A Longer Point of View and No More Steering Wheels

November
05

Written by: Jon McGraw

Special Note:

As the week wore on, the devastation from Hurricane Sandy became ever more apparent. And, while we talk about the financial markets in this commentary, we know that what happens on Wall Street pales in comparison to the tragedy and hardship facing many people in the northeast. Our thoughts and prayers go out to them.

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In addition to the human toll, Hurricane Sandy caused the New York Stock Exchange to close for two days. This closure reminded us of a quote from Warren Buffet who said, “I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years.”

This quote contains a couple important lessons:

1)      Think long term. Rather than flipping investments on a frequent basis, it makes sense to approach investing with a five-year or longer time frame. 

2)      Don’t check your investments daily. Imagine you planted some tulip bulbs. Would you pull them out everyday to check and see if their roots grew? Likewise, give your investments time to grow.

Keep in mind that stock prices tend to fluctuate much more than changes in the intrinsic value of the underlying companies, according to Investopedia. Unfortunately, these daily fluctuations often scare people into making bad investment decisions. To overcome this tendency, try to ignore the daily noise and take comfort in knowing we are focused on monitoring any changes to the long-term, underlying value of your investments.

And, yes, it’s finally election week. The good news… no more annoying robo calls and attack ads!


Data as of 11/2/12

1-Week

Y-T-D

1-Year

3-Year

5-Year

10-Year

Standard & Poor’s 500 (Domestic Stocks)

0.2%

12.5%

14.2%

10.7%

-1.3%

4.5%

DJ Global ex US (Foreign Stocks)

0.8

8.8

4.6

1.7

-7.0

7.0

10-year Treasury Note (Yield Only)

1.7

N/A

2.0

3.4

4.3

4.1

Gold (per ounce)

-1.8

7.0

-3.3

16.6

16.2

18.2

DJ-UBS Commodity Index

-1.8

-0.2

-4.9

1.8

-5.3

3.1

DJ Equity All REIT TR Index

2.0

16.7

19.3

22.3

3.4

11.8

 

“TODAY, WE’RE LOOKING AT SCIENCE FICTION BECOMING TOMORROW’S REALITY,” said California Governor Jerry Brown in late September at Google’s headquarters in Mountain View, CA. So, what “science fiction” was the governor referring to and what are the investment implications?

About 120 years ago, a German mechanical engineer named Karl Benz coupled an internal combustion engine with a chassis and four wheels. Today, we know it as the automobile. While the internal combustion engine was the transforming technology that made the modern automobile possible, we don’t define, value, and think of cars in terms of how well they process gas. Instead, we think of what cars can do for us.

Cars dramatically changed our lifestyle. They allowed the rise of suburbs. They enhanced the family vacation. They played host to many dates and first kisses. They created millions of jobs in road construction, manufacturing, dealerships, repair shops, and, in fuel exploration, processing and distribution.

Likewise, Governor Brown’s announcement of a new law making it legal for driverless – yes, driverless – cars to travel on public roadways in California could dramatically reshape the impact cars have on our lives.

Here are a few ways society could change:

1)      With no need for steering wheels, pedals, and other manual controls, manufacturers of those parts would be out of luck.

2)     With no driver and very few road accidents, say goodbye to expensive car insurance policies.

3)      With few road accidents, say goodbye to most of the roughly 2 million hospital visits per year in the U.S. caused by car accidents (many lives saved!) and say goodbye to all the time and resources spent by doctors, nurses, and staff, devoted to helping these accident victims.

4)      Say goodbye to taxi drivers and limo drivers and hello to a driverless “Zipcar” or similar type service.

5)      Say hello to electronics and software companies who will provide the sensors and computing power needed by these cars.

6)      Say hello to an expanding suburb and rising suburban housing prices as the driverless car will make a long commute more palatable since you can work or play while the car goes on its merry way.

7)      Say hello to increased mobility for people with certain disabilities.

Sources: The Economist; Forbes

The driverless car is no longer science fiction. Google already has a fleet of them and some of its employees “drive” them to work.

From an investment standpoint, this is an example of the type of deep research and thinking we do on your behalf as we strive to meet your goals and objectives.

Weekly Fun – Think About It…

 “The best way to predict the future is to create it.” Peter Drucker, management consultant, educator, author