Newsletters
Stay the Course to Reap the Rewards from Value Investing: It has been 85 years since the publication of Security Analysis, a classic value investing guide written by Benjamin Graham, widely known as the “father of value investing” and mentor to Warren Buffett. To honor the 50th anniversary of Security Analysis, Buffett wrote an article entitled “The Superinvestors of Graham & Doddsville.”
Risks on the Horizon for Equity Investors: As I write this, the S&P 500 just crossed over 3,000 for the first time ever. In fact, the 18.5% return in the first half of 2019 represented the best first-half percentage gain since 1997. The current bull market was born on March 9, 2009. At more than 3,775 days old, this cycle has set a record for the longest stock rally without at least a 20% decline in the S&P.
Rising Markets, Declining Fundamentals: Boosted by tax cuts passed at the end of 2017, the pace of growth in the US economy accelerated last summer, with real GDP growing at a 4.2% annualized pace in the second quarter, followed by 3.4% in the third quarter. After a decade of keeping interest rates super-low in what were intended to be temporary emergency measures, the Federal Reserve finally appeared ready to “normalize” interest rates.
The Great Unwinding: In our last letter we warned that investors had become complacent and that the unwinding of QE (a program whereby the Fed purchased trillions of dollars of bonds) could cause problems for asset prices. We cautioned that an inverted yield curve would be a bad omen for earnings growth and the bull market. Right on schedule, volatility shot through the roof and 5-year treasury yields fell below 1-year yields.