Schwartz Financial Weekly Commentary 7/22/13

The Markets

 

Singing the earnings song…

 

Each year, in January, April, July, and October, most publicly-traded companies announce their corporate earnings results. These announcements can have a dramatic effect on companies’ share prices – and markets – especially when companies don’t meet analysts’ expectations.

 

The way a company’s share price moves after an earnings announcement can strike a discordant note. For instance, a company can have a great quarter, but if it earns a few pennies per share less than expected, its share price may tumble. Likewise, a company can be in dire straits, but if it produces a few cents more than expected, its share price may climb.

 

Last week’s earnings song was a bit melancholy. By the end of the week, about one-fifth of the companies in the Standard & Poor’s 500 Index had submitted their reports and earnings were on track to grow by about 1.5 percent year-to-year. That’s a bit lower than the 4.1 percent earnings growth analysts had expected, but it was in positive territory.

 

Unfortunately, as The Wall Street Journal pointed out, financial companies have exceptionally easy year-to-year comparisons. When they were pulled out of the mix, earnings hit a low note: down by almost 3 percent from last year, according to FactSet. That’s worse than analysts expected at the start of the quarter.

 

Earnings were weak relative to expectations, but the S&P 500 still finished higher for the week.  That may be because of the soothing refrain offered by Ben Bernanke (monetary policy will remain accommodative… monetary policy will remain accommodative). The important thing to remember is the Fed’s definition of accommodative monetary policy doesn’t necessarily mean maintaining its quantitative easing program.

 


Data as of 7/12/13
1-Week
Y-T-D
1-Year
3-Year
5-Year
10-Year
Standard & Poor’s 500 (Domestic Stocks)
0.7%
18.6%
22.9%
16.5%
6.1%
5.6%
10-year Treasury Note (Yield Only)
2.5
N/A
1.5
3.0
4.1
4.2
Gold (per ounce)
1.3
-23.5
-18.2
3.1
6.2
14.0
DJ-UBS Commodity Index
0.9
-6.8
-11.1
0.7
-9.5
1.1
DJ Equity All REIT TR Index
1.2
11.0
13.9
18.9
8.3
11.3

Notes: S&P 500, Gold, DJ-UBS Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT TR Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.

Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.

Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.

 

there’s been an innovation in measuring innovation. Innovation is one of those things. It’s hard to fully describe, but it can be awfully important to countries and economies.

In recent years, there have been some remarkable innovations, such as car sharing and the Oakland A’s use of sabermetrics; and some less remarkable ones, such as airline baggage fees and the detachable dog sack (which allowed Fido to ride in a cloth carrier attached to the outside of the car).

 

In March, panelists at the Wharton Economic Summit 2013 discussed the concept of innovation. Although they didn’t all define it in the same way, they suggested innovation is using something new or known in a different way, different time, or a different place; essential for companies to grow; useful; transformative; an approach that addresses a major want or need; not always easy to spot.

 

It’s clear innovation means different things to different people. Cornell University, INSEAD, and the World Intellectual Property Organization, which collaborate on the Global Innovation Index, said their benchmark, “recognizes the key role of innovation as a driver of economic growth and prosperity, and adopts an inclusive, horizontal vision of innovation applicable to both developed and emerging economies.”

 

They refined the index for 2013. According to The Economist:

 

“Instead of objectively counting the inputs and outputs, it relies on nuance. For example, rather than ranking overall education, it looks at the top three universities, since elite institutions may be more important than the average. Instead of counting each patent, it tracks only those filed in at least three countries, which suggests it is a more valuable technology. And, rather than look at scientific journal articles en masse, the index includes how often they are actually cited.”

 

So, using these innovative metrics, which countries rank the highest in innovation? Among rich countries, the United States, Britain, and Germany are one, two, and three. In middle income countries, China, Brazil, and Russia take top honors.

 

Weekly Focus – Think About It

 

“Health is the greatest gift, contentment the greatest wealth, faithfulness the best relationship.”

Siddhartha Gautama, also known as Buddha

Value vs. Growth Investing (7/19/13)

0.77
20.47
4.36
9.74
26.72
19.48
8.90
0.69
19.62
4.01
9.05
24.70
18.96
8.15
0.62
24.30
4.11
8.72
31.01
20.56
9.71
0.07
14.56
4.12
8.62
16.74
18.44
7.87
1.40
20.75
3.84
9.87
27.57
18.13
6.89
0.91
22.51
4.90
10.80
32.43
20.58
10.26
0.83
19.90
4.19
8.81
29.29
21.77
10.77
0.50
20.26
5.05
11.23
27.75
19.61
7.85
1.40
27.48
5.46
12.29
40.68
20.22
12.19
1.18
23.60
6.50
13.98
32.43
21.38
12.02
1.07
23.83
6.69
13.82
32.88
20.46
10.81
0.71
23.93
6.39
16.70
30.11
22.58
10.88
1.77
23.09
6.45
11.71
34.40
21.12
14.47
0.69
23.30
4.29
9.08
30.71
20.83
10.13
0.20
16.28
4.46
9.66
19.69
19.03
8.12
1.43
22.26
4.35
10.49
30.60
18.75
8.48

 ©2004 Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar; (2) is not warranted to be accurate, complete or timely. Morningstar is not responsible for any damages or losses arising from any use of this information and has not granted its consent to be considered or deemed an “expert” under the Securities Act of 1933. Past performance is no guarantee of future results.  Indices are unmanaged and while these indices can be invested in directly, this is neither a recommendation nor an offer to purchase.  This can only be done by prospectus and should be on the recommendation of a licensed professional.

 

Office Notes:

 

Way To Wealth

 

Every month, I send my clients and friends small tips or ideas on how to ensure their personal finances remain healthy and strong.  But this month, in honor of Independence Day, I’ve decided to turn to one of our Founding Fathers for his advice: Benjamin Franklin.

Long before I started sending my letters, Franklin did something similar for people in colonial America.  Every year, he published the Poor Richard’s Almanac, a collection of proverbs, advice, and information on a variety of topics.  One of these topics was—you guessed it!—personal finance.  After the almanac ended in 1758, Franklin published an edited collection of all the financial advice he’d given.  He called it The Way to Wealth, and 255 years later, it’s still worth reading. 

Just for fun, here are some excerpts from The Way to Wealth.  I hope you enjoy reading them as much as I did. 

The Way to Wealth

by Benjamin Franklin

“In 1732 I first published my Almanac; it was continued by me about twenty-five years.  I endeavored to make it both entertaining and useful, and it accordingly came to be in such demand, that I reaped considerable profit from it.  And observing that it was generally read, (scarce any neighborhood in the province being without it,) I considered it as a proper vehicle for conveying instruction among the common people, who bought Scarcely any other books.  I therefore filled all the little spaces…with proverbial sentences, chiefly such as inculcated industry and frugality, as the means of procuring wealth.”

“A great number of people were collected…conversing on the badness of the times, and one of the company called to a plain, clean old man, with locks.  “Pray, Father Abraham, what do you think of the times?  Won’t these heavy taxes quite ruin the country?  How shall we ever be able to pay them?  What would you advise us to do?”

Father Abraham stood up.  “Friends,” says he, “and neighbors, the taxes are indeed very heavy, and if those laid on by the government were the only ones we had to pay, we might more easily discharge them; but we have many others, and much more grievous to some of us. We are taxed twice as much by our idleness, three times as much by our pride, and four times as much by our folly, and from these taxes the commissioners cannot ease or deliver us by allowing an abatement. However let us hearken to good advice, and something may be done for us; God helps them that help themselves.

If time be of all things the most precious, wasting time must be the greatest prodigality, since lost time is never found again, and what we call time-enough, always proves little enough.

He that riseth late, must trot all day, and shall scarce overtake his business at night.  Laziness travels so slowly that poverty soon overtakes him.  Early to bed and early to rise makes a man healthy, wealthy, and wise. 

There are no gains without pains. 

At the working man’s house, hunger looks in, but dares not enter. 

One today is worth two tomorrows. 

If you were a servant, would you not be ashamed that a good master should catch you idle?  [Since you are] your own master, be ashamed to catch yourself idle. 

If you would be wealthy, think of saving as well as of getting. 

Beware of little expenses; a small leak will sink a great ship. 

If you would know the value of money, go and try to borrow some, for he that goes a-borrowing goes a-sorrowing. 

For age and want, save while you may; no morning sun lasts a whole day. 

Gain may be temporary and uncertain, but ever while you live, expense is constant and certain.  Get what you can, and what you get, hold; ‘Tis the stone that will turn all your lead into gold.

Regards,

,

Michael L. Schwartz, RFC®, CWS®, CFS

 

P.S.  Please feel free to forward this commentary to family, friends, or colleagues.  If you would like us to add them to the list, please reply to this email with their email address and we will ask for their permission to be added. 

 

Michael L. Schwartz, RFC®, CWS®, CFS, offers securities through First Allied Securities, Inc., A Registered Broker/Dealer,  Member FINRA-SIPC.  Advisory Services offered through First Allied Advisory Services, A Registered Investment Advisor.

Schwartz Financial Service is not an affiliate of First Allied Securities, Inc.

 

This information is provided for informational purposes only and is not a solicitation or recommendation that any particular investor should purchase or sell any security. The information contained herein is obtained from sources believed to be reliable but its accuracy or completeness is not guaranteed.  Any opinions expressed herein are subject to change without notice.  An Index is a composite of securities that provides a performance benchmark.  Returns are presented for illustrative purposes only and are not intended to project the performance of any specific investment.  Indexes are unmanaged, do not incur management fees, costs and expenses and cannot be invested in directly.  Past performance is not a guarantee of future results.

 

* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.

 

* The DJ Global ex US is an unmanaged group of non-U.S. securities designed to reflect the performance of the global equity securities that have readily available prices. 

 

* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.

 

* Gold represents the London afternoon gold price fix as reported by the London Bullion Market Association.

 

* The DJ Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.

 

* The DJ Equity All REIT TR Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.

 

* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.

 

* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

 

* Past performance does not guarantee future results.

 

* You cannot invest directly in an index.

 

* Consult your financial professional before making any investment decision.

 

* To unsubscribe from our “market commentary” please reply to this e-mail with    “Unsubscribe” in the subject line, or write us at “mike@schwartzfinancial.com”.

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