Vitamins and Investing – The Good and The Bad

By David B. Armstrong, CFA | Jul 24, 2017 | Invest My Wealth, Weekly Market Commentary

I take vitamins.  Probably not as often as I should…but I do.  I take a multi, some Vitamin D and some other stuff.  You know, the basics.

It does not take a doctor to know that maybe a multi is a good idea, but in my case, without the blood work from a physical, I probably would have never known I need to take some extra Vitamin D, too.

It hit me that investor portfolios are a lot like taking vitamins. It depends on what you need for your own body.  Some people just do it themselves…they research and decide on their own.

There are plenty of people out there who are quick to give advice on vitamins and supplements who are not doctors.

For example, I recently had a conversation with a guy who looked like he had cycled lots of steroids over his life. He proclaimed that I need to start taking Creatine, Beta-alanine, Whey Protein and Branched Chain Amino Acids.  Of course, his advice was light on amounts, when to take them, and how to best space them all out…let alone brands and types. “Just start taking them and you’ll see a difference,” was his advice.

What did my doctor say when I asked him about adding supplements?  “Don’t you dare start taking that shit…do you have any idea how taxing that is on your liver and how it can trigger irregular heartbeats?”

Clearly Mr. Steroid didn’t.

This reminds me a lot of how people get investing advice in the locker room of the country club, some internet chat room or even CNBC.

There is probably nothing wrong with taking a multivitamin every day.  Based on my experience, I think that when it comes time to concentrating other vitamins and supplements, seeing your doctor is a smart decision.  Together, assessing your current state of heath, determining your health goals and using bloodwork results to determine what you need and don’t need is probably the best course of action.

Doing otherwise could be dangerous or counterproductive to your health.

10 bucks says you know where I’m taking this…

Multivitamins are like a core portfolio. When you want to start adding other investments, do it with a professional who can assess the benefits and pitfalls in conjunction with your goals and objectives.

When people start saying you need to be in this hedge fund or that private equity fund or this sector or that stock, ask yourself if you are getting the advice from Mr. Steroid or a professional who knows the whole picture.

There are a ton of people out there who think they are experts because they own the Creatine, Beta-alanine, Whey Proteins and Branched Chain Amino Acids…you know…Facebook, Amazon, Google and Netflix.

What’s Up With The Market?

The market has always gone through periods when it just seems to keep going up without a real serious move down, but these periods always come to an end.

It’s just the way it goes.

While we are currently in one of these periods, one thing that separates this time frame from others is its length.

LPL Research and Pension Partners recently noted that the biggest year-to-date drawdown in the S&P 500 Index has been just 2.8%.

2.8%!

Oh…and that’s not 2.8% in a day…it’s a peak to trough drawdown 2.8%.

If this holds through the end of the year, (it probably won’t, but let me make a point), it will be the second smallest drawdown in the S&P 500 since 1995’s 2.5%.

…and that’s going all the way back to 1950.

In case you were wondering, the average intra-year decline for the S&P 500 since 1950 is 13.6% (LPL Research).  Below is a chart going back to 1980. The intra-year drops for that period are just about the same at 14.1% (J.P. Morgan Asset Management).

According to the J.P. Morgan Asset Management chart above, it’s at -3% now through the end of the second quarter of 2017.  The last time we had a -3% was 1995.

Another measure, which is highlighted below in a chart from Charles Sherry, illustrates that the S&P 500 Index has not fallen 5% for 269 trading days. This is the fourth-longest streak since 1950.

For some folks, this lack of a pull-back comes as a surprise given the political drama and theater in Washington, geopolitical concerns and growing doubts that a corporate tax cut, the crown jewel for investors, will wind its way through Congress (hint – I believe it will).

Investors just aren’t focused on what’s happening overseas, and so far, haven’t got caught up in the political drama and Congressional gridlock.

In fact, we have seen some recent breakouts…the chart below is from Bespoke and the comments are mine.

So, what’s the deal?  Well, I think it’s economic fundamentals. While corporate stock buybacks have slowed, the economy continues to move ahead at the same tepid pace I’ve been writing about for a few years now. Corporate revenue and earnings are growing (more below), and interest rates as well as inflation remain low.

More recently, global growth has accelerated, which is benefiting multinationals (FactSet).

With the exception of the recent pickup in global growth and a slowdown in stock buybacks, many of the themes that have supported stocks in recent years have yet to wind down.

That’s what I think.

I also think this market is a little extended and it’s not unusual for the market to cool off right around this time in the summer.  That’s not a signal to do anything, I’m just saying that I won’t be sounding any alarms if we get a pullback over the next 6-8 weeks.

Earnings

I mentioned in my last blog that earnings season was kicking off.  While it is early in the reporting season, let’s take a look at where we stand.  Remember, it’s early and these numbers WILL change (they usually trend down), but there is enough to get a general idea.

As always, Bespoke is the place to go for good earnings information.  These are their charts.

 

One thing to notice from the above is the Revenue number.  It’s great to see earnings at 65, but revenue at 67.1 AND higher than earnings is a good sign in my book about the health of corporations.  Revenue is top-line sales and not really subject to hide-and-seek accounting games like earnings.  So, I like this.

It’s not often that we see Revenue beats end up as a larger number than Earnings beats…Here’s a custom chart I asked Bespoke to create for me on this topic.  Bars below the zero line are when Revenue beats Earnings.

Next week is another big week of earnings.  Stay tuned.

Speaking of Next Week(s)

I’m taking a vacation for the next two weeks.  The office can get in touch with me, but I won’t be writing.  I’m off to do something very cool but I’ll fill everyone in on the details in my next blog.  Until then, the whole Monument Team is around to help out if you need them.  As always, just call the office and someone will be able to assist you.

 

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