Thursday, October 21, 2010

21 October 2010 We live in a day and age. . .


21 October 2010 We live in a day and age. . .

We live in a day and an age when the longer you live, the longer you live. In the book “Debunkery”, Ken Fisher debunks a common assumption that even I have had faith in since I got in the market in the mid 80s. It was the age distribution strategy where you take your age subtract it from 100 and that is the balance of stocks to bonds ratio you want to keep in your portfolio. Example, you are 55. 100-55 = 45 so you would want 45% of your portfolio in stocks and 55% in bonds. This is based upon the assumption (one I have bought into for 25 years) that bonds are less volatile and safer that equities.

In any given rolling 30 year period from 1926 to 2009, which asset class performs better stocks or bonds? Stocks out perform bonds 100% of the time in the 30 year bracket, 97% of the time in 20 year brackets, 82% of the time in 10 year brackets, and 72% of the time in 5 year brackets. Even in the one year bracket stocks out performed bonds 63% of the time.

The point of all of this is to rethink the age old strategy that bonds are best for you as your income producing years become shorter. Each scenario is difference and you should judge your risk reward situation by your circumstances not your age.  If you are 65 and in good health and have a genetic history of longevity, perhaps a conservative equity heavy portfolio would serve you better than have most of your eggs in the bond basket.  This is a good book.

Checking the score card.

Last night we prognasticated:

"Economically we have the initial jobless claim out tomorrow. Most are looking for a downward trend after last weeks surprise bump. I would agree, but think the drop will more in line with the 13,000 bump we saw last week. Look for a jobless claims number of 449,000."

We got real close with that as the number came in at 452,000.  The base news on the report was the upward adjustment for the month before.  That will some cooling in China had the market in a funk most of the day.

We also said:

"Earnings wise, we have Union Pacific reporting looking for 1.50 a share. We think that trains a comin, its comin down the track, sorry got carried a way there. It will come in at 1.57 (We got real close with that as they came in at $1.56) a share. I know a few of you hold CAT Catepillar and feel that they will enjoy some bottom line growth as a result of the deflated dollar. The are hoping for $1.09 a share and we will go along with that (The CAT bulldozed its way to $1.22 a share). There might be a bit of a beat but not much. T AT&T is looking for .55 and they should beat by a nickel. Look for 60 cents a share (I got that one wrong as they met analysts expectations). AMZN Amazon (we own it) is looking for 48 cents a share. Look for a big beat. We are thinking 61 cents a share (Well they had a nice beat at 51 cents a share.  It looks as though they spent a lot of money on advertising and infrastructure which inures to future shareholder vlaue.). Then you have economic bellwether UPS reporting tomorrow. I got Fed Ex wrong a while back, so if I use logic they should miss the 88 cents they are looking for, BUT the book "Debunkery" teaches us not to do what is expected so they will beat by a nickel. Look for 93 cents a share (The logic actually worked, but they came in much hotter than I expected.  They got 99 cnets a share in profit.  Nice Big Brown)."

From the "A funny thing happened today at the White House" gallery.

"No, just act cool and don't lead on we have locked ourselves out of the White House."


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