Stock

Ownership

From

1950 to 1985

Bull – BEAR – Bull  

According to recent data from the Federal Reserve, around 58% of American households today own stocks, but the majority of stock market wealth is concentrated among the wealthiest households, with the top 10% holding approximately 93% of all household stock market wealth, meaning the bottom 90% of households hold only a small portion of total stock wealth.

When the bear shows himself once again this is what a secular downturn in stock prices looks like.  The late 1960's and 70's was a roller coaster ride to lower prices and overtime to vastly improved valuations so much so by the time stocks bottomed out in July of 1982 equities were on the-give-away-table!  This 17 year journey leaving investors totally disillusioned.  However those who understood valuations invested heavily during any roller coaster lows, spouting low PE's and high dividend yields that would explode to the upside once we moved from the secular bear to the secular bull!

We're a long way from stocks being on the give-away-table but you need to know what a bottoming looks like with valuations so robust you're a kid in a candy store wanting to buy everything while the remainder of the populist will only buy after prices have surged significantly!     

 

Financial

Warfare

1.)  Live way below your means!

Example:  If you can afford a Mercedes buy a Honda Accord.

The biggest killers is student loans, credit card debt, car/truck loans, home mortgages and God forbid medical bills.  We live in a debt nation so avoid it and/or payoff as soon as possible.    

Never have a mortgage greater than 2 times your gross income and finance with 15 year loan.  

If you want to have life where you can save and invest plus money for the extras never overpay for housing.  You will have to save for a few years but it well worth it as the savings in mortgage interest cost is staggering.  

Also with a 20% down you avoid private mortgage insurance (PMI is used for possible default) an expense far greater than just a nuisance.  Not an easy task with property prices moving upward at breath taking speed but well worth it in the end as you will have a smaller payment and a paid off house in 15 years (or less if you make extra payments).      

2.)  Increase your means!

Work on your career pushing for that next pay raise or promotion.  Early in your life have a part time job as well.

3.)  Avoid debt like a deadly disease!

Use your debit card exclusively only rarely use a credit card and when you do pay it off at light speed.  If investment returns are less than cost of your mortgage and/or student loans make additional payments.  Get rid of debt!   

4.)  Have excessive savings!

They say having 3 to 6 months of saving is good enough. That's BS!  Life will throw you more curve balls than a profession pitcher from your favorite team.  Put 6 months worth of savings into a high yielding savings account after that Vanguard has a short term bond fund - Vanguard Short-Term Investment-Grade Fund Investor Shares.  One or even two years worth of savings is not out of the question.  We live in a world of downsizing, mergers-buyouts, economic declines even hurricanes that floods out the Appalachian mountains of Ashville NC!   

5.)  Invest conservatively and consistently!

Don't try to go shoot for those mega returns look for the slow and stable returns defined as below average return upside, above average in flat markets and superior returns downside.  

My favorite is Vanguard Wellesley Income Fund Investor Shares since this moment 10-6-2024 stocks are massively overvalued, however the stock holdings in Wellesley Fund are not the high flyers of today they are the big dividend payers.  This fund holds approximately 35% stocks and 65% in bonds.  Their average PE for stocks is 19.6 using DYI's allocation formula that current PE is acceptable for 60% bonds and 40% stocks.  Wellesley meets that threshold.

6.)  Automate your savings

Most HR/Payroll departments will allow you to split your take home pay to two different checking/savings account.  Send a portion to build up your high yielding savings account (HYSA) once that is finished then set up an auto draft from your savings to vanguard into your short term bond fund.  Once that becomes too big call Vanguard and shift a portion to Wellesley or whatever fund depending on the valuations of the market.

Example:  Let's say your putting in $500 per month into your high yielding savings account straight in from your paycheck overtime you've achieved your 6 months emergency money.  Establish an account with Vanguard's short term bond fund and then auto-draft from your savings $250 per month.  Once you've passed the two year in savings once per year ( January is a good month) - [have your smart phone send you reminders] call Vanguard and transfer the excess from your short term fund into your long term stock or stock and bond fund.  Any excess from your HYSA send that money to your short term bond fund.

7.)  To 401k or not to 401k??

The vast majority of these plans have fee's that are way too high.  Most of their stocks funds has an expense ratio 2% plus and have additional fees to manage 401k structure.  Wellesley Income Fund expense ratio is 0.23% with no other fees of any type attached! Once you have $50,000 plus this shifts to Vanguard's Wellesley Admiral fund and drops the expense ratio to 0.16% and again no other fees of any type attached!

So...If your 401k is loaded with fees - and it most likely is - if your company has a match then invest up to that amount and no more.

Roth IRA set it up with Vanguard here is their link.  

Here is a video with the late Jack Bogle explaining the tyranny of compounding fees!  Click HERE

By the way I receive zero money from Vanguard it is simply my opinion that they are great ultra low cost providers. 

8.)  Be careful who you marry!

If you marry a spender you will end up working well into your 70's.  A bit out of my wheel house but I felt compelled to add this - as this dynamic happens way too often with couples. 

VIDEO

 Lena Petrova CPA

Housing Crisis in the U.S: 650,000+ HOMELESSNESS Rising as Housing Unaffordability Hits All-Time High

Prices Skyrocket!

DYI:  The number of homelessness is far higher than the 650,000 stated in the video as many individuals or couples purchase a van used to sleep in and then have memberships to YMCA's or fitness clubs that have showers.  They move their vans nightly as to not to come into contact with the police, purchasing their food from grocery stores almost daily and rent a mail box (UPS stores) that serves as a physical address.  These are quality people who know that the only way they can ever purchase a home is with a massive down payment (if not outright purchased in cash) can be achieved within their lifetime is to have the life of a vagabond!        

Valuation continue to improve since the year 2000; We have a long way to go before stocks are on the give-away-table!

 

The

Grinding Down

Of Market Valuation!

DYI:  Caution stocks held today or purchased today on a whole sale basis – S&P 500 fund or generalized growth fund – for monies placed today – go to sleep like Rip Van Winkle – 10 years from now your expected (estimated) average annual return will be – drum roll please – NEGATIVE 1.49 percent!

How to compute this estimated return here is the link to money chimp .com 

Here is the link:  http://www.moneychimp.com/features/market_predictor.htm

Stats as of 9-26-2024

Shiller PE 36.75

Long term average for Shiller PE since 1871 is 17.16

Current S&P 500 dividend yield is 1.26%

 Question

When does the Pin

Burst this Bubble?

What's Changed? What's Different This Time?

This raises another question: how will the deflation of the Everything Bubble play out?

Charles Hugh Smith Sep 25 So what's changed in the 42 years since 1982? Why 1982? 1982 marked the end of the stagflationary 1970s and the start of the 40+-year bull market in stocks, real estate, and until recently, bonds. 1. China was just emerging from the Cultural Revolution. After 40 years of astounding growth, it's struggling. 2. Debt levels across all sectors--public, corporate and household--were low compared to the present. 3. The global Baby Boom was entering peak earning, household formation, home buying, and starting enterprises. Now they're retiring and entering the phase of selling assets to downsize and fund retirement. 4. Computer technology entered the mainstream economy and boosted productivity. Now we have AI but its long-term effect on global productivity is unproven. 5. Diminishing returns are manifesting across the global economy, as what worked so well in the boost phase no longer generates the same results. DYI:  This market is so overvalued that it simply amazes me stocks have held up in price for all of these years and yet here we are today defying the laws of economic gravity.  Here is where my asset sentiments are positioned today.     Smart Money - Buys Aggressively! Capitulation Despondency Max-Pessimism  Depression  Hope - Silver F Relief *Market returns to Mean  - Short Term Notes & Bills or MMF Smart Money - Buys the Dips! Optimism - Gold Media Attention Enthusiasm Smart Money - Sells the Rallies! Thrill Greed Delusional Max-Optimism  Residential Real Estate Denial of Problem - Stocks  Anxiety  Fear Desperation - Long Term Bonds Current Economic Conditions Prosperity - Moderate Recession - Shallow Deflation - None Inflation - Moderate Economic Choices None Shallow Moderate Prominent Extreme

There are no safeguards that can protect the emotional investor from himself."

 

J. Paul Getty Quote!

Stock Market - "For as long as I can remember, veteran businessmen and investors - I among them - have been warning about the dangers of irrational stock speculation and hammering away at the theme that stock certificates are deeds of ownership and not betting slips.

The professional investor has no choice but to sit by quietly while the mob has its day, until enthusiasm or panic of the speculators and non-professionals has been spent. He is not impatient, nor is he even in a very great hurry, for he is an investor, not a gambler or a speculator. 

"There are no safeguards that can protect the emotional investor from himself."

John P. Hussman, Ph.D.
President, Hussman Investment Trust

August 2024

When a speculative bubble collapses – and I suspect this one will end like others before it – it isn’t because people take money “out” of the market. Every dollar a seller takes out is the same dollar a buyer just brought in. Prices collapse because the sellers are more eager to get out than the buyers are to get in, and a price decline is needed in order for stocks and cash to exchange hands (that’s why it’s called a stock exchange). 

The hypervalued market capitalization people call “wealth” simply vanishes because market capitalization is just price times shares, and the only way to get sellers and buyers to trade with each other is for the trade to happen at a lower price. With market valuations just shy of their recent record extreme, it may be helpful to seriously consider your exposure to risk, and the full-cycle losses that have resolved speculative episodes across history.

Margin of Safety!

Central Concept of Investment for the purchase of Common Stocks.

"The danger to investors lies in concentrating their purchases in the upper levels of the market..."

Stocks compared to bonds:

Earnings Yield Coverage Ratio - [EYC Ratio]

Lump Sum any amount greater than yearly salary.

PE10  .........37.00
Bond Rate...4.82%

EYC Ratio = 1/PE10 x 100 x 1.1 / Bond Rate

2.00+ Stocks on the give-away-table!

1.75+ Safe for large lump sums & DCA

1.30+ Safe for DCA

1.29 or less: Mid-Point - Hold stocks and purchase bonds.

1.00 or less: Sell stocks - Purchase Bonds

0.50 or less:  Stock Market Crash Alert!  

Purchase 30 year Treasury Bonds! 

Current EYC Ratio: 0.62(rounded)

As of  10-1-24
Updated Monthly

PE10 as report by Multpl.com

Bond Rate is the rate as reported by

Vanguard Long-Term Investment-Grade Fund Investor Shares (VWESX)

DCA is Dollar Cost Averaging.

Lump Sum is any dollar amount greater than one year salary.

Over a ten-year period the typical excess of stock earnings power over bond interest may aggregate 4/3 of the price paid. This figure is sufficient to provide a very real margin of safety--which, under favorable conditions, will prevent or minimize a loss...If the purchases are made at the average level of the market over a span of years, the prices paid should carry with them assurance of an adequate margin of safety.  The danger to investors lies in concentrating their purchases in the upper levels of the market.....

Common Sense Investing:
The Papers of Benjamin Graham
Benjamin Graham

 Cologuard

Poop in a Bucket!

Cologuard

Pam Popper, President
Wellness Forum Health

[ DYI's Disclaimer:  This is NOT medical advice; I am NOT a doctor nor do I have any formal medical education of any kind.  However, I do find information that you may find interesting for your own personal investigation and/or doctor. ]

Cologuard is the first stool test to use a person’s DNA rather than blood to screen for colon cancer. It was approved by the FDA in 2014, and is currently included in the American Cancer Society’s colon cancer screening guidelines. The product is made by Exact Sciences, is available by prescription only and costs $599. Many insurance plans pay 100% of the cost for this test.

According to the company’s website, "Cologuard is not for everyone and is not a replacement for diagnostic surveillance colonoscopy or surveillance colonoscopy in high-risk individuals. False positives and false negatives do occur. Any positive test result should be followed by a diagnostic colonoscopy. Following a negative result, patient should continue participating in a screening program with a method appropriate for the individual patient. Cologuard performance when used for repeat testing has not been evaluated or established.[1]

The test is embraced by medical professionals and offered by institutions like Mayo Clinic. "Cologuard represents a significant advancement in identifying colorectal cancer at its most treatable stage. We believe offering this new tool will promote patient and community public health and may move more patients to get screened earlier — a critical step in beating this prevalent and preventable cancer," according to Vijay Shah, M.D., chair of Mayo Clinic gastroenterology and hepatology.[2]

It seems, however, that enthusiasm about this test may be premature and most likely unwarranted. The company acknowledges that the test results in false positives and false negatives. In the trial submitted to the FDA for approval, 13% of people were incorrectly diagnosed as potentially having cancerous polyps. This is considerably higher than the 5% error rate for blood-based stool tests.

A concerning factor is the recommendation to have a colonoscopy in response to a positive test, and the need for those with negative test results to continue testing with some other method. What exactly is the value of this test then? Experts provide some interesting answers to this question. Dr. Joel Lavine, chief of gastroenterology at Columbia University Medical Center, says that false positives "could be concerning," but the concerns can be addressed with "more definitive colonoscopy tests."

Dr. Bennett Roth, professor of gastroenterology at UCLA says that the biggest benefit from the test is that it can encourage more people to have a colonoscopy, which he refers to as the gold standard for diagnosing colon cancer. He says "It doesn’t replace the need for a colonoscopy." Kevin Conroy, CEO of Exact Sciences, agrees, and states that the company’s goal is to "increase the screening pool" of people who have colonoscopy.[3]

So to summarize, the test is expensive - $599 as compared to $25 for a blood stool test – 

AND 

its main purpose is to herd more people into having a colonoscopy, 

which is encouraged whether the test results are negative or positive.

This is interesting since an increasing number of people are looking for alternatives to colonoscopy both because it is invasive and involves some risk, and because it is not an effective population screening tool.

The Canadian Task Force on Preventive Health Care (CTFPHC) updated its recommendations for colon cancer screening 2016, stating that - 

it "does not recommend using colonoscopy as a primary screening test for colorectal cancer due to lack of evidence."[4] 

In fact, not one randomized controlled trial shows that colonoscopy reduces the risk of dying of colon cancer.[5] 

Serious complications occur in 5 out of every 1000 procedures, and perforation occurs in 1 per 1000 procedures. Most important, however, is that 1250 people have to have a colonoscopy in order to save one life, and for every life saved, one person is harmed or dies from a complication of the procedure.[6]  

The recommendation of useless tests like Cologuard in order to generate more prospects for more useless testing does not improve public health; it just drives up costs, which are already extraordinary.

The FIT test is a much more effective alternative. It is a home stool test that requires no liquids to clean out the colon, no sedatives or anesthesia, and almost no risk.  It is effective in diagnosing almost 79% of colorectal cancers. One meta-analysis of 19 studies showed that FIT detects almost 4 in 5 cancers with a single test. The researchers concluded "[T]his systematic review and meta-analysis suggests that FITs have high accuracy, high specificity, and moderately high sensitivity for detection of CRC."[7]

My recommendation for Cologuard is to just say "no."

---

[1] https://www.cologuardtest.com/?gclid=EAIaIQobChMI-sOOqv2l3AIVHbjACh3M-QJNEAAYASAAEgKWDPD_BwE

[2] https://bringmethenews.com/news/mayo-clinic-first-to-offer-at-home-colonoscopy-alternative

[3] David Lazarus. "A good alternative to having a colonoscopy? Maybe not." Los Angeles Times August 21 2014.

[4] http://canadiantaskforce.ca/ctfphc-guidelines/2015-colorectal-cancer/ accessed 2.24.2016

[5] Baxter N, Goldwasser M, Paszat L, Saskin R, Urbach D, Rabeneck L. "Association of colonoscopy and
death from colorectal cancer." 

Ann Intern Med 2009 Jan 6;150(1):1-8

[6] Levin T, Zhao W, Conell C et al. "Complications of colonoscopy in an integrated health care delivery system."  

Ann Intern Med 2006 Dec 19;145(12):880-886
Richardson A. "Screening and the number needed to treat." 

J Med Screen 2001;8(3):125-127

[7] Lee J, Liles E, Bent S, Levin T, Corley D. "Accuracy of Fecal Immunochemical Tests for Colorectal Cancer: Systematic Review and Meta-analysis." 

Ann Intern Med. 2014;160(3):171-181-181.

 Duel

Economies

Highlighted

Not just the top 1% thinks and feels that everything is just fine it is the top 10%.  As we move down the top percentages those numbers trusting in the professional class drops significantly.  Once you’re in the bottom 50% trust has vanished and for good reason especially during and after the COVID SCAM.

Does anyone believe the inflation numbers our government puts out?? Add on 50% to what ever number they are touting.  If they say the inflation number is 4% then you know the overall REAL number is 6%.  Or attempting to tell us that the economy is booming when it takes both spouses working and many times a spouse has an additional part time job to fill in the gaps.  So forth and so on!   

The

Bear is Poised

To Strike

The Question is Only When?

At todays valuation* – Money Chimp.com – the next ten years estimated return for stocks held or purchased today (S&P 500 index or all stock growth fund) is – drum roll please – negative 1.89% total return! 

The chart below though a tad dated clearly shows higher the percentage of stock ownership as a group, in this case the entire U.S. population, lower the future returns.  As confidence in markets builds more and more people pile into stocks pushing up all of the fundamentals until valuations become unsustainable and the house of cards collapses.

*8-30-2024 Shiller PE 36.06 dividend yield 1.29% for S&P 500          

Excerpt below from Charles Hugh Smith Substack 

In the fairy tale, the economy is "strong" for all the right reasons: people are investing in new companies, spending lots of money, hiring more employees, and so on. In this fairy tale version of economics, the occasional spot of bother-- a "weakening economy"--is deftly resolved by the central bank lowering interest rates, which magically encourages everyone to return to their happy speculative, consumerist ways.

In La-La-Land, there are no bubbles, just enthusiasm for new technologies with limitless potential to reap billions in new profits. It's not a bubble, we’re assured, it's simply strong fundamentals: sales are soaring, profit margins are fattening, and there's no end in sight.

The chart of the dot-com bubble's euphoric ascent and eventual collapse is instructive: note how strong fundamentals eventually returned to the pre-La-La-Land level, wiping out all the wealth created by the bubble.

 

Updated Monthly

AGGRESSIVE PORTFOLIO - ACTIVE ALLOCATION - 10/1/24

Active Allocation Bands (excluding cash) 0% to 50%

36% - Cash -Short Term Bond Index - VBIRX

45% -Gold- Global Capital Cycles Fund - VGPMX **

 19% -Lt. Bonds- Long Term Bond Index - VBLTX

 0% -Stocks- Total Stock Market Index - VTSAX

[See Disclaimer]

** Vanguard's Global Capital Cycles Fund maintains 25%+ in precious metal equities the remainder are domestic or international companies they believe will perform well during times of world wide stress or economic declines.  

Margin of Safety!

Central Concept of Investment for the purchase of Common Stocks.

"The danger to investors lies in concentrating their purchases in the upper levels of the market..."

Stocks compared to bonds:

Earnings Yield Coverage Ratio - [EYC Ratio]

Lump Sum any amount greater than yearly salary.

PE10  .........37.00
Bond Rate...4.82%

EYC Ratio = 1/PE10 x 100 x 1.1 / Bond Rate

2.00+ Stocks on the give-away-table!

1.75+ Safe for large lump sums & DCA

1.30+ Safe for DCA

1.29 or less: Mid-Point - Hold stocks and purchase bonds.

1.00 or less: Sell stocks - Purchase Bonds

0.50 or less:  Stock Market Crash Alert!  

Purchase 30 year Treasury Bonds! 

Current EYC Ratio: 0.62(rounded)

As of  10-1-24
Updated Monthly

PE10 as report by Multpl.com

Bond Rate is the rate as reported by

Vanguard Long-Term Investment-Grade Fund Investor Shares (VWESX)

DCA is Dollar Cost Averaging.

Lump Sum is any dollar amount greater than one year salary.

Over a ten-year period the typical excess of stock earnings power over bond interest may aggregate 4/3 of the price paid. This figure is sufficient to provide a very real margin of safety--which, under favorable conditions, will prevent or minimize a loss...If the purchases are made at the average level of the market over a span of years, the prices paid should carry with them assurance of an adequate margin of safety.  The danger to investors lies in concentrating their purchases in the upper levels of the market.....

Common Sense Investing:
The Papers of Benjamin Graham
Benjamin Graham

%
Stocks & Bonds

Allocation Formula

10-1-24
Updated Monthly

% Allocation = 100 x (Current PE10 – Avg. PE10 / 4)  /  (Avg.PE10 x 2 – Avg. PE10 / 2)]

Formula's answer determines bond allocation.

Current PE10.....37.00

Avg. PE10...........17.14

% Stock Allocation     0% (rounded)
% Bond Allocation  100% (rounded) 

Logic behind this approach:

--As the stock market becomes more expensive, a conservative investor's stock allocation should go down. The rationale recognizes the reduced expected future returns for stocks, and the increasing risk. 

--The formula acknowledges the increased likelihood of the market falling from current levels based on historical valuation levels and regression to the mean, rather than from volatility. Many agree this is the key to value investing.  

Please note there is controversy regarding the divisor (Avg. PE10).  The average since 1881 as reported by Multpl.com is 16.70.  However, Larry Swedroe and others believe that using a revised Shiller P/E mean of 19.6 , the number since 1960 ( a 53-year period), reflects more modern accounting procedures.

DYI adheres to the long view where over time the legacy (prior 1959) values will be absorbed into the average.  Also it can be said with just as much vigor the last 25 years corporate America has been noted for accounting irregularities.  So....If you use the higher or lower number, or average them, you'll be within the guide posts of value.

Please note:  I changed the formula when the Shiller PE10 is trading at it's mean - stocks and bonds will be at 50% - 50% representing Ben Graham's Defensive investor starting point; only deviating from that norm as valuations rise or fall.        

  

DYI

This blog site is not a registered financial advisor, broker or securities dealer and The Dividend Yield Investor is not responsible for what you do with your money.

This site strives for the highest standards of accuracy; however ERRORS AND OMISSIONS ARE ACCEPTED!

The Dividend Yield Investor is a blog site for entertainment and educational purposes ONLY.

The Dividend Yield Investor shall not be held liable for any loss and/or damages from the information herein.

Use this site at your own risk.

PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.

The Formula.

A value based allocation strategy

February 19, 2010 by John Kingham