Listen To The Words That I Have Been Saying!

1.) Stocks are NOT in a secular bull market that has 10+ years to go…That is ridiculous.  Secular bulls and bears are based on VALUATIONS.

2.) This is not an expected fall in stocks. Two weeks ago, no one saw this event and now it’s expected?  Good spin everyone.

3.) Valuations ALWAYS win in the long run.  Always.  That’s what matters.  Valuations are currently at levels almost as high as 1999!!!

In no way shape or form is the market going to be fun over the short long run (2-5 years).  Things will get ugly. They have to.  Valuations are crazy stupid high.  There is no way around it.  Every reliable valuation metric shows this.

All earnings have been growing have been because of interest rates and cutting costs, not from revenue growth that everyone should be concerned with.

Today, Friday, and Thursday have been glimpses into the future . When will it all go down? I have no idea…but this is not a healthy market.  Not in the least bit.

I write these words now so that everyone can read them in a few years and realize I was “wrong” for some time, but I stuck to the fundamentals and what works, and this is where it has led us.

Is Outsourcing Bad? What Does It Mean About Our Economy?

Donald Trump is making headlines talking about how he is going to bring jobs back from China, India, and Mexico.  Well, big surprise, Donald Trump is merely just trying to get attention like the attention-whore that he is.  To be fair, all politicians do this.  Hillary Clinton bragged about how voting Democrat in 2006 and 2008 would lower gas prices, mortgage defaults, and also end outsourcing….clearly that didn’t happen.  But either way, people need to understand that outsourcing of jobs is actually a GOOD sign of an economy.

So whenever I hear people talk about outsourcing, they discuss how it is taking away American’s jobs.  Ok. Yes, technically, that’s true.  But here is the circular problem with worrying about that.  Ok, so you want Americans to be paid $15 per hour to build a product that can be made by a worker at $1 per hour?  Ok. So that increases the cost of that item by how much?  A lot.  Then it has to be sold to the hard working families in the U.S. who can’t afford to spend more on extra things.  Which then leads to less sales.  Which leads to decreased profits and revenues by the companies selling them, which leads to layoffs of the workers whose very jobs were being saved by forcing jobs to stay in the U.S..  Do you see where I am going with this?

You can’t have a booming economy with EVERYONE making more money and everyone living well AND have inexpensively made products for less financially advantaged people to buy.  You can’t have your cake and eat it too.

Of course, many people in certain political parties will want you to believe that you can have lots of high paying jobs and low cost items. This is why a higher minimum wage doesn’t help people make more money.  All that happens is that cost of creating goods and services goes up, which causes the very people the minimum wage is helping to pay more for the products they need to survive. It’s inflationary.  And the people making $500K per year don’t care about paying $4 for something they were paying $2 for before but someone making $20K per year surely does.

I know I have brought up politics but this isn’t just about politics.  It’s about common sense.  Even China will be losing jobs to other poorer countries soon. Their economy is growing like gang busters, which is awesome! But their economy will change a lot in the coming decades to adjust for higher factory worker costs.  I import products from China now and I am sure over the next few years, we will start to see increased costs.  And that’s a good thing for China.

So stop complaining and just realize that jobs being outsourced means that EVERYONE in this country is making more money. Yes, someone who loses their factory job is out of a job, but they aren’t out of a job forever.  They will get new skills and adjust.  They may not make the money they made before, but that’s how the world works.  Adjustments are made.  As I always tell my father when he worries about fewer and fewer factory jobs: When the car was invented, it didn’t mean everyone who worked on a train lost their job forever.

Should You Trust a Stock Analyst’s Opinion?

We have all heard the stories…An analyst gives a company a “buy” rating in exchange for their child being admitted into a prestigious private school where the company CEO sits on the board.  Or a heavy dose of “buy” ratings are given to companies by investment houses that also get a lot of investment banking and advisory fees.  This is commonplace and a lot more commonplace than many on Wall Street would like to admit.

But here is the most OBVIOUS reason why an analyst’s opinion shouldn’t matter.  They don’t know sh*t and even if they did know sh*t, it’s too difficult to put a “sell” rating on something that everyone loves and is going up with momentum and equally as difficult to put a “buy” rating on something that has been beaten down because of investor discomfort, for whatever reason.

The most difficult part of investing is finding value where others see garbage.  It’s the way you are going to make above average returns.  You won’t make above average returns, over the long haul, by investing in what everyone wants and avoiding what everyone else doesn’t.  You have to look at companies and real estate in different ways.  I preach this non-stop and I won’t stop preaching it. It is the HARDEST thing to do in investing.

I am 100% honest when I say I don’t even look at analyst opinions at all.  I used to. When I lacked confidence in investing.  Fifteen years ago.  In addition, evidence has shown how wrong analysts are on a routine basis.  And it’s not just randomness…it’s consistently true.  Why?  Because it’s hard to keep your job when you say a company should be sold and it keeps going up, or vice versa.

Have you ever noticed what % of companies are even rated with a “sell” rating? It’s disturbingly low.

Just think for yourself.  If you can’t look at a company and analyze it’s three major financials, then don’t buy individual stocks.  Buy index funds that invest in sectors or major indexes.  Learn to understand whole sectors and indexes.  You can make a lot of money that way too.

But don’t think for one second that Billy Bob at Wells Fargo who is 23 years old and graduated from Wharton is suddenly an amazing analyst.  He is given models to follow and that’s that.  Learn how to read financials…you don’t need an MBA to do that.  In fact, I don’t know many MBAs who even read financials (and by “don’t know many” i mean “i know zero”)