where I am sharing some trading notes I make on the markets, sectors and stocks I may have an interest. This section will eventually become a daily note session, however, for now the frequency is uncertain, mainly due to my personal schedule, meetings, and all other work involved in maintaining this site.
Want More? Then Give More
Have you ever met anyone who wanted less - Less wealth, poorer health, fewer friends, or a reduced status? Everyone wants more satisfaction, more of the good things in life, more wealth and more enjoyment. We want the feeling of knowing, "I am moving ahead. I have more this year than last year."
There are two basic approaches to getting more: Act selfishly or behave generously. The selfish individual's thought patterns are dominated exclusively by themselves, their welfare, their benefits, their pleasures. "What is in it for me?" controls their every thought and action. They think the less I give, the more I will have for myself.
Meanwhile the generous individual thinks differently. Their concern is directed primarily at helping others benefit, grow, enjoy life, and overcome obstacles. "How can I help and satisfy others?" influences everything they do. Sure they, too, want more. But the generous individual's actions center on the principle that the more they give of themselves to others, the more they will receive in return.
Just one day spent in the real world will convince you that the selfish dominate in numbers and influence. One need only look back over the last 5 years or so at some corporate headlines. Companies dominated by the selfish, with no regard to their employees, their investors, or their shareholders. I do not need to repeat their names. Those selfish individuals, as it will turn out, received surprisingly little; considering what they now face.
More of the good things in life gravitate to the generous!
Decide which group you belong to, and then to which group you wish to belong. Are you one who always says to yourself "What's in it for me?" Is that the group to which you really wish to belong?
Market & Sector Review
Predicting the Markets of Tomorrow
The January 27, 2007 Newsletter (available in the archives section) we discussed James O'Shaughnessy's "What Works on Wall Street" book and the strategy behind his cornerstone approach. In 2006 James O'Shaughnessy published another book, this one "Predicting the Markets of Tomorrow". I sincerely hope each of you continues to build a library of books concerning our passion; the stock market. This week I will touch on Mr. O'Shaughnessy's new book which will hopefully spur you to go to your local bookstore. Something for members to look forward to; we will be including screens from these two books shortly, probably by mid-month when new data becomes available.
In this book he examined data as far back as 1790 and uncovered; the markets move in approximately 20 year cycles. Not necessarily cycles in determining the direction of the Dow Jones or the Standard & Poor's 500, but more cycles in the vain of the proper investment styles to utilize. According to his research we are currently in a 20-year cycle that began in 2000. I'll explain in a minute.
When looking at long-term returns most people fail to consider the affects of inflation. While the markets in general have historically returned on an annualized basis ten percent, if you factor in inflation, the actual return declines to about seven percent per annum. One conclusion Mr. O'Shaughnessy makes is that he believes the market will always revert to this mean. That is if the market returned greater than inflation adjusted seven percent over several years, it will spend the next years regressing back toward the average.
In the last 20-year phase, large cap stocks had returns above their long term average while small and mid-cap stocks had returns that fell well below their long term average. If we apply this information about reversion to the mean it implies that in this 20-year cycle small and mid-cap stocks are due for higher than average returns while large cap stocks should produce lower than average returns.
Most long term investors, usually investing for their retirement, have a 20-year time horizon as they really begin to invest seriously when they are about 20 years from retirement. In that vain Mr. O'Shaughnessy used rolling 20 year periods in his analysis to calculate all historical average market returns. Using the principles uncovered he believes this 20 year period (2000-2020) small and mid-cap stocks will return between 7.6% and 9.6% annually while large cap stocks will lag with a 6.0% to 9.1% return, and large cap growth stocks only 2.0% to 4.0%.
Based on his research, his stock allocation recommendations are:
For the Conservative Investor:
- 25% in small and mid-cap stocks;
- 75% in large cap stocks.
For the more Aggressive investor:
- 35% in small and mid-cap stocks;
- 50% in large-cap value stocks;
- 15% in large-cap growth stocks.
While most cannot buy the stock diversification that Mr. O'Shaughnessy recommends; mutual funds and exchange traded funds might just fit the bill. If you look under our category assignment for ETF's, you'll notice a Growth & Value category, with 46 exchange traded funds that may fit this scenario. Do some due diligence, their objectives and holdings, then include those that meet your criteria, in a separate watch list.
Next week we will delve more into this fascinating book and share some older screens. Beginning around mid-March screens of this nature will be made available for member consideration.
Largest Changes In Raw Numbers (21 Days)
[ Reserved for supporting members, now posted in members area ]
This Week's Economic Reports
Have A Great Week!
Bill
Disclaimer: Trading in securities, of any type, may not be suitable for all individuals. The contents of this newsletter are not a solicitation to buy or sell securities. The opinions expressed are solely that of the author. You must do your own research, contact your own financial advisor for suitability of any investments. Data gathered is from sources believed to be reliable, but NO guarantee as to their accuracy is made.
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