January 2016 Monthly Market Commentary
Technology changes nowadays at breakneck speed. Just remember that 90% of Americans had landlines 10 years ago. Now, only half do. RCA was between the 1920's and the 1960's a huge success story and this was also reflected in its stock price performance between 1925 and 1929. In the 1960s it began to fade away.
I do not wish to discuss here the merits of Apple as an investment. However, given the history of RCA (between the peak in 1929 and the low in 1932 the stock declined by more than 90%), and the stock price history of subsequent technology leaders, I would rather avoid the stock than be a shareholder.
Actually, Apple and also the FANG stocks (Facebook, Amazon, Netflix, Google), not only reminds me of RCA, but also of the nifty fifty stocks in the early 1970's about which I have written before. In the 1973/74 bear market, Polaroid, Eastman Kodak, Avon and Xerox cratered by between 70% and 90% (Polaroid and Eastman Kodak went bankrupt in recent years).
As Oded Galor and Omer Moave explained in the Quarterly Journal of Economics in 2002, “It is not the strongest who survive, nor the most intelligent, but the most responsive to change.” Facebook, Amazon, Netflix, Google and Apple are all great companies, however, investors should remember that for every big winner there are lots of companies which vanish or there are companies whose stocks perform poorly despite being successful (Yahoo, Yelp, Twitter are examples).
I read in Barron’s that none of Wall Street’s top strategists thought that the market could fall in 2016. According to Barron’s, based on these strategists’ mean forecast, the Standard & Poor’s 500 index will end next year at 2220. [The same strategists predicted that the S&P would close in December 2015 at between 2,200 and 2,350.]
I find this optimism quite remarkable for a number of reasons. Whereas the S&P 500 is basically flat for the year the average stock in the US - as represented by the Value Line Arithmetic Index - has performed poorly since early 2014 and it is down by 11% since the April 2015 high.
Fascinating is also the fact that the shares of some of the financial institutions these optimistic forecasters and cheerleaders work for have performed miserably Franklin Templeton (BEN) reached a high of $58 in December 2014. It is down 37% since then and the stock is no higher than it was in early 2011.
The bullishness among fund managers and strategists does not surprise me though. I know personally several strategists who were maximum bullish as the financial institutions they worked for went bankrupt or had to be bailed out. Moreover, most forecasters believe in the omnipotence of Miss Yellen and her great skills as an economist and forecaster (good luck to them). It is therefore natural that they will always be optimistic.
Most investors will think that 2015 was a waste of time because no asset class really worked well (actually most investments lost money). However, as August Rodin wrote, “Nothing is a waste of time if you use the experience wisely.”
Finally, as people wish you a Happy New Year remember that “people forget years and remember moments” (Ann Beattie) and that as La Rochefoucauld wrote, “A true friend is the most precious of all possessions and the one we take the least thought about acquiring” – sadly so, I might add.
I wish you all, my readers, incredible moments in 2016 with your families and friends, and I thank you for your continuous support and friendship.
Yours sincerely
Marc Faber
via GLOOMBOOMDOOM.COM
