What are the Best Stocks to Build Wealth?
These words are from William Butler Yeats poem “The Second Coming’, written just after the end of World War One. The time was rife with revolution, terror, death and disaster. A plague had wiped out 10% of the human population. The War had done the same. Russia was crushed in the War, then ripped apart by the Revolution, with fighting between the Reds and Whites lasting for another decade. An entire generation of European youth had been destroyed in the War, either killed, gassed or disabled. Retribution reigned in Paris and in London, unchecked by a gulled, sickened Wilson, setting the stage for Germany’s rise again in the 1930s. Politicians and writers and artists viewed the changes in Russia through a blackened lens, seeing none of the death, only the possibility of Labor’s triumph over exploitive Capital.
Many feel this New Year will bring ‘mere anarchy loosed upon the world’, in Yeats’ phrase. Debt reigns supreme in the global political arena, having vanquished Equity over the past decade. It grows like a cancer, spreading through the cells of mankind, with no cure. In fact, many encourage its further spread. Their answer is more taxes, much like the medical answers to any health issue in the 18th Century: bleeding the contagion out of the system.
The contagion is wealth, excessive wealth. Those who have must ‘share’ with the others. Giving is demanded by your nation. The outstretched hands of the minions grasp for ‘more free stuff’. 99 weeks unemployment, food stamps on a debit card, disability payments for a sore back, loan forgiveness from greedy bankers, tax rebates for 47% of the population; these are just the beginning. ‘Surely some revelation is at hand…’.
Will the Wage Wars of this decade transgress to the Green Wars? Once all wages are ‘equalized’, all wealth is shared, will the demand for yet more war give us a fight over ‘how green is my valley?’
Meanwhile, the tryst in DC has become a ritual political trial. The fiscal cliff will pass beneath our feet in a few days. The IRS may very well delay tax refunds of an estimated $200B – until it has the money to cash the checks. Couple this with the $50B in tax increases and 10% cuts in federal spending ($150B+) and you have the scenario for a recession – a snowballing recession. Consumer spending drops as refunds are delayed. Unemployment rises as furloughs increase. The Fed continues to buy from the Treasury, as all global demand for U S debt dries up. Inflation finally rises up with ‘…a gaze blank and pitiless as the sun…’.
The worst are full of passionate intensity, as they always are. Their voices may dictate the new future. Your voice was last heard last November; now sit down, hold on and shut up. Your turn will come. Time to pay. Time. Time.
May these images of a dark and forlorn future be just that – images – nothing more than a financial nightmare. Reality is always more intriguing than fiction.
Growth and Value Stocks
“I often think of six impossible things before breakfast’, according to the Red Queen. So it would seem in the mutual fund industry. They seem to be using ‘the different branches of arithmetic: reeling and writhing of course, and ambition, distraction, uglification and derision.’
Today’s WSJ runs an article on the inclusion of Apple stock in both growth and value mutual funds. 77% of growth funds now invest in Apple, while 40% of value funds do the same. These fund managers think ‘we don’t know the meaning of half those long words’ Well, ‘we don’t believe they do either!’ They think that ‘four times five is twelve and four times six is thirteen and four times seven is…’ or so their deep analysis would lead us to believe. They insist that if we simply ‘read the directions in the right direction, directly we will be directed in the right direction’. Is this ‘nothing but a pack of cards?’
We are certain that ‘it would be nice if something made sense for a change’.
With apologies to Lewis Carroll for rewriting quotes from “Alice in Wonderland” to suit my point of view, I don’t think we are too distant, he and I, in describing our equally absurd fairy tales. At least his is entertaining. Mine is a sad commentary on the state of the nation’s investment politicians; err, Certified Financial Analysts, CFPs and the host of more than 200 ‘designations’ one can earn. These folks get paid more than you make in your investment portfolio to chase their own tale around a tree. Their egregious fees, typically greater than 1%, as well as their hidden expenses (see chapter seven, pages 90 -102 of The 7% Solution) are intended to offer you the potential for a greater return than if you had done the nasty job yourselves. In exchange for their ‘professional management’ you receive — lower returns at higher risk than if you had simply owned the S&P 500 ETF.
Apple is a case in point. I have no interest in the stock, nor do I follow it. Why should I , as it pays such a paltry dividend of 2.4%? Yet mutual fund managers of entirely different stripes each own it. Each praise it as a value or as a growth security. Which is it fellows? Do you think that ‘four times five is twelve and four times six is thirteen and four times seven is…’? Are you confused, wrong or simply foolish?
This nonsense has to stop. Another author has come out with a new book attacking my industry of 320,000 ‘financial advisors’, the investment community in general and the gurus who are always the side shows ready to fleece you of a few kopecks for trash (Orman, Bach, et al, take note). I offer her high praise for such courage. Read “Pound Foolish” by Helaine Olen. Then fire your advisor. Quick before he thinks of something impossible.