“There’s nothing new on Wall Street.” – Why shouldn’t you panic when there are stock market changes? [Wednesdays: The Independent Investor]
Miles Everson’s Business Builder Daily speaks to the heart of what great marketers, business leaders, and other professionals need to succeed in advertising, communications, managing their investments, career strategy, and more.
A Note from Miles Everson:
Investing is an important activity that we must learn regardless of the career path we are in. This is one of the vehicles that will help us grow our monetary wealth and build our financial future.
Recently, we conducted an Executive Roundtable with Professor Joel Litman, President and CEO of Valens Research, regarding the 2022 Stock Market and Economic Assessment.
I had a lot of key takeaways from his presentation, especially when he discussed the Bull and Bear markets, interest rates and inflation, Credit Default Swaps (CDS), and other patterns that are happening in the stock market.
Are you interested to know more about these topics?
Read the article below to learn about Professor Litman’s insights and assessment on the stock market and economy.
CEO, MBO Partners
Chairman of the Advisory Board, The I Institute
The Independent Investor
“New York Bond Offering Fails”
“Financial Contagion Spreads”
“Interest Rates Soar”
“Major Brokerage Nearly Collapses”
“Banks and Businesses in Bankruptcy”
These are some of the newspaper headlines during the Market Panic of 1974―a stock market crash that caused a bear market between January 1973 and December 1974.
According to Valens Research President and CEO Professor Joel Litman at the roundtable discussion on January 13, 2022 titled, “Executive Roundtable: 2022 Stock Market and Economic Assessment,” these headlines are NOT entirely new.
During the Market Panic of 1907, a financial crisis where the New York Stock Exchange fell almost 50% from its peak in 1906, the same headlines above appeared in newspapers.
Professor Litman said it’s because the pattern remains throughout the years. He also quoted the words of Jesse Livermore, a well-known, respected American stock trader and pioneer of day trading, who said:
“There is nothing new on Wall Street.”
This means whatever has happened before in the financial market will likely happen again… and as long as you understand these changes, you don’t have to worry too much.
Here’s a fundamental investing principle Professor Litman frequently mentions in his webinars and roundtable discussions: Buy low. Sell high.
He says if the markets are down, that’s when you should buy stock. It’s not that difficult a concept.
What makes investing difficult is the financial media. When the market is up, the media publishes headlines saying that the stock market has yet again reached an all-time high.
Here’s the thing:
The stock market will reach all-time highs from time to time. Professor Litman says it’s been that way for the past 200 years of recently recorded financial history and probably, for thousands of years of civilization before.
Another point he mentioned during the executive roundtable was that the COVID-19 pandemic won’t change the overall statement that equities outperform everything as long as there’s enough time.
His advice to investors?
Keep buying! There’s no need to panic.
Professor Litman says the reason why you can continue to buy stocks even in the midst of a health crisis is because of what Livermore said: “There is nothing new on Wall Street.”
Aside from that, if you’re studying the credit markets, then you’ll understand that no corporate credit crisis means no bear market.
As long as that remains to be the case, Professor Litman believes companies can figure themselves out and adjust for whatever issues there may be in the pandemic.
He also thinks the financial market may see a big rebound once the health crisis is over.
Investors must take note that from 2021 to 2022, there is a MASSIVE, increasing corporate debt headwall. The reason for that is lots of companies refinanced out of their troubles in 2021. As a result, the due dates of their debts fell heavily into 2022.
So, while a year or more of recovery may be in the works for some firms this year, there’s still a potential for them to come tumbling down once their debts come due… and in the words of Professor Litman, these companies only “kicked their can down the road.”
That’s why he believes that if you want to be a great equity investor, you have to be a good credit analyst.
Think about some of the greatest stock market investors and value investors. If you ask them about the best book/s on investing, you’d probably hear two titles: “Security Analysis” and “The Intelligent Investor.”
Ben Graham, the “Father of Value Investing” wrote both of these books. The first one was written with the help of David Dodd, Graham’s protégé and colleague.
Here’s a question: How often does the term, “credit” show up in both books?
The answer is over 400 times. This only clearly shows that the guides to great equity investing―whether those guides are in the form of books or investing giants―require an understanding of credit.
This knowledge is important because you won’t easily comprehend the phases of the stock market, from value to growth stages to bear markets, without first understanding and communicating the status of credit markets.
According to Professor Litman, investors should ignore most of Wall Street research and the financial media for the reason that they like to sensationalize events as much as possible.
He said there is a total misalignment between how the news gets reported and how media outlets get paid―the more views, the more these companies get paid. The best investment advice doesn’t get reported because when that happens, people wouldn’t pay attention.
It’s because the best advice for investors is to do their financial activities SLOWLY and STEADILY. Since this isn’t advice that will generate more views for media outlets, it isn’t the advice you will see on the news daily.
So, if you’re investing not just in the short term but also in the long term, keep in mind that the daily ups and downs of the stock market are immaterial. This means the daily fluctuations shouldn’t affect much of your investing strategy.
We hope you’ve learned a lot from Professor Litman’s discussion at the executive roundtable!
Just remember: There is nothing new on Wall Street. As long as you have a clear grasp of the credit markets and the patterns of the stock market, you should be able to keep buying and avoid panicking in times like this.
(This article is from The Business Builder Daily, a newsletter by The I Institute in collaboration with MBO Partners.)
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“Wednesdays: The Independent Investor”
To best understand a firm, it makes sense to know its underlying earning power.
In two of the greatest books ever written on investing, the “Intelligent Investor” by Benjamin Graham and “Security Analysis” by David Dodd and Benjamin Graham (yes, Graham authored both of these books), the term “earning power” is mentioned hundreds of times.
Despite that, it’s surprising how earning power is mentioned seldomly in literature on business strategy. If the goal of a business is wealth creation, then the performance metrics must include the earning power concept.
Every Wednesday, we’ll publish investing tips and insights in accordance with the practices of some of the world’s greatest investors.
We make certain that these articles help you identify and separate the best companies from the worst, and develop your investing prowess in the long run.
To help you get on that path towards the greatest value creation in investing.
Hope you’ve found this week’s insights interesting and helpful.
Stay tuned for next Wednesday’s “The Independent Investor!”
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