Market Commentary - 2/8/13: Boy's 6th Grade Basketball, the Baltimore Ravens and the Stock Market..

The stock market is off to a good start in 2013. Interestingly, it reminds me of helping coach Jake's (my oldest son) 6th grade recreational basketball team. They started the season four and 0 and outscoring their opponents 132 to 61. Based upon this trend, we should have asked the league to end the season right then and just give us the trophy.

Well, in the next four games we went two and two, and got our bubble burst somewhat. We now stand in a tie for 2nd place, with two other teams tied for 1st place. What appeared to be a slam dunk, championship season, is now a tight contest with two more games against the teams that beat us.

Each of the losses provided the boys an opportunity to realize their weaknesses and work on correcting them.

The next two Saturdays we'll be playing the teams we've lost to, and the results of those games will determine how we are seeded in the post season tournament. I hope we're prepared!

I have enjoyed helping coach Jake's team and watching Luke and Tess play as well. Tess is in first grade, and honestly, it's fun to watch a small herd running down the court after the ball. However, both Jake and Luke have each had a memorable game this season, where they were one of, if not, the top scorer, which has not been the case ever in the past. Overall, it's recreational basketball; they're having fun and hopefully learning some skills that they can apply later in life.

I use this story as an analogy to what I see happening in the stock market, so far in 2013. Investors have cheered, become confident and even reveled in the market's upward climb, without much if any pullback. Losses or setbacks in sports or investing are not fun. However, I believe pullbacks can be healthy, especially for the stock market. It gives investors a more realistic taste of how the market and stocks truly function over time, while allowing new money to flow in at better price levels. This is what allows stock prices to appreciate long-term versus, short-term, unrealistic and unsustainable price movements that disappoint everyone.

Ironically, the path to Super Bowl was eerily similar to what I described above. The San Francisco 49ers won three of their last four regular season games and were 11-4-1 before the playoffs. Whereas, the Baltimore Ravens lost the last three of their four regular season games and had a 10-6 record prior to the playoffs. I realize the game could've gone either way. The Ravens were a wild card team, and had a worse record than any of the teams they beat in the playoffs or the Super Bowl. This is just an example of where a team used their losses as temporary setbacks and an opportunity to create game plans that secured a long-term winning season and Super Bowl Championship.

Points to Ponder

  • Bonds are an investment category that is part of many investor portfolios; however, “long-term” bonds are one area that many professionals believe need extra special attention in lieu of potentially higher interest rates.

 

"Bonds are thought to be lower-risk investments; we believe that, at today’s prices, long-term bonds are very risky."

                    Bill Nygren, Oakmark Funds, Morningstar Advisor, October 12, 2012

  • Some may not agree with this next quote. However, demonizing Bill Gates of Microsoft, Steve Jobs (deceased) of Apple or even Gary Burrell and Dr. Min Kao, the founders of Garmin, is not a solution to our economic ills as a country. All the individuals previously noted helped create products that the majority of us use on a regular or daily basis, and became billionaires along the way.

 

"Our national wealth didn’t come from politicians of any ilk, level, office or ideology. It came from the long-term, much defiled 1% of the population and their dedicated followers via the marvelous magic of capitalism."

                    Ken Fisher, Forbes, November 19, 2012

  • I believe a dose of measured optimism is helpful.

 

"First, the world usually ends up better than the pessimists think. We couldn’t have gone this far if the pessimists had always been right, so history is on my side. But that doesn’t mean disasters don’t         happen. It means, by and large, that we work our way out of them."

                    Byron Wien, Blackstone Advisory Partners, Barron’s, October 13, 2012

"History has shown that lousy economic conditions, or even dismal corporate results, don’t necessarily lead to disappointing stock market returns in any given year — or decade, for that matter."

                    Paul J. Lim, nytimes.com, December 15, 2012

  • This next factoid surprised me.

 

"Since 1985, the U.S. economy grew less than a third as fast as China’s, yet American stocks gained more than twice as much as Chinese shares."

                   Paul J. Lim, Money Magazine, November 2012

  • This is an example that investors, institutions and even foreign governments are using gold as an alternative, in the face of potentially devaluing currencies.

 

"A decade ago, jewelry accounted for more than 90% of global gold demand...Jewelry accounted for just 43% of global demand in the 2012 first half."

                   The Wall Street Journal, November 12, 2012

Quotes

Nothing great was ever achieved without enthusiasm."

          Ralph Waldo Emerson

"The key to happiness is good health and a bad memory."

          Ingrid Bergman

Tony Moeller, CPA

The information listed in this commentary is a compilation of various publicly available sources and is for informational purposes only.  It is not a recommendation or solicitation of any particular investment or strategy.  A risk of loss is involved with investments in the stock and bond markets.

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