The Dog Days of Late Summer

 

September 2015

 

Chances are, these days you’re sneaking a peak at the investment markets, probably more than once a day. They’ve certainly been providing their share of excitement: down 4% one day, up more than 2% the next day or two, and who knows what’s causing the turmoil?

In August, the direction was mostly down, turning what had been tentative gains for the year into (as yet) relatively modest losses. And there wasn’t a lot of value in diversification. Large cap, midcap and small cap U.S. stock indices all dropped between 5.5% and 6%, real estate fell about the same and foreign stocks dropped roughly 7% over the same time period. Commodities did worse.

Analysts are scrambling to tell us why, one day, the markets are down sharply, and then come up with a reason why, the next day, they’re back up again. One long-term trader remarked, watching these swings, that the fact that the Dow can fall 1,000 points and then recover 700 in the space of four hours is prima facie evidence that there is no rational explanation for what’s going on. We hear that the weakness in the Chinese economy, or its stock market, are causing U.S. stocks to somehow be less valuable, but does anybody really believe that?

Meanwhile, the doomsayers are predicting catastrophe—which is not well-defined, but seems to mean that U.S. companies will be 30% to 50% less valuable in a few weeks than they are today. Their solution? Buy gold! It’s helpful to remember that $10 invested in gold in 1926 would be worth $615 today.  Ten dollars invested in the stock market would be worth $55,000. 

Perhaps the most interesting analysis came from Jason Zweig, who writes an investment column for the Wall Street Journal. He said that this would never happen, but what if there were a Ben Graham TV channel, which provided market commentary based on the teachings of the father of value investing? You’d have the host coming on to announce some great news: stocks today are unexpectedly on sale, selling, on average, 4% cheaper than they did yesterday. Will this great news continue, or should we take advantage of the buying opportunity while it lasts?

The guest that day offers his hope that the markets will continue their downward rally, making stocks even cheaper to buy. But he’s not optimistic, given the fact that stocks seem to get relentlessly more expensive over time, and have been doing this, with some regularity, since the early 1800s. Still, one can hope for a sustained downturn that would provide a chance to buy at prices even lower than they are today.

The host and guest console themselves with the thought that finally, for the first time in seven years, we may finish out the year with an opportunity to buy stocks for less than they cost on January 1. 

We may not get that lucky, and the markets may continue their bull run. Nobody knows what you’re going to see the next time you check the investment tables, or what will happen between now and the end of the year—except this: the actual value of American and global companies won’t be affected by the mood swings of investors who lurch between an inclination to buy and an inclination to sell. Whatever those underlying values are, the markets will eventually return to them, however much of a bargain the market decides to offer us between now and then.

Sincerely,

 

Edward J. Kohlhepp, CFP®, ChFC, CLU, CPC, MSPA
 

Edward J. Kohlhepp, Jr., CFP®, MBA

 

 

http://www.facebook.com/pages/Kohlhepp-Investment-Advisors/143204745739600 

 

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This material was prepared by BobVeres.com., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

http://www.wilshire.com/Indexes/calculator/

http://www.russell.com/indexes/data/daily_total_returns_us.asp

http://www.standardandpoors.com/indices/sp-500/en/us/?indexId=spusa-500-usduf--p-us-l--

http://www.tradingeconomics.com/united-states/unemployment-rate

http://quicktake.morningstar.com/Index/IndexCharts.aspx?Symbol=COMP

International indices: http://www.mscibarra.com/products/indices/international_equity_indices/performance.html

 

 

Ed's Eye - The Fed Decides to Wait
How to Read the Panicky Market

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Kohlhepp Investment Advisors, Ltd.
3655 Route 202, Suite 100
Doylestown, PA 18902
Phone: 215-340-5777
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