Tomorrow Is Another Day
Finally, the stock market closed down more than 1% for the first in 110 trading days. The streak began on October 11 and was the longest uninterrupted rise since 1995. The only casualty was complacency, never a good idea, nor are emotional reactions to stock prices. Average returns after similar streaks are have averaged 13% in 12 months.
With television commentators shouting for our attention, their appeals to anxieties can provoke nervous selling and other hasty decisions. Perspective is essential and that very successful investor, Mr. Warren Buffett, can help. “Over the long term, the stock market news will be good. In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.”
So far this century, the Dow has almost doubled despite terrorist attacks, continuing Mideast conflicts and the introduction of Twitter. The trick is to ignore the chaff of media chatter and social chitchat and make sensible investment decisions. Holding stock in growing companies without obsessing over price fluctuations works. A long-term perspective is essential. Mr. Buffett, again, “Successful Investing takes time, discipline and patience. No matter how great the talent or effort, some things just take time: You can’t produce a baby in one month by getting nine women pregnant.”
My favorite buy, Apple (AAPL-$141) is his newest. The corporate quarterly earnings season returns in to a couple of weeks and Apple reports in a month. Typically, analysts try to attract attention by forecasting disappointments and the company then exceeds expectations. Its current price after backing out the 7:1 stock split in 2005 is just under $1,000. I’m sure it break that adjusted $1,000 level soon. Steve Jobs would have liked that.
Mr. Buffett jokes that Apple began to interest him when he took a dozen kids to Dairy Queen (which his Berkshire Hathaway owns) and they all pulled out iPhones. Observing helps. Looking around shopping malls today makes it no surprise that Sears (which bought Kmart for reasons unknown) is considering bankruptcy or that Macy’s is closing 100 stores.
In contrast, Amazon (AMZN-$647), an essential holding, has over 43% of all online sales and a market cap over $400 billion, $90 bigger than Wal-Mart. By traditional marks, its valuation is scary but it owns Amazon Web Services (AWS), the pioneer and leader in the cloud-based computing industry. AWS, which accounts for 74% of Amazon’s operating profit, could be theoretically valued at $375 billion, indicating that the combination is actually undervalued.
Stock advisors used to build portfolios around traditional big-asset companies like Exxon, AT&T and U.S. Steel. Those static choices could not compete with accelerating technologies that direct us now to stocks like Nvidia (NVDA-$107) and Broadcom (AVGO-$216). Texas Instruments (TXN-$89) reported strong growth in expanding auto and industrial applications. It also reports earnings in a month, which will show continuing double-digit percentage growth. It’s a new buy, particularly suitable for retirement accounts with a 2.3% yield and dividend increases for 13 (!) straight years.
Applied Materials (AMAT-$38) supports these companies with manufacturing equipment. It just reported record order growth and is another buy recommendation. So is new buy Taiwan Semiconductor (TSM-$32). Both have reasonable valuations and attractive yields.
The louder the voices on TV, the weaker their logic. Keep a long view and, if in doubt, tomorrow is another day.
Tony Crowell manages stock portfolios for individuals and their trust and retirement accounts with CROWELL•ROBERTS Investment Counsel, a registered investment advisor in Laguna Beach since 1995. [email protected] 949.494.1376/800.697.2622
