Perspective from 1933

February 2009 closes with a monthly decline in the S&P500 of 11%. It fell from 825 to 735. Headlines are “The Worst February Market Drop Since 1933!” (The S&P500 fell 18.1% in February 1933.) Wow. I guess such sensationalism sells newspapers and TV advertising, but for investors:

Does this mean ANYTHING? Let’s put it in perspective… (You will probably not read these facts in the newspaper or hear it on TV.)

In March 1933, the S&P500 rose 3.87%. In April 1933, it rose 42.87%. In May 1933 it rose 16.46%. And in June 1933, it rose 13.50%. From the end of February 1933 to the end of June 1933, the S&P500 rose 196%. That’s almost double! If history repeated with the same percentage increase, the S&P500 would rise from 735 to 1440!

Another interesting tidbit: The Dow Jones Industrial Average rose from 53.84 to 62.10 or UP 15.34% on March 15, 1933. This continues to be largest one day rise in history—in the midst of the worst depression in history. (The Dow is up 131 times to 7062 as of 2/27/09.)

Nobody, including me, is predicting such a rise, but the facts do tend to put things in perspective. During periods of high volatility, and even in the middle of very tough economic times, markets can go up a lot.

When comparing now to 1933, let’s look back to some highlights:

Nazi leader Adolf Hitler was appointed Chancellor of Germany in January. (Not exactly a bullish sign.) An attempted assignation of President-elect Franklin Roosevelt occurred in February—He was inaugurated in March and gave his “The only thing we have to fear is fear itself” speech. Also in March, President Roosevelt declared a “bank holiday” closing all US banks for one week. 4000 banks failed in 1933, on top of 5700 banks that failed the previous four years. 14 million Americans were unemployed—25% of the workforce. The legislative climate moved from conservative to liberal with lots of government spending and programs. Here is a quote from the newly elected President Roosevelt:

“Throughout the nation, men and women, forgotten in the political philosophy of the Government, look to us here for guidance and for more equitable opportunity to share in the distribution of national wealth… I pledge myself to a new deal for the American people. This is more than a political campaign. It is a call to arms.”

1933 was definitely a scary time. Nobody was then predicting an immediate end of decline. While the news today sounds a little bit similar, few would argue that the situation is as dire now. But, even in the middle of those terrible times in 1933, the stock market almost doubled in value during March thru June. When comparing the present to the past, it is important to put things in perspective.

Nobody can predict what the market will do in March, April, May or June 2009. J.P. Morgan stated the only true prediction, when asked to predict the stock market: “It will fluctuate”.

This commentary and information is provided for the benefit of clients and should not be considered a sales presentation.


See http://www.waynestrout.com/ for more complete info: Investment advisory services are offered by WS Wealth Managers, Inc., an investment adviser registered with the SEC. Wayne Strout is an Investment Adviser Representative with WS Wealth Managers Inc. in addition to serving as President/CEO and Chief Compliance Officer of the firm. Scott Sebring is an Investment Adviser Representative and Vice President. WS Wealth Managers Inc. is not affiliated with Glen Eagle Advisors LLC or Pershing LLC. Wayne Strout and Scott Sebring, dba WS Wealth Managers. Securities offered thru Glen Eagle Advisors LLC, Member of FINRA And SIPC, with clearing thru Pershing LLC, Division of Bank of New York Mellon Corporation, also Member of FINRA and SIPC.

Three Important Hidden Risks to Consider

So far in February we have a 6.7% decline in the S&P500. We are near the November 2008 low and down nearly 50% from the peak in October 2007. Our new President’s stimulus package, along with mortgage assistance to hopefully stabilize the housing market, and a credible promise to stabilize the banking system has not produced any improvement in market psychology--YET. Mr. Market (see last Weblog) is horribly depressed as he hears the two factions in Washington debating the merits of the process—the un-fairness of it all---and the long term consequences. Many that hoped for a big rally when the stimulus program was passed are now disappointed and disheartened. When will this downward momentum stop? (Remember, Mr. Market does not have any idea of what your investments are really worth!)

You have already experienced the reality that the value of your investments will decline and that you will suffer unrealized losses. A Down-a-lot market surprise has happened. This occurrence is real and recent. There is a danger that you may make the error of Recency Bias, defined as the tendency to be excessively affected by the pattern of recent data. This is the first of what I like to call the “hidden risks of investing”.

The second risk is inflation. It has been a long time since we have experienced double digit inflation, but with huge government deficits and a lot of monetary stimulus, the risk is real. Cash and bonds perform poorly in an inflationary environment.

Another important risk to understand is defined as Benchmark Risk. Of all risks, this is probably the least understood by most investors. There are many fancy technical definitions and measurements used by professional money managers and academics, but the basic principle is reasonably easy to understand. The first step in constructing an investment portfolio is the selection of the correct Asset Allocation and the corresponding Benchmark for you. This can be a complicated process, but for the sake of discussion, let’s assume that one possible Benchmark is the well known general domestic all-equity market index known as the S&P500.

A Benchmark is the standard to which we compare results. Benchmark Risk is created when we deviate from the basic make up and character of that standard. For example, if our Benchmark is the all-equity S&P500 and we decide that our portfolio will move to all bonds and cash. In this case, we have created a risk that the performance of our portfolio may not be comparable to the Benchmark--and that we will not reach the intended long term goal. Here’s a quote from Ken Fisher in his excellent book that I recommend: The Only Three Questions That Count (John Wiley & Sons, Inc.- 2007) “The only time I am ever comfortable beating the benchmark by a lot—taking on massive amounts of benchmark risk---is when I believe down-a-lot is by far the likeliest scenario.”

Nobody can predict market movements with precision. Most people can assign probabilities to four possible outcomes: Up-a-lot, Up-a-little, Down-a-little, or Down-a-lot. The probabilities may not be right, but they are what the investor believes. I agree with Fisher: Jumping out of and into the market and exposing your “investment” portfolio to massive Benchmark Risk by holding large amounts of cash in excess of your known 3-5 year cash needs, is essentially only wise if you are convinced that there is a very high probability of a “Down-a-lot” scenario.

After a real Down-a-lot happening, many choose to believe that “we should have seen it coming”. The word “should” and “could” are much different. Very few, if any professional investment managers would stipulate that anyone could have predicted the last six months of market decline with any degree of confidence. (Some things are un-knowable.) And, taking on big Benchmark Risk can be very costly. In other words, being “safe” in reality may be very risky. Managing risks is what life and successful long term investing is all about. Avoiding risks is a sure path toward lower than average returns.

You should be investing because you need long term returns that appreciably exceed inflation—increasing purchasing power. If you have enough without subjecting yourself to investment risks, then by all means buy more CD’s, short term Treasuries, and hold cash. Then, hope that high rates of inflation are only temporary.

History teaches that a future Down-a-lot scenario is less likely after a 50% market decline. So taking huge Benchmark Risk now is even more risky than usual. The reward is probably not worth the risk. The risk of Recency Bias is very high. What I call “going to cash” at the wrong time can make it difficult or even impossible for you to reach your long term goals or even to recover from the most recent downturn.

While taking on big Benchmark Risk is usually not wise, taking on some smaller risk in the form of tactical increases in sector allocations may be wise. The reward may be worth the risk. (This is part of the value received by active investment management.) Buy, Hold and Hope as an investment strategy may no longer be optimal. We are advising that most portfolios could benefit by overweighting in Energy and Health Care. Some form of hedging against the risk of rising long term interest rates and inflation may also be appropriate. (Call us for more explanation and how these strategies might apply to you.)

In addition, a re-evaluation of the correct Asset Allocation and Benchmark for you is also very appropriate. Circumstances change and your investment portfolio should be set up appropriately for you.

Where is the market going? History teaches us that it is going up. What we don’t know is when. We are telling our clients that there are two scenarios that are highly probable (but not certain). The first is “Investment Purgatory” for a couple years; the second is “Investment Heaven with Inflation” sooner than expected. We advise looking for long term investments that will do better than average in both scenarios. (Call us for more explanation.)

Nobody knows when this market turns. By the time that it looks certain that the market is going up, it will most probably have already risen by a great amount. Missing out will be more permanent than any temporary downturn. This is the real cost of Benchmark Risk.


This commentary and information is provided for the benefit of clients and should not be considered a sales presentation.


See http://www.waynestrout.com/ for more complete info: Investment advisory services are offered by WS Wealth Managers, Inc., an investment adviser registered with the SEC. Wayne Strout is an Investment Adviser Representative with WS Wealth Managers Inc. in addition to serving as President/CEO and Chief Compliance Officer of the firm. Scott Sebring is an Investment Adviser Representative and Vice President. WS Wealth Managers Inc. is not affiliated with Glen Eagle Advisors LLC or Pershing LLC. Wayne Strout and Scott Sebring, dba WS Wealth Managers. Securities offered thru Glen Eagle Advisors LLC, Member of FINRA And SIPC, with clearing thru Pershing LLC, Division of Bank of New York Mellon Corporation, also Member of FINRA and SIPC.

“Early is on time, on time is late, and late is unacceptable”

January ends with a 8.6% decline in the S&P500. Our new President has been inaugurated and his new executive team is mostly in place. So what happened to the “Hope Rally” that many expected?? Reports about the economy continue to feed fears of a continuing downturn. In order to “sell” a government stimulus plan, along with continued support for financial firms, there is no shortage of politicians warning that “things could get a lot worse!” (Not good rhetoric for markets.)

As mentioned in my previous weblog: “Bear markets do not end until investor psychology changes in regards to the future. They do end when investors believe that all aspects of the economic future are “priced in” and that even though bad economic news may continue—it is expected. And, most importantly, bear markets end when there is HOPE and expectation that the future will be better in the foreseeable future. Always remember that the price of a stock is the market’s guess as to the value of the stock’s FUTURE earnings—not just for the next year or two but many years into the future.”

I think it time for more uncommon wisdom from Warren Buffet:

“Ben Graham, my friend and teacher, long ago described the mental attitude toward market fluctuations that I believe to be most conducive to investment success. He said that you should imagine market quotations as coming from a remarkably accommodating fellow named Mr. Market who is your partner in a private business.

Without fail, Mr. Market appears daily and names a price at which he will either buy your interest or sell you his. Even though the business that the two of you own may have economic characteristics that are stable, Mr. Market's quotations will be anything but. For, sad to say, the poor fellow has incurable emotional problems. At times he feels euphoric and can see only the favorable factors affecting the business. When in that mood, he names a very high buy-sell price because he fears that you will snap up his interest and rob him of imminent gains. At other times he is depressed and can see nothing but trouble ahead for both the business and the world. On these occasions he will name a very low price, since he is terrified that you will unload your interest on him.

Mr. Market has another endearing characteristic: He doesn't mind being ignored. If his quotation is uninteresting to you today, he will be back with a new one tomorrow. Transactions are strictly at your option. Under these conditions, the more manic-depressive his behavior, the better for you. But, like Cinderella at the ball, you must heed one warning or everything will turn into pumpkins and mice: Mr. Market is there to serve you, not to guide you. It is his pocketbook, not his wisdom, that you will find useful. If he shows up some day in a particularly foolish mood, you are free to either ignore him or to take advantage of him, but it will be disastrous if you fall under his influence. Indeed, if you aren't certain that you understand and can value your business far better than Mr. Market, you don't belong in the game.”

At this time of the year, the press will drag out the old “What happens in January determines the stock market for the whole year”. This old saw is reportedly around 80% accurate. But, there is another “indicator” that is almost accurate 80% of the time: If the Super Bowl winner is a team that can be traced back to the original NFL, the market goes up that year! (Since both teams in the 2009 Superbowl can be traced to the old NFL, the market is predicted to rise!) The market has “tested” the November 20th bottom of 752 for the S&P500 more than once. There are those that will claim that this has “confirmed” the bottom and the market is likely to rise.

These forms of what I like to call “pattern searching” can lead to very poor judgments about investing. While we can learn from history, trying to predict the future by using over-simplifications of the past is unwise.

Remember several important points:

Markets often rise, even when the present economic news is not very positive. Markets tend to ANTICIPATE the future. Markets are moved by surprises—not what is expected. Prices of stocks are the market’s guess as to the value of the stock’s FUTURE earnings—not just for the next year or two but many years into the future. And, as Warren Buffet reminds us: “Mr. Market is there to serve you, not to guide you.”

Mr. Market is now so depressed, he has cut the price of equities nearly in half. In fact, he has set prices so low, that the annualized ten year return for large cap stocks from 1998 thru 2008 (-1.5%) is worse than anytime in history since 1810. The previous record was during the Great Depression 1928 thru 1938 with -1.3%. We have just experienced the worst 10 year “bear market” in history.

In order to be a successful investor, you must stay in the game. Yes, you will experience downs (known as unrealized losses) but in order to get the average return, you must be invested so that you get the full benefit of the upside. And, if you are fortunate to hold cash when the market is down, you can exceed the average by buying low.

It has been said that “the early bird gets the worm”. On the other hand, it has been said, “the second mouse gets the cheese”. (I’d rather be an eagle than a mouse---and smart investors are supposed to be more careful than your average mouse.)

Where is the market going? History teaches us that it is going up. What we don’t know is when. We are telling our clients that there are two scenarios that are highly probable (but not certain). The first is “Investment Purgatory” for a couple years; the second is “Investment Heaven with Inflation” sooner than expected. (Call us for more explanation.) We advise looking for long term investments that will do better than average in both scenarios.

Nobody knows when this market turns. By the time that it looks certain that the market is going up, it will most probably have already risen by a great amount. Missing out will be more permanent than any temporary downturn…so:

“Early is on time, on time is late, and late is unacceptable”

This commentary and information is provided for the benefit of clients and should not be considered a sales presentation.

See http://www.waynestrout.com/ for more complete info: Investment advisory services are offered by WS Wealth Managers, Inc., an investment adviser registered with the SEC. Wayne Strout is an Investment Adviser Representative with WS Wealth Managers Inc. in addition to serving as President/CEO and Chief Compliance Officer of the firm. Scott Sebring is an Investment Adviser Representative and Vice President. WS Wealth Managers Inc. is not affiliated with Glen Eagle Advisors LLC or Pershing LLC. Wayne Strout and Scott Sebring, dba WS Wealth Managers. Securities offered thru Glen Eagle Advisors LLC, Member of FINRA And SIPC, with clearing thru Pershing LLC, Division of Bank of New York Mellon Corporation, also Member of FINRA and SIPC.

Is it over yet?

In last month’s commentary I wrote: “Nobody knows where the bottom is exactly, but this decline (in early to mid October) is now exhibiting the normal historical pattern of maximum fear. It is probably near the ultimate CAPITULATION point.” I warned however that the amount and duration of large hedge fund liquidations could change the normal pattern.

History teaches us that bear market bottoms are typically “retested” at some point. Usually this is 30-40 trading days after the first potential bottom. This 30-40 trading day period is not yet complete, but will be soon. I believe there are two major factors that may also affect the “normal” bear market behavior. The first is the change of government administration. The second is the almost unprecedented bad economic news coupled with unprecedented pessimism in near term future economic outlooks.

Bear markets do not end until investor psychology changes in regards to the future. They do end when investors believe that all aspects of the economic future are “priced in” and that even though bad economic news may continue—it is expected. And, most importantly, bear markets end when there is HOPE and expectation that the future will be better in the foreseeable future. Always remember that the price of a stock is the market’s guess as to the value of the stock’s FUTURE earnings—not just for the next year or two but many years into the future.

A study of historical stock market (S&P500) returns in the 1930’s disclose some very interesting facts. After a terrible three year decline from October, 1929 to the 1932 election, with a “transformational” Democrat replacing an unpopular Republican, the market declined 5% in November immediately after the election. But, from October 1932 through October 1933 it rose almost 34%. In the four years from October 1932 to October 1936, the market rose nearly 270%. Yes, it went UP 2.7 times over four years! This was in the midst of the Great Depression! (In that 1933 period when the market rose 34%, unemployment reached 25%. Although the U.S. economy began to recover in the second quarter of 1933, the recovery largely stalled for most of 1934 and 1935.) The point is that markets often rise, even when the present economic news is not very positive. Markets tend to ANTICIPATE the future.

In the short run markets are mostly affected by psychology. Maximum fear is almost always the bottom. Can fear get worse? It depends on whether economic news is worse or better than previously feared. (We have probably already seen the market's reaction to fears regarding possible tax policy changes by the new administration.) When fear is replaced with hope, markets change direction. Sooner than later investors determine that no matter how bad things may become in the near future—things will get better and good times will return!

No, it is not yet over. We will most likely see continued volatility. But, for your long term investments, it is probably not a good time to exit. And it may be an excellent time to add to positions in high quality equities and mutual funds.

This commentary and information is provided for the benefit of clients and should not be considered a sales presentation.

See http://www.waynestrout.com/ for more complete info: Investment advisory services are offered by WS Wealth Managers, Inc., an investment adviser registered with the SEC. Wayne Strout is an Investment Adviser Representative with WS Wealth Managers Inc. in addition to serving as President/CEO and Chief Compliance Officer of the firm. Scott Sebring is an Investment Adviser Representative and Vice President. WS Wealth Managers Inc. is not affiliated with Glen Eagle Advisors LLC or Pershing LLC. Wayne Strout and Scott Sebring, dba WS Wealth Managers. Securities offered thru Glen Eagle Advisors LLC, Member of FINRA And SIPC, with clearing thru Pershing LLC, Division of Bank of New York Mellon Corporation, also Member of FINRA and SIPC.

Shouldn’t we be doing something?

Human nature is almost always wrong when it comes to investing. Many times, the most value a Financial Advisor can provide to a client is to help them GO AGAINST their human nature.

Our nature tells us to avoid injury by taking action in response to pain. In investing that means we want to sell that investment that has caused us pain and worry by going down in value. Investing is all about selling after prices go up and buying after prices go down.

The S&P just closed at 996. That is down nearly 22% in the last thirty days. It is down 36% from 1565 since one year ago. It is usually unwise to sell after a 36% decline!

“But I just don’t want to lose ALL my money”. A well diversified portfolio of quality investments usually does better than the market. So let’s look at some really bad markets: 2000-2002= 40% down to 833; 1972-1974=43% down to 65.

The worst market in my lifetime was 1972-74 and we are now UP 15 times from that point! ($100,000 in 1974 invested in the S&P500 might have grown to $1,500,000!!) The "price paid" to earn $1,400,000 in 30 years was to "suffer" two storms with declines of more than 30%. (This ignores dividends. With dividends reinvested, some mutual funds like American Funds Income Fund of America grew much more over the 30 year period: $100,000 growing to over $4 million-see July Blog)

Nobody knows where the bottom is exactly, however, this decline is now exhibiting most of the signals consistent with the normal historical pattern of maximum fear. It is probably near the ultimate CAPITULATION point. After capitulation comes APATHY for awhile, until some event causes a change in sentiment and GREED starts replacing FEAR.

If there were no hedge funds, it is possible that CAPITULATION occurred on October 7, but hedge funds cause irregular and unpredictable behavior. The rich and foolish folks in hedge funds have suffered huge declines from GAMBLING and want out… and the volume is big—it may take awhile for the market to accommodate their exit. Market action on October 8 seems to confirm this.

My best advice is to think of what you are experiencing as a sea voyage. We are in the middle of the ocean and a big storm has come up-with big waves. We are not going to turn the ship around nor are we going to abandon ship in the middle of the storm—we wait till the storm is over, make the necessary course corrections and continue toward our destination of financial freedom.

If you are a client of this firm, your investments were designed to survive storms like this. Your captain and crew have “many years at sea” and unlike the Titanic, you have not been sailing at maximum speed at night. The storm will end and the sun will shine again—be patient, stay the course and look for opportunities.

Please review the August Blog that discusses the Panic of 1907:

Mutual Funds-Corporate Farming

If investing should be like farming, what if we really don’t want to be farmers? What if we want to own the land but let somebody else do the farming and produce rising income for us?

Delegation to professionals with more experience, judgment and tools of the trade is almost always a wise decision. This of course assumes that the professionals charge a fair price, where the value they provide exceeds the cost of their services—and they are competent.

Owning and working a 1000 acre farm can be a good source of income. Owning and renting out a 1000 acre farm can provide a modest income. What if we want more income than we can get from renting, but we don’t want to work the farm ourselves? And, what if we want to diversify our holdings so all of our “land” is not in one place and so we can grow many more different types of crops?

When we buy shares in a mutual fund, we are buying an ownership interest in an investment company. We share in the income generated by that company. Using the farming analogy, we can buy shares in a “corporate farm” with vast “land” holdings in many geographical areas, with a diverse group of crops, providing the benefits of diversification. The benefits of a mutual fund are primarily: Professional Management; and Diversification.

The goals and general activities of the mutual fund are outlined in a prospectus. Never invest in a mutual fund without reading the prospectus and gaining a complete understanding of the fund’s goals, activities, management, costs, financials and track record. (Have a professional assist you.)

Because the mutual fund has professional management and more resources, it can often add another dimension to your investment activities. Here, ongoing income from Capital Appreciation is perhaps possible by buying “land” when it is cheap, and selling it later when prices for it have risen. In other words, the management is not only engaged in the business of farming and producing income; they are engaged in a professionally managed form of “land speculation”. Unfortunately, many of these professional managers have no better idea of how to make money buying and selling land than the average Joe or their fees are so high that any value they add is more than offset by the costs.

So, how do you choose?

Our firm believes the right choices are finding mutual funds with competent management, with the right philosophy, that spend their time on truly value adding activities, and that keep their costs low. We define competent management as having sufficient experience to have learned the lessons of the past; that understand following the crowd is usually unwise. We define the right philosophy as a focus on managing risk: capturing “less of the downside” and “more of the upside” but not necessarily all of the upside in fluctuating markets. (You would be surprised how many mutual fund managers think doing a good job is simply following the market-up AND down!) The right philosophy also includes an understanding that it may take years for the wisdom of their decisions to show. Finally, there is only one way to gain an advantage in buying and selling property—real “in person” inspections of the property. The same type of in person inspections you would undertake yourself. There are remarkably few mutual funds that meet our firm’s criteria for being the “right choice”.

With professional management and the potential for the added dimension of “harvesting” long term gains from Capital Appreciation, a professionally managed, highly diversified portfolio can produce a relatively stable long term source of rising income. In many cases this rising income can be more predictable.

This commentary and information is provided for the benefit of clients and should not be considered a sales presentation.

See http://www.waynestrout.com/ for more complete info: Investment advisory services are offered by WS Wealth Managers, Inc., an investment adviser registered with the SEC. Wayne Strout is an Investment Adviser Representative with WS Wealth Managers Inc. in addition to serving as President/CEO and Chief Compliance Officer of the firm. Scott Sebring is an Investment Adviser Representative and Vice President. WS Wealth Managers Inc. is not affiliated with Glen Eagle Advisors LLC or Pershing LLC. Wayne Strout and Scott Sebring, dba WS Wealth Managers. Securities offered thru Glen Eagle Advisors LLC, Member of FINRA And SIPC, with clearing thru Pershing LLC, Division of Bank of New York Mellon Corporation, also Member of FINRA and SIPC.

The Goal-Think Like a Farmer

“Everything should be made as simple as possible, but not simpler.”- Albert Einstein

Whether the client intends to take income (now or later) or to build a legacy to be gifted to others, we assert that the universal goal of investing is to create a present or future source of rising income. Rising income is defined as income that grows at a rate that exceeds inflation. Sometimes that income is spent, sometimes it is reinvested. When past or present income is spent, the investment portfolio is deemed to be in the “Distribution” phase. When new funds are being added or income is reinvested, the investment portfolio is deemed to be in the “Accumulation” phase. There are only three sources of income from investments: A) Interest; B) Dividends; and/or C) Capital Appreciation.

We believe that a simple way to illustrate this concept is to use the analogy of investing compared to farming. A farmer can take income in three ways: A) Renting the land; B) Growing and selling harvested crops or mature livestock; and/or C) Selling off parts of the land. Rent is like interest. Dividends are like the income from growing and selling harvested crops or mature livestock. Capital Appreciation is like income from selling off parts of the land that have become more valuable.

Unfortunately, too many so called “investors” believe that investing is all about Capital Appreciation. Coming from a family with a long farming tradition, we can say that most farmers and growers do not calculate the value of their farmland on a daily or monthly basis. And, few even think about selling it off. Farmers understand that the source of their wealth is the land, but that the value of the land is determined primarily by the income derived by growing and selling harvested crops. We like to think of the client’s investment portfolio as the “land” and dividends and interest as the “harvest”. If we don’t need the income from the “harvest”, we buy more “land” by “reinvesting” the dividends and interest (Accumulation). If we need the income, we take money from the “harvest” and spend it on ourselves (Distribution).

We tell our clients that the value of their investments is determined primarily by the income generated now or likely to be generated in the future, from dividends and interest. We worry little about the daily market value of the “land” except when we are adding new money and “buying” more. If we learn that the value of “land” has increased, we have mixed feelings..we feel wealthier, but..if we are buying land, we will be able to buy less with our money.

We submit that the only time that Capital Appreciation is important is if we intend to sell, and the only time we would sell our “land” is if our income was insufficient for our needs. (Or maybe if we want to buy more “fertile” land that will produce more income.) The goal of investing, particularly for retirement is for our portfolio to produce income sufficient for our needs. This is investing as opposed to speculation.

While earning interest (renting the land to another farmer) is an important and relatively stable way to create income, unless the portfolio is very large and our income requirements are very small, dividends are generally the most important source of income. Owning stocks, in the farming analogy, is like the growing and selling harvested crops. Some stocks are like growing corn or milking dairy cattle, where the income comes right away, some stocks are more like planting orchards or trees, where income comes after a period of time.

Spend less energy worrying about the daily value of your investment portfolio and more about how much income it is producing or will be producing in the future.

This commentary and information is provided for the benefit of clients and should not be considered a sales presentation.