THE MARKETS
Take your pick - gold surging past $1,100 an ounce, the jobless
rate hitting double digits, Warren Buffett's, "all-in wager on the
economic future of the United States," a 3.2% rise in the S&P
500 index - there was something for everyone last week in the
economy and the financial markets.
The price of the shiny yellow metal keeps on rising despite
little sign of rampant inflation or extraordinary fear in the
markets. Prices jumped last week on news that India purchased 200
metric tons of gold from the International Monetary Fund as a way
to diversify its foreign-exchange reserves. Gold bulls took that as
a cue to get on the gold bandwagon.
The jobless rate and the economy seem to be living in alternate
universes. The economy grew 3.2% in the third quarter, yet the
jobless rate continued to spike, hitting a rate not seen since the
early 1980s. Yes, they say employment is a lagging indicator, but,
at some point, we have to start seeing a net increase in jobs or
else we risk a double-dip recession.
Warren Buffett made perhaps the last major purchase of his
lifetime by agreeing to acquire the remaining shares of Burlington
Northern Santa Fe Corporation that he did not already own in a $44
billion deal. Surprisingly, for a debt-adverse investor, he will
borrow roughly $8 billion to complete the deal.
And the stock market? No matter the news, it seems to take it all
in stride as the Dow Jones Industrial Average closed above the
10,000 mark. The bulls are making it difficult for the bears to
find an opening.
| Data as of
11/6/09 |
1-Week
|
Y-T-D
|
1-Year
|
3-Year
|
5-Year
|
10-Year
|
|
Standard & Poor's 500 (Domestic Stocks)
|
3.2%
|
18.4%
|
14.9%
|
-8.1%
|
-1.7%
|
-2.5%
|
|
DJ Global ex US (Foreign Stocks)
|
1.7
|
35.8
|
34.8
|
-5.0
|
4.3
|
1.5
|
|
10-year Treasury Note (Yield Only)
|
3.5
|
N/A
|
3.7
|
4.7
|
4.2
|
5.9
|
|
Gold (per ounce)
|
5.5
|
26.1
|
45.4
|
20.5
|
20.5
|
14.3
|
|
DJ-UBS Commodity Index
|
-0.3
|
12.1
|
2.2
|
-8.3
|
-2.8
|
4.0
|
|
DJ Equity All REIT TR Index
|
0.2
|
12.4
|
15.5
|
-14.3
|
-0.5
|
9.4
|
Notes: S&P 500, DJ
Global ex US, Gold, DJ-UBS Commodity Index returns exclude
reinvested dividends (gold does not pay a dividend) and the three-,
five-, and 10-year returns are annualized; the DJ Equity All REIT
TR Index does include reinvested dividends and the three-, five-,
and 10-year returns are annualized; and the 10-year Treasury Note
is simply the yield at the close of the day on each of the
historical time periods. Sources: Yahoo! Finance, Barron's,
djindexes.com, London Bullion Market Association. Past performance
is no guarantee of future results. Indices are unmanaged and
cannot be invested into directly. N/A means not applicable or
not available.
THERE IS A FINE LINE between having the
conviction to stick to an investment position that is temporarily
going against you versus being flexible enough to change your mind
as the situation changes. Knowing how to discern that line is an
important part of successful investing.
Before you make an investment, here are three things you should
know:
- The rationale or thesis behind your investment.
- The level at which your investment would become "fully
valued."
- What would have to happen for you to realize that your
rationale or thesis was no longer valid.
Having clarity on those three items makes it easier for you to
know where that line between conviction and flexibility lies.
The British economist John Maynard Keynes famously said, "When
the facts change, I change my mind. What do you do, sir?" Since
nobody knows for certain what the future holds, we have to review
the data as it arrives. If that data is materially different from
our original thesis and the market is responding to it, then that
will likely cause us to change our mind. This concept of conviction
versus flexibility is something we are conscious of and we use it
to help us be better - and more flexible - investment managers.
Weekly Focus - Think About It
"An oak and a reed were arguing about their strength. When a
strong wind came up, the reed avoided being uprooted by bending and
leaning with the gusts of wind. But the oak stood firm and was torn
up by the roots."
-- Aesop
For your convenience the sources have been listed below:
www.marketwatch.com/story/gold-reaches-new-record-above-1100-2009-11-06
news.yahoo.com/s/ibd/20091107/bs_ibd_ibd/20091106feature
www.marketwatch.com/story/berkshire-to-borrow-billions-for-burlington-deal-2009-11-06
www.thestreet.com/story/10623025/1/stocks-eke-out-small-gains.html
aaii.com/includes/DisplayArticle.cfm?Article_Id=2630&digit=428
www.time.com/time/time100/scientist/profile/keynes.html
strangewondrous.net/browse/subject/f/flexibility
