Our friends Q (the queriful consumer) and A (the adviser) are back. Today they're talking stocks:
Q: What a crazy week for the stock market!
Q: What does the 170,000 non-farm jobs number tell us?
A: That there were 170,000 non-farm jobs added last month.
Q: I mean what does that say about the stock market? Does today's 200 point rally make sense?
A: Sure, why not?
Q: Well, it seems all I'm hearing is that the market is being held up by Fed intervention.
A: Perhaps it is.
Q: So you agree?
Q: But you said "perhaps it is".
A: That's right. Perhaps it is possible that every buyer who has bought stocks lately did so based on what the Fed's up to, it's just highly improbable.
Q: So you'll continue to hold stocks when the Fed pulls back?
A: Of course.
Q: But what if the experts are right and stocks sell off?
A: That would be beautiful!
Q: Huh, why?
A: Because I've no reason to sell, and I'll be rebalancing soon.
Q: So what would make you sell?
A: Oh, maybe I've done really well in, say, consumer staples stocks and want to take some profit and buy, say, energy stocks.
Q: But what would make you sell and stay out of stocks altogether?
A: Well, I'd sell some, but not all, to rebalance back to my target.
Q: So you're telling me there's nothing that would inspire you to get entirely out of stocks.
A: Well, maybe if the price to earnings ratio for the S&P 500 Index gets to 1999 levels once again, then I might add a little defense and put in some stop loss orders, or I could buy put options. But I wouldn't outright sell even based on that metric.
Q: But I watch a lot of CNBC, and the experts are always talking about whether to buy or sell.
A: Yeah, I watch that too. Most of the time with the sound off until someone comes on who I think might say something I can write about. As for the prognosticators, well, I have no use for them. They can't help me.
Q: Can't help you? You think you're smarter than they are?
A: Um, well, depends on how you measure "smart". I'll bet 99% of them are far better at math than I am. I'll bet the vast majority are more versed in technical stock patterns than I am. And that they're more up to speed on Apple's EBITDA. So if all that equals smarts, they're way smarter than me.
But, thank goodness for my clients, there is one area where I hold a distinct advantage, humility. I know enough to know that the economy and the markets are too complex for any human, or machine---as history has proven over and over and over again---to accurately predict with any semblance of consistency whatsoever.
Q: So what do you base your investment recommendations on?
A: A number of factors; first and foremost the client's age, objectives and personality. My experience with regard to the various sectors of the economy and how to diversify within, and rotate among, those sectors is important as well --- along with my understanding of fixed income investments and the associated interest rate and credit risk. And of course my comfort with allocating to non-U.S. securities is critical to our asset allocation process as well.
But when it comes to predicting the near-term direction of the markets, I'll have none of it. Our clients are all long-term investors.
Q: So you think, long-term, the market's going up.
A: I think, long-term, some publicly traded companies will profitably produce goods and services, and I want to receive their dividends. Some will trade at higher stock prices over time, some won't. I'll stay very diversified and expect to own more of the former.
And that's pretty much the long and the short of it.
Q: You sure make it a lot less complicated than they do on CNBC.
A: That's the nicest thing you've ever said to me!