Ross Rant – 12/31/2019.

Keep in mind that when you compare dividend yields on your portfolio to bond yields, you need to look at the yield on your cost, not just the yield on the current price. Since the stock market has gone up so much so fast, we tend to forget that we are making a big return on cost on most stocks, and that the dividend is rising now as earnings rise, but not as fast as the stock price has been rising, so it appears that the yield is not so high. Stock prices can rise every hour, but dividends are raised generally only once a year. For example, the current yield on my HD shares is around 2.5% but the yield on cost is19.5%. If you buy a bond, you pay based on current yield to maturity, but going forward the bond price is likely to decline as the economy continues to grow, so on bonds you really have to look at your yield currently and to maturity, which, after fees, is likely lower. Whereas, if you buy a good stock that yields 2% current, and hold it, you get increasing dividends, and so higher yield on cost, plus higher all-in return to maturity when you sell the stock assuming the market continues to rise over the holding period. Profits in bonds are not likely in 2020, and if any, they will be much lower than in 2019 as there are likely no more Fed cuts coming in the next year.

Following my all US large cap equities strategy in 2019, my all in return is 35%. That is mostly being passive all year. While I did trade out of a few stocks, mainly I played tennis and slept well. And I paid no commissions or fees to anyone. I had tried to work with a wealth manager, but I found no advantage, and mostly sizable fees. Wealth managers don’t like to work with me because I require that I make the final investment decisions and not them. Many require that they have full discretion. I never agree to that. For many people, having an asset manager makes sense, as not many have enough knowledge of the market to select stocks or bonds, or whatever, on their own, and some wealth managers are very good. You need to be comfortable with how you go. Some people simply have so much capital to deploy that they need a wealth manager to help with the investments and with monitoring them. Often they are too busy in their profession to have the time to do it all themselves. However, for me, I found I have time, and the knowledge, so it has worked well to do it all myself. And now there are no commissions, and almost anything you need to research is online, in depth, and free. It is very different than it was even a few years ago. Just do not invest in annuities or similar instruments where the fees are very high, the returns low, and tax issues problematic, illiquid, and not easily manageable. Over time, large cap equities will provide a much better, and just as safe return for no cost and no tax complications.

To me, targeted return portfolios, and 60-40 asset diversity are just silly marketing concepts that do not prove out over the long run compared to all equities. Just saying you need to be 40% or 50% in bonds tells you nothing. Which bonds. There are all sorts of bonds with all sorts of different risks, ratings, and terms. Although the data fully support my view, asset managers and brokers think it is much too high risk, and have been trained to balance with bonds and utilities, regardless of the data. The thing to keep in mind is that you can sell your stocks in minutes if you feel you need to get out, which is what I did in May 2007, and you can buy back in within minutes as I did in March of 2009. So whatever you do in stocks is really momentary if you think things are going bad, or good. Mistakes can be corrected with the click of the mouse. When asset managers say you need to have a greater allocation to bonds as you get older, that assumes if you own equities you would just sit with them in a downturn market, which is ridiculous. You can get out in an instant whenever you wish. In a real downturn you can buy a bond fund anytime, or just sit with cash. Keep in mind that in a serious downturn, interest rates decline as the Fed tries to pump up the economy. You are not locked into any equity position unless you are in certain securities like annuities or private equity funds. Even in the crash, if you had held on to equities, by now you would have been far ahead-triple the low point. They forget to tell you that in the crash many bonds defaulted and lost principal. Many others sold at a discount.

The best measure of the general equity market is the S&P 500. Over the past 30 years that average annual equity return is around 9%-10% with a dividend yield of 2.16%. This includes the crash in 2008. Your returns depend on when you get in, did you dollar cost average, and other factors, but this is as good a data measure we can get. If you invested in 2009, your average annual return will be around 13.2%, which is about what I have averaged. The Barclays US Aggregate Bond Index consisting of approximately 43% of all US corporate bonds outstanding, had an average return of 4.6% The St Louis Fed calculated returns from 1928-2013. Stocks averaged 11.5%, and Treasuries 5.21%The S&P 500 did not exist in 1928, and since 2016 equities have set new records for returns, so if measured now the return would be somewhat higher for equities. Point being, over all the ups and downs, stocks far outperform bonds, so if you are a long term investor, the choice is simple. All of these data are averages and your performance can vary. These numbers are just for general illustration. Quality equities earned on average almost 3 times as much as bonds over the long term, even including the 2008 crash period in the averages, and other ups and downs. There is a lot of room to screw up in an equity portfolio and still come out better than in bonds. The opportunity cost of owning bonds is not worth the feel good risk reduction of a bond portfolio. This strategy of mine is heresy to asset managers, but nobody has shown me historic averages to prove me wrong over the long run. Year to year I could prove very wrong if you buy high. A lot depends on your age, how much you invested, do you need it to live on, and are you investing to leave it to the kids, or to spend all of it. You have to decide your own needs, tolerance for risk and timing. If you are leaving a lot to the next generations, then there is no question all big cap US equites is by far the best strategy to create long term wealth. What works for me may prove wrong for you. I accept that some of you will think I am wrong, which is fine, but I do what works for me.

Try buying or selling bonds and not getting nipped by the traders both on the way in and out. You rarely get the best price on bonds bought directly. With some bonds there is prepayment risk. Depends on the covenants and call provisions. With even government agency bonds, you have high prepayment risk, which is highly likely to occur in a low rate market, meaning that what you thought was a high coupon bond is suddenly repaid. There is also the risk that the Fed will start to sell bonds again pushing prices lower. So even a government guaranteed bond has risk. Right now they are buyers, but that could end inn 2020. You also need to know that bond ratings are to some extent phony. When I was in Wall St, and continuing today, issuers and underwriters shop the ratings, and the rating agencies compete to get the fees. How—they give better ratings than the next firm to win the business. That means, the share of bonds rated AAA, or AA or other investment grade levels is played with. It is all a game to minimize the subordination levels and to maximize the higher rated levels which are more profitable for the underwriters, and lower rates for the issuers. So a BBB may be a CCC in reality, but you won’t know that until the economy tanks and you get badly burned. If you are naïve and think bonds are safe by definition, you need to get educated about bonds. Many high quality equities are safer than some bond classes.

If you do invest in a bond fund, not all funds are the same. An index bond fund will usually underperform an actively managed bond fund. That is partly because Treasury has issued so much new debt that the indexes are now over weighted to US Treasuries, 39% vs 27% in 2007, and so the yields are much lower than an active managed fund. There has also been a major move to longer maturities by both corporates and government issues. Longer duration (now 6 years vs 4 several years ago) means more volatility over time. You have more safety of principal, but at a big cost in terms of yield. Vs equities you get killed.

If you want to invest in a basket of equities of the top tech companies to avoid the risk of a single tech stock, but with some other quality stocks in the portfolio, there is QQQ, which has 11.5% Microsoft, 11.4% Apple, and a total of 57% top tech names. It rose 38.5% this year. It is by far my largest holding.

I have periodically mentioned the rise of anti-Semitic attacks, especially on campus. The attacks in NYC are no surprise. DeBozo and Cuomo did nothing until now. On campus they have done little to nothing. Omar and Talib have been allowed to get away with anti-Semitic remarks. On campus this happens often. All of the attacks in NYC have been committed by blacks, but you never hear that from any of the media, and not from DeBozo. Can you imagine of it was reversed. DeBozo would be all over it as a racist trend by white supremacists. The press would be going nuts talking about white nationalists. But not a single word by the mainstream press about all of the perpetrators being black. Now it is a major outbreak in NYC. DeBozo makes press comments to look good along with Cuomo, but NYC now has a no bail law letting everyone other than the worst felons walk free. Some of the attackers in these cases have walked in less than a day. It has gotten so bad that the cops don’t even bother with minor crimes which are back on the rise in NYC as a result of the new law. This week a guy attacked a cop and committed felony assault, but was released immediately as there is no bail. So now it can be open season on cops-thanks DeBozo. Today you can shoplift, or snatch a purse and nothing happens. It is unclear what has triggered the sudden anti-Semitic crimes, but the anti-police attitude, and the failure to be tough on crime is creating an atmosphere among criminals that you can get away with almost anything. Politicians and the press claiming everything and everyone is racist, and it is all Trump’s fault, is not helpful. It is always the Jews who bear the brunt of the hate emanating from such rhetoric.. It is the same policies that have created the problems we see on campus with radicals free to do almost anything, so long as it is not against a non-white minority student. How come we hear nothing from Schumer or the bartender from the Bronx on the anti-Semitic outbreak, but Lee Zeldin from Long Island is all over it.

Trump is impeached for his actions in Ukraine, and he is accused of “endangering national security” by delaying the arms. He provided Javelin anti-tank missiles and hundreds of millions of dollars of lethal weapons. Now, as a result, Russia and Ukraine exchanged prisoners, and the war has reached a sort of cease fire with Ukraine able to fight back. At least now Putin is willing to have negotiations. Obama/Biden provided blankets. The war intensified, thousands were killed, and the situation became dangerous for Europe and for the US national security. Biden claims he did nothing wrong and is running to be president. Trump is impeached. The press condemns Trump for withholding aid for 55 days, and it supports Biden for his quid pro quo in Ukraine while VP. They never criticize Obama for providing no aid and 13,000 dead. Is there something I missed here? Now it starts again with a new article in the NYT which proves nothing new

Now the mainstream press is starting to talk about how the bartender from the Bronx is preparing to run for president when she turns of age (grows up), by being a surrogate for Bernie. That is nuts. She will run, but she is even dumber than Palin. If you hear some of what she says it is plain ignorant and devoid of reality. She supposedly has an economics degree, but you would never know she ever took an econ course listening to what she espouses. She is a product of the press and social media, and keep in mind she was recruited to apply and interviewed for the job of Congressman by a radical left group aiming to slowly get control of Congress. This is a classic case of the press pushing a narrative. She likely will be around for years, but president, never happen. She is too stupid and too radical. Warren and Bernie may be radical nut jobs, but they are both intelligent. Pelosi never should have caved to the radicals. The Dems are going to pay a heavy price for this.

Have a very happy and healthy new year. It is going to be most interesting to see all that happens, and where the year ends. I am very optimistic, but my mother always said I am a Pollyanna. The stock market is better than ever, the economy is in a good place, we are not involved in any massive wars, trade deals are getting done, immigration is getting much more under control, and the US military is being rebuilt to provide us real protection after it was decimated by Obama/Biden. Medical science is making huge progress on many major diseases, and for those of us who eat sort of right, and exercise, our life expectancy is increasing, and quality of life is much improved. Today we have a better chance of a long, healthy and financially sound life than anyone ever had. Nobody has a life devoid of problems, but if you keep a positive attitude, and abide by the belief that over time all will get resolved, you will be fine. Take advantage of this opportunity. It does not come along twice.

kommonsentsjane