Government Shutdowns — What History Tells US

September 30, 2013

There have been 17 government funding gaps and shutdowns since 1976, ranging in length from one to 21 days.  None has caused a market meltdown.  The average decline in the Standard & Poor’.  Keep reading here: Government Shutdowns–What History Tells USs 500 index during one of these periods lasting 10 days or more is about 2.5 percent.  For those lasting five days or fewer, the average decline is 1.4 percent.

Here’s another good article on the subject from Vanguard: Fiscal Debates__Vanguard_9-30-13

Things You Should Read. Things You Should Avoid.

I highly recommend this article: 

On Warren Buffett’s office desk, a file bin at the end of the desk reads “TOO HARD.” There are some magazines, a pile of newspapers, and a phone.  But there are no stock tickers. No Bloomberg terminals. No charting software. No Twitter feeds. No pundits spouting forecasts.  Buffett has created more than a quarter-trillion dollars of value for Berkshire shareholders from this desk over the last 50 years. And he did it while rejecting most of the “tools” investors utilize. We can all learn something from that.

We have more information than ever before. “The problem is that much of the information that investors want — and think they need — is just that, ‘information,’ not knowledge.”

Good investors read a tremendous amount of information, of course. They’re just more selective with what they read and pay attention to.  Buffett suggests a few things investors should focus on…Things You Should Read.


Expenses and Behavior are Key to Investment Success

August 8, 2013

Creating a mix of investments that is less likely to prompt you to sell a strategic holding after it has dropped sharply can be just as crucial to achieving retirement success as maintaining low expenses. In fact, research indicates that “behavioral finance” issues actually lower investor returns more than the use of high-expense investments.  Continue reading here Expenses and Behavior are Key to Investment Success

Using Behavioral Finance to Curb Spending

By John F. Wasik
Jul 22, 2013

There’s nothing more vexing to those trying to save money than an inability to control spending. It’s like trying to drive a car without a speedometer.  The traditional advice in the world of personal finance has been to craft a budget and stick to it. Although that may work for the most disciplined savers, the vast majority of us have more unbridled consumer desires than self-control. Fortunately, the growing field of behavioral economics offers some useful tools to deal with this problem.  Click here to read the entire article:

Using Behavioral Finance to Curb Spending

John F. Wasik is a freelance columnist for

March 2013 Client Letter: Goldilocks & Gridlock

Goldilocks, Gridlock, Diversification and Market Valuation

While the Easter bunny is popular at this time of year, it is the “Goldilocks” economy that’s got the stock market hopping.   Investors have woken from winter hibernation to find that the economic porridge is just about right for stocks – not too hot and not too cold.

Why is this important?  Historically, stocks have performed best under conditions of moderate growth and inflation.  Slow growth conditions beget concerns about poor corporate sales and recession.  On the other hand, very strong growth (think 1970’s) often leads to a spike in inflation expectations and shrinking profits from rising interest rates, materials and labor costs.  At the current time, the balance between growth and inflation seems to be in, well… in a sweet spot.      Continue reading and view complete letter

Valentines’s Message — Love the One You’re With

Here’s a look back at Bruce’s article entitled, “Love the One You’re With” which was published in the Sudbury Town Crier two years ago on St. Valentine’s day.

Love the One You’re With

Here is a capital thought this Valentine’s Day. At any given moment, there’s always someone out there who might look a little shinier than what you’ve got. It’s okay to look, but don’t be a fickle date, jumping from partner to partner.
In investing as in love, jumping from partner to partner will eventually lead to misery, more risk and….Valentines2011

Jan 2013 Client Letter: The Shore Beyond.

Please click here to open letter: Jan 2013 Investment Letter


  • Letter to Clients: The Shore Beyond.  Do what Lincoln Did!  Keep your eyes on the shore beyond.  Is the market anticipating the next wave of technological innovation?
  • Highlights of recent Tax Changes
  • Investment Comments with Index and Core Fund Performance Review
  • TWM Margin of Safety Select Equities highlights

The Next Big Thing?

As we survey the future, it is important to be aware of the economic, political and environmental impact of potential shale oil production on federal lands in the US.  This is a real game changer because there is an estimated 800 billion barrels of recoverable shale oil on federal lands in the Green River formation.  That is triple the reserves in Saudi Arabia.  The math is such that over the years royalties from federal owned land could pay off the national debt without raising taxes, while also reducing costs associated with protecting strategic oil interests.

As you look back through history, technological innovation is spurred by the “recession-trigger effect”.  The interludes between waves of technological innovation–the industrial revolution (1780-1840), the technical revolution (1880-1920), the scientific-technical revolution (1940-1970) and the information/telecommunications revolution (1985-2000) — are characterized by economic crisis and stagnation, which in turn triggers demand for new inventions and innovations.

So while our attention is riveted on the debate about whether to raise taxes or cut spending, the intractable nature of our economic situation will trigger a serious debate about shale oil production.  It’s inevitable.

Here are some recent posts from Fuller Money on the subject:  –>click here

Comments on post election concerns and market sell-off

Post Election Concerns (link to article)

Is history any guide to what markets might do given the potential tax changes?  To answer this question, we studied the seven most recent tax law changes going back to 1981 — and the performance of the stock market six months before and after the change.  We found no clear link between the direction of tax changes and equity markets.  For the three tax increases since 1984, the S&P was up 5%, 14% and 16% in the 12 months surrounding the change.  While tax policy and related sentiment certainly can impact equities in the short run, long-term investors will want to look at stocks more holistically.

__Bruce Thompson


Echoes of our recent market valuation update from NY Times

I love it when we beat the NY Times to a story!  This Sunday’s article Dueling Prisms for Valuing Stocks discusses many of the issues surrounding current stock market valuation that I brought to your attention in last week’s TWM Client Letter, Q4 Market Valuation Update — The Air is Thinner Up Here.

The article presents a debate between Jeremy Siegel, a Wharton finance professor, and Robert Shiller who originally wrote about the 10-year PE ratio in his book, Irrational Exuberance.   Siegel agrees with the idea of smoothing earnings over time (which is the way TWM calculates the PE ratio for use in deciding whether to rebalance portfolios) because it reduces distortions in 1-year data that can mislead investors about market valuation.  However, Siegel believes that the current 10-yr PE ratio is itself distorted because it includes two major earnings recessions (the tech wreck and the financial crisis) and, therefore, he thinks that stocks are more attractively valued than indicated.

As I pointed out in my letter, every thing else remaining equal, the 10-yr PE ratio is likely to decline a bit over the next year as low earnings from the 2001-03 period are excluded from the data.  But Siegel obviously didn’t crunch the numbers because, in fact, the difference in valuation is small.  I addressed this in my letter — the table on page 4 of our Market Update compares the 10-yr PE ratio of 21.5 with a 7-yr PE ratio  at 20.8 (which removes the tech wreck earnings recession from the data).

What does this mean in plain english?  The market is trading in the upper reaches of its “fair valuation” range, not quite in yellow light territory.  But the market isn’t undervalued either.  Read my Q4 letter for more.

In the end, it pays to remember that models such as Shiller’s PE-ten are only tools and we will never use them in a vacuum to determine your investment positioning.  Judgement is always needed.  Here is the NY Times Article in .pdf format Dueling Prisms for Market Valuation.



What Harvard Can Teach You about Investing; Mistakes Even Smart People Make

Is there an echo in the room?

I often describe our investment strategy as “endowment-style adapted to the time frames and temperament of private investors”.  Larry Swedroe, director of research at Buckingham Asset Management, offers some salient points about the investment approach followed by many Ivy League college endowments in his new book, Investment Mistakes Even Smart Investors Make.

Five of the top 10 university endowments in the U.S. belong to Ivy League schools — Harvard topping the list at $32 billion as of October 2011.  Though all the schools were hit by the downturn late last decade, endowment returns tend to be strong. Harvard boasts a 20-year track record of 12.9%.

Endowments differ from individuals in that their investment time frames can best be described as “Eternity” — longer than even the staunchest buy-and-hold investor.  But that doesn’t mean there aren’t lessons to be learned.

While private clients aren’t able to get access to the same deals as at $20 billion endowments, some aspects of the schools’ approach are quintessential investing 101. Diversifying holdings into foreign, growth, and value plays are boilerplate ideas.  Taking advantage of the premium return potential in illiquid investments is another.  But Swedroe says it is the discipline of the endowments that really gives them an advantage over mom and pop. 

As we do for our clients, endowments have written investment policies for their asset allocations. As an example, there might be a mandate that not less than 8% or more than 12% should be allocated to real estate. “So when real estate does better than the rest of the portfolio, they’ll come in and sell some of it to make sure it doesn’t exceed 12% — and that means they’re selling high,” Swedroe explains. When real estate falls under 8%, the endowment will buy — in effect, buying low. “That’s exactly the opposite of the way most small investors invest, and it’s one of the reasons they do poorly.”

Harvard Business School:Can America Compete?

I wanted to wish you a lovely Labor Day weekend and share this thoughtful article from Harvard Business Review entitled, The American Economy: Can it Get Back on Track?As the rhetoric flies around the political parties’ national conventions,  it is worth remembering that the economic problems we face have been brewing for 10 to 15 years or more.  It is also good to keep in mind that anything we do to solve them will not change the fundamental issues for 10 to 15 years to come.  This article from HBS asks “Can America Compete?” and offers strategies for economic revival.

Click here for article: Can America Compete