In this episode: Steve Wolff discusses how excided he is about the investing opportunities in this techno-digital revolution.
Full transcription below:
Steve Wolff:
Hello everyone, this is Steve Wolff with another edition of Steve’s Stock Stories. I’m here with my
cohort, producer and friend Joscelin Magaña.
Joscelin Magaña:
How’s it going everybody?
Steve Wolff:
This is one of my favorite topics. I am so happy to be alive at this point in time, because we are going
through a technological digital revolution. This must be what it felt like to be in the industrial revolution,
when you went from the horse and buggy to cars. Of course, eventually putting men on the moon. But I
mean, all the things that happened in that time are happening now only they’re happening digitally.
Joscelin Magaña:
I feel the same first feeling when I saw the world change in a dramatic way where I was so excited. Two things that I remember surfacing, the mobile phone and the internet.
Steve Wolff:
Oh, yeah.
Joscelin Magaña:
Remember when the movie The Saint came out? That little phone was amazing. He had video on there, he got text messages. I thought, “Oh my gosh, if that could ever possibly happen.” Then we have way better phones than that now, you just throw that little toy away. Right? The other big thing that I saw was the internet. When I was in college, we were just using email at the time. There were these things called websites. I remember thinking, “Wow, we’re going to be able to buy stuff on the internet
someday.” I remember telling somebody, “Hey, this is going to be an amazing space because we’re just
going to be buying stuff on the internet.” And they’re like, “Who’s going to buy stuff on the internet?
You just go to the store. Why the hell are you going to-?” Okay. One technological advanced before this, which kind of wasn’t, but everybody thought was crazy, was when everybody started buying bottled water; but that’s a whole other subject.
Steve Wolff:
Well you talk about phones. I remember watching the movie Wall Street with Michael Douglas and he
had a mobile phone, but it was probably, I don’t know, 12 inches.
Joscelin Magaña:
Oh, yeah. They were big.
Steve Wolff:
They were huge.
Joscelin Magaña:
They were big, like a shoe box.
Steve Wolff:
Right, they were big. You could make a phone call on there today, my goodness, you could do just about everything. You can turn on your car, you can-
Joscelin Magaña:
You can turn on your sprinklers in your house, you can see your front door. It’s amazing.
Steve Wolff:
What they have in that little phone is way more powerful than what IBM first came up with when they had that first computer that took up, I don’t know, three rooms or something. With vacuum tubes and whatever, it’s just incredible.
Joscelin Magaña:
I guess where I’m going with this is that I’m as excited now as I was when mobile phones were becoming more accessible and the whole mobile phone revolution and the internet. I remember my first job we didn’t even have computers on our desks…
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Market Update: 7/9/2021
Transcription below:
There’s been a lot of good news in the last month. With COVID cases declining, there are more people getting vaccinated, there has been a lot of re-openings in the economy and the earnings have been good as well. This resulting in a really good time to be in the stock market. The market is still favoring rotation into the pandemic recovery plays. Those stocks that lagged last year have caught up a lot this year. It might even be slowing down just a bit, but June was a good month for that. Financials and energy continued to lead the way with tech stocks being a little bit further behind, although everything grew a little in the last month.
Let’s talk a little bit about inflation because in the middle of June, there was a pretty good-sized dip in the market. This dip was probably 5% to 7% and people got a little bit nervous because suddenly, bonds were spiking up in yields and people were getting afraid because of inflation.
It is really is funny because when the economists talk about inflation, they do ex-oil and ex-food, which means without including those. I think that’s a load of bull hockey for anybody who likes to eat and goes to the grocery store. They know that food is way more expensive than it was just a few months ago. Also, if you are not in one of those battery-operated cars and you have to go to the gas station, you know that you’re paying a lot more for fuel than you were paying before. Inflation is real in your pocketbook, even if the economists aren’t including that.
Crude oil prices are up to $75 a barrel, and that’s the highest they’ve been since 2018. In the U.S., it now costs more than an average of a dollar or two a gallon than it did just a year ago, according to GasBuddy who analyzes fuel prices. If you were paying maybe three bucks last year and you’re paying four bucks today, that’s a 33% increase. I don’t know about the economist, but I think that’s inflation in my pocket.
There’s also been a shortage of semiconductor chips, which is causing some havoc because semiconductors are in everything we have, from toasters to ovens to microwaves to computers to cars. As a matter of fact, the auto industry has really been hit the hardest because they cannot finish producing a car without computer chips. Companies like Ford, Volkswagen, Jaguar, have all had to stop production because they just don’t have enough chips in supply for those cars. Right now, demand is far outstripping the supply of computer chips. Those computer chip companies are probably happy because as soon as they have a chip, they can sell it; and generally speaking, supply and demand means they could probably raise the price a little bit. So those companies probably are doing very well.
Now, looking at the market for the first half of this year, some people might call this a Goldilocks market, and we’ve heard that many, many times in the past. I call it a duck market. Why? Because everything is ducky right now out there. You almost couldn’t ask for a better market.
Now, I think there’s going to be continuing to be bouts of volatility as we go. But if you’re looking forward a little bit, I really think that stocks are still the right place to be because the re-openings are there, for example, anybody who wants to get a job can get one. There are help wanted signs all over the country. Unfortunately, some people are still staying at home because they’re getting a little bit more money to stay at home than to work, but eventually, that’s going to run out. Those people are going to get jobs and I think employment will get back to a pretty good level. Matter of fact, I think tomorrow July 2nd, there’s an employment report coming out. My guess is that as we continue to go into the future, the job market will continue to get better.
For all of you out there who are wondering what you should do, I still think that stocks are the right place to be. I think they’re better than bonds, at the moment. If yields do spike up, bonds will go down in price. It may hurt stocks a little bit too, but that’s a ways down the road. I still think we have time to go before that ever happens.
Steve Wolff is a Managing Partner at WWM Financial in Carlsbad California.
Steve can be reached at 760-692-5190.
Disclaimer
The opinions expressed in this article are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security. It is only intended to provide education about the financial industry. To determine which investments may be appropriate for you, consult your financial advisor prior to investing. Any past performance discussed during this program is no guarantee of future results. Any indices referenced for comparison are unmanaged and cannot be invested into directly. As always please remember investing involves risk and possible loss of principal capital; please seek advice from a licensed professional.
WWM Financial is a Registered Investment Advisor. Advisory services are only offered to clients or prospective clients where WWM Financial and its representatives are properly licensed or exempt from licensure. No advice may be rendered by WWM Financial unless a client service agreement is in place.
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Podcast Episode 12: Value vs Growth Stocks
Let’s talk a little bit about value stocks and growth stocks. Over the last year or so with all the COVID stuff happening, certain stocks did really well, and other stocks didn’t. It was really a bifurcated market and what really did well were growth stocks. So, we want to explain what the difference is because value stocks have caught up a bit with growth stocks.
What is a value stock? Basically, a value stock is where you believe that the value of the company is greater than the stock price today. Now I could tell you that growth stocks can be value stocks in that their stock price may be less than what you think they’re really worth.
Growth stocks are companies that have the potential to really outperform the overall market over time. Generally speaking, growth stocks have a higher price to earnings ratio and they are a little bit higher risk than a value stock. Before providing an example let me preface this with a disclaimer. We are not suggesting you buy any of the stocks we mention in this article, these are for educational purposes only. An example of a growth stock is something like Apple Computer over the last many years. Many of the technology stocks are considered growth stocks.
Growth stocks are focused on growing the share price and not so much worried about dividends. Value stocks are a bit more worried about paying the shareholder through dividends, which come through earnings. With growth stocks, a lot of the earnings, go back into the company, because they are reinvesting, investing in new technology, in new land or new whatever, so that they can grow. Which one is better? Really, there is no one that’s better or worse. It depends on where you are in life and how much risk you’re willing to take, because generally growth stocks carry higher risk than a value stock. You can imagine a stock like Proctor & Gamble (this is not a recommendation), but a stock like Proctor & Gamble is a value company and is not expected to grow by more than 2-5% a year. Whereas you get a stock like Google (this is not a recommendation) and you may expect them to grow by 10 or 15% a year, or maybe some of these microcap stocks. They may grow at 20 and 50 and a hundred percent a year. You go up the risk scale with growth stocks.
In the long run, which does better? It’s kind of a toss-up. Value stocks have outperformed the growth stocks by a little bit, but it also depends on what timeframe. Probably because of the dividends that they pay, especially if you reinvest the dividends. Over the last, maybe 10 years or so, really since the ’07, ’08, ’09 disaster with real estate, growth stocks have really outperformed. Especially in the last few years, in particular last year when you had the COVID problem where nobody was going out of the house, and everybody was online and getting things delivered.
The growth stocks, specifically the technology stocks just went up like crazy. By the way, there’s nothing black and white about this. Some stocks that people consider growth stocks, you also could say they’re value stocks or a value stock could be kind of growthy. The way Morningstar gets around it is they have three different classifications and Morningstar classifies these things you’re either growth, value or blended.
In summary there are basic differences between value and growth. Growth is just saying, “Hey, we’re going to grow at a much greater rate than a value company would grow. We’re not going to pay a lot of dividends”, certainly not in the beginning, in time, they do. Eventually the good growth company becomes a value company because you can’t grow a battleship twice as fast as a rowboat. You can turn that rowboat a lot faster than you can a battleship. Small companies grow faster than large. A great example is Sears back in the last century. In the 1900s, Sears was the biggest retail company in the world, and it was growing like gangbusters. Today, Sears went into bankruptcy, I think there may be a few stores left.
That’s what happens with stocks. That’s why there’s a time to buy and a time to sell. That’s why you have to know when a value stock is no longer appropriate or a growth stock is no longer a good thing to own, that’s a whole different discussion. Sears is a great example of one that went from growth to value to out of business. And believe me, most companies eventually go out of business. It’s hard. I look at a GE for instance, which has been around for forever and it’s still there, but the company keeps morphing. That’s what you need to do. You need to stay with the times.
This is just a summary of the podcast and does not include the Johnson & Johnson story. To watch the complete episode click on the image above.
Steve Wolff is a Managing Partner at WWM Financial in Carlsbad California.
Steve can be reached at 760-692-5190.
Disclaimer
This commentary on this website reflects the personal opinions, viewpoints and analyses of the WWM Financial employees providing such comments, and should not be regarded as a description of advisory services provided by WWM Financial or performance returns of any WWM Financial Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. WWM Financial manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.
Today was an interesting day in the market. It started off that there was a lot of selling going on. The markets were taking a beating. It’s coming back a little bit now, but I thought it was interesting because a lot of the earnings that have come out right now have been really, really good. And the guidance for the future has been really, really good. So why is the stock market not really rising? As a matter of fact, it seems to be, even though we’ve had some pretty good days and we’ve had some new highs, it seems to want to go down. Gravity seems to want to force it down. So, should we be selling into this or should we just hang on? Well, before we get into that, there was always a myth in the stock market world that says to “Sell in May and go away.” For those of you who may not have heard that, it has been around for a long time. And basically how did this come about? How did the phrase come about as it relates to the stock market? I was reading an article by David Bartosiak, who is from Zacks and he’s saying that the phrase, “sell in May and go away”, might’ve started in old England when the saying was really, “Sell in May and go away, come back on St. Leger’s Day.” St Leger’s Day was a time when there was a big horse race called the St Leger Stakes horse race. It was a bunch of wealthy Londoners who would go away from the city in May to get away from the heat and they would come back in November when this race started. So American investors have kind of adopted this into the stock market, basically saying, sell in May and go away.
So, I was thinking here, is that the smartest thing to do? In this article, David Bartosiak is giving statistics as to whether it makes sense or not. So one of the things is, is that the summer months usually have better returns in the stock market than the winter months. Don’t really know why that is, but it is. What Bartosiak did, was he went back 28 years using returns on the S&P 500 in order to showcase the gains in the losses. Over the last 28 years, he said that the month of May itself, has returned on average about 81 basis points, or a little bit more than eight tenths of 1%. Now that’s really about average for what the market did over the last 28 years, because if you look at the returns, they’ve been about 10.4% per year, and it comes out to pretty close to what the month of May has done.
If you take the eight periods over the last 28 years, where during the summer months, from May to November, when the market was down, the market was down only about 28 and a half percent of the time. That’s eight months out of 28 periods. But it also implies that 71 and a half percent of the time the market was up. However, the down is usually a little bit higher than the ups. Especially because in the last 28 years, you had the ’08 correction that was pretty big, close to 30% on the S&P 500 and we went through that real estate crash. But be that as it may, it happened. So we’ll obviously leave that in there. So if you do the calculations, what you could expect is about a 2.47% return based on those numbers that we just gave you.
I’m not a statistician and for all your statisticians out there, you may say, hey, there’s not a big enough sample, but we’re going to go with it anyway. So your expected return is about 2.4%. Now, here we are today and we have had the stock market that has been rallying. As I said before, the S&P and the Dow have gone up to record highs. So again, what’s going on here? Well, I would tell you that there’s actually two reasons I think that the market is still not doing what I think it should do with the earnings reports that we’re talking about. The two reasons are inflation and a computer chip shortage. Now, inflation is starting to come about all over the place. If you just look at the price of oil, the price of food, I was looking around a little bit more and commodity prices are on a tear. Lumber is up a lot. Steel is up a lot.
I was looking at some of the other earnings and Procter and Gamble, for one, came out and said that they are going to have to raise prices in September. It’s simply a matter of their raw costs going up and they’re just going to have to pass it along. This is a household goods company, they make Gillette razors, and Tide detergent and diapers and tampons. It’s the same thing that Kimberly Clark said just a little bit ago, that they’re also going to have to raise prices. One of the people who is the chief operating officer for Procter and Gamble and has been around for 33 years, said, and this is from an article in the Wall Street Journal, “This is one of the bigger increases in commodity costs that we’ve seen over the period of time that I’ve been involved with this, which is a fairly long period of time.”
Inflation is happening. What happens when inflation goes on in the United States? The Fed tries to fight it is by raising interest rates. The Fed so far has said that they we haven’t come fully back from the COVID issue, although I do think we’re on the downside. Interestingly, today, when the market really kind of dropped a lot today, and we’re currently not down nearly much. It’s almost 12 o’clock. So we still have about another hour to go in the market. When Janet Yellen, in an interview with the Atlantic that was broadcast today, was quoted as saying that “Big spending plans by the US government could mean that interest rates will have to rise a little bit to make sure our economy doesn’t overheat.” The market went down by quite a bit. So no question that inflation will slow down the market a little bit, because interest rates will slow it down. This is not something that I’m worried about yet.
The second part of the reason that the markets are not doing as well as we thought they probably should do with all the great returns that we’ve had so far, is that there’s a chip shortage going on in the United States and all over the world. This chip shortage is causing a problem for a lot of companies. One of which is Ford. Ford just came out with earnings that were as good as you could possibly get, but their guidance was a little tepid. So people were a little confused by it and the reason is, is because, according to CNBC, they’re going to have to cut out some factories for a while. They’re going to have to shut them down. Approximately five different factories in the US are going to have to shut down because they just can’t build the car without the chips. Their best-selling and most profitable truck is the F-150 series. According to CNBC, there are about 22,000 trucks that have been built without chips and Ford can’t sell them until chips are installed in them. As a result revenues are going to be down, certainly for a while. But Ford did say, according to CNBC that they think that the chip shortage should be ending by probably the end of the second quarter, although the impact will be felt a little bit longer.
I don’t think these are long-term problems. I think that most of this is temporary. I don’t think that the stock market is going to take it on the chin when you’ve got lots of money that’s sloshing around the economy, because of all the checks that have been put out by the government, the $1,400 per person. It’s a lot of money going into the economy. Things are really good, with the exception of the computer chip shortage. The bottom line here is I think we’re good.
Going back to Mr. David Bartosiak from Zacks, what he says, and I agree with him, is when you hear, “sell in May and go away”, ignore it. I say to ignore it right now, because I’ve got Mr. Bear over here, he’s my little Chicago bear and I can tell you that he is still hibernating. He may be toward end of his dreams, but right now he’s still hibernating. I would stay with it. I would stay with the market. Mr. Bartosiak says, “Staying long and strong in the market is the best path toward long-term asset appreciation.” Over the years, the adage of “Sell in May and go away” might have worked a few times, but in the long run, never bet against the US stock market. So Mr. Bear, you can continue to sleep. Until next time.
Steve Wolff is a Managing Partner at WWM Financial in Carlsbad California. Steve can be reached at 760-692-5190 or contacted with the following link. Contact Link
The opinions expressed in this article are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security. It is only intended to provide education about the financial industry. To determine which investments may be appropriate for you, consult your financial advisor prior to investing. Any past performance discussed during this program is no guarantee of future results. Any indices referenced for comparison are unmanaged and cannot be invested into directly. As always please remember investing involves risk and possible loss of principal capital; please seek advice from a licensed professional.
WWM Financial is a Registered Investment Advisor. Advisory services are only offered to clients or prospective clients where WWM Financial and its representatives are properly licensed or exempt from licensure. No advice may be rendered by WWM Financial unless a client service agreement is in place.
Carolyn Grant, Executive Director of the Museum of Making Music in Carlsbad gives us a sneak peak of recent renovations and featured multimedia experience.
Timestamps are provided below for each segment of the recording.
3:25 Brief virtual tour of the Museum of Making Music in Carlsbad.
