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The Greatest Pro-Investor Breakthrough in Wall Street History

“Most people are beaten up by the market instead of beating the market.” — Mark T. Hebner (“Maxims of Wall Street,” p. 194) What event signifies the greatest breakthrough in Wall Street history? It could be: A.) The creation of the Dow Jones…

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“Most people are beaten up by the market instead of beating the market.” — Mark T. Hebner (“Maxims of Wall Street,” p. 194)

What event signifies the greatest breakthrough in Wall Street history?

It could be:

  • A.) The creation of the Dow Jones Industrial Average in 1884. 
  • B.) The invention of mutual funds in the 1920s.
  • C.) The first day of trading stock options (the best way to speculate). 
  • D.) The creation of the first discount brokerage firm (Charles Schwab & Co.). 
  • E.) The invention of the first index fund. 

The last three all took place in the mid-1970s, in the midst of inflationary times. In many ways, the 1970s were a major financial revolution.

And I was in the middle of it, starting my career in the world of high finance.

And the Winner is…

In many ways, the creation of the first retail index fund, the Vanguard S&P 500 Index Fund, was the most important event of the past 100 years on Wall Street.

Why? Because it is the most successful investment vehicle ever. The two largest money managers in the country are Jack Bogle’s Vanguard Group and Larry Fink’s BlackRock. Both specialize by investing in mutual funds and exchange-traded funds (ETFs).

I just finished reading the fascinating story of index funds and exchange-traded funds.

The book is called “Trillions: How a Band of Wall Street Renegades Invented the Index Fund and Changed Finance Forever.” It is written by Robin Wigglesworth, a writer for the Financial Times. It is a remarkable story worth reading. You can buy it here from Amazon. 

In reading, I was amazed how many of the people who are mentioned in the book that I’ve met over the years, including Warren Buffett, Jack Bogle, Burt Malkiel, Paul A. Samuelson, Charles Schwab, Jeremy Siegel and Harry Markowitz.

Index Funds: From Zero to Hero

The first S&P 500 Index fund hardly got off the ground. First, it was created and sold to institutions, and it was not very popular. Most Wall Street firms considered it an insult to their skills in beating the market.

But when study after study showed that the vast majority of brokers, mutual funds and money managers could not consistently beat the market over long periods, suddenly the index funds looked more appealing.

As Robert R. Julian observed, “In the world of investing, being average means you are one of the best students in the class.” (Maxims, p. 193)

Charles Ellis made this point in his book, “The Loser’s Game.” He said, “Investment managers are not beating the market. The market is beating them.” (p. 193)

Meeting the legend Jack Bogle and Forbes Editor Bill Baldwin at the Forbes 100 anniversary in New York City in 2017.

The real breakthrough came in 1975, when Jack Bogle came up with the no-load Vanguard 500 Index Fund, which reflected the rise and fall of the S&P 500. After a modest rise, it became one of the largest no-load funds in the country, valued at over $850 billion. It has an average annual return of 10% since its inception.

That’s hard to beat, since most actively managed funds have higher administrative costs, pay more in taxes and are never fully invested. 

The index fund is like the rejected stone that became the chief cornerstone, as the Bible says (Psalms 118:22, Acts 4:11). 

Warren Buffett Beat the Market… Until He Didn’t

“Trillions” starts with a famous bet that Warren Buffett made against a hedge fund guru in 2008. Buffett bet that no hedge fund could beat the stock indexes over a 10-year period, not even his own company Berkshire Hathaway. 

He won the bet easily.

 

Notice that I’m giving advice to the world’s most successful investor.

It is true that recently Warren Buffett has become a believer in the efficient market theory (EMT) and that index funds are a better deal than his own Berkshire Hathaway fund. Index funds have beaten Berkshire for over 10 years now.

But that wasn’t always the case. When his fund was much smaller, he felt he could take advantage of the occasional inefficiencies in the market, and thereby handily beat the market.

Here is what he wrote in the 1988 shareholder report:

“The continuous 63-year arbitrage experience of Graham-Newman Corp., Buffett Partnership, and Berkshire illustrates just how foolish EMT is. While at Graham-Newman, I made a study of its earnings from arbitrage during the entire 1926-1956 lifespan of the company.  Unleveraged returns averaged 20% per year. Starting in 1956, I applied Ben Graham’s arbitrage principles, first at Buffett Partnership and then Berkshire. Though I’ve not made an exact calculation I have done enough work to know that the 1956-1988 returns averaged well over 20%.

“Over the 63 years, the general market delivered just under a 10% annual return, including dividends. That means $1,000 would have grown to $405,000 if all income had been reinvested. A 20% rate of return, however, would have produced $97 million. That strikes us as a statistically significant differential might, conceivably, arouse one’s curiosity.”  

Buffett did not suggest at the time that making 20% a year in arbitrage techniques is easy. But he claimed that inefficient situations do occur from time to time, and smart investors like himself can take advantage. According to Buffett, the problem with the EMT is that it always assumes efficiency.

“Observing correctly that the market is frequently efficient, they went on to conclude that it was always efficient,” Buffett wrote. “The difference between these propositions is night and day.”

The idea that Buffett’s success for 63 years was just luck is highly suspect. We’re talking here about thousands of buy-and-sell decisions. The same applies to Peter Lynch’s approach to invest in the Magellan Fund over a 15-year period. Luck can be the case when there may be several dozen buy-and-sell decisions, but when you are making thousands using a specific strategy, it’s more skill than luck if you are consistently beating the market. The strategy cannot be too popular, however. It has to be a bit of a contrarian strategy to be successful. And that’s rare.

Who’s the New Warren Buffett? Ron Baron!

It’s difficult to beat the market consistently, but that’s not to say it can’t be done. Occasionally, there are entrepreneurs who, over time, outperform.

One of those is Ron Baron, the CEO of the Baron group of no-load funds. We’ve been recommending two of them in Forecasts & Strategies and have done well. One of his funds was ranked #1 over the past 20 years among thousands of mutual funds.

Ron’s secret is to find top managers. His motto is, “We invest in people, not businesses.” (Maxims, p. 70)

Meeting billionaire Ron Baron at the Baron Investment Conference in New York City, 2019.

One of Baron’s favorite business managers is Elon Musk, CEO of Tesla and SpaceX. Baron regards Musk as “the most accomplished and consequential engineer on our planet.”

Baron wrote that Musk is the CEO of two leading “disruptive” technology businesses. The first is the electric vehicle, extended range battery, alternative energy and software business, Tesla, Inc. The second is the privately owned rocket ship, launch and satellite broadband provider, Space Exploration Technologies Corp. (SpaceX).

According to a recent survey published in Science Times, Tesla and SpaceX were ranked as “the most attractive firms for leading engineering students (to seek employment) in the U.S.” That survey reports “the electric car company topped the list and the private space company ranked second.”

Baron is still bullish on both. He stated, “We expect Tesla and SpaceX to each become substantially larger, more profitable and much more valuable during the next 10 years.”

Wall Street’s Most Unique Book

I began this Skousen CAFÉ with a list of breakthroughs in the investment world. 

I believe I have contributed to this list of breakthroughs by compiling and editing all the great financial proverbs and sayings into one book. The result is the publication of “The Maxims of Wall Street,” the FIRST AND ONLY compendium of all the financial adages, ancient proverbs and worldly wisdom of the investment gurus. 

As Jack Bogle himself wrote me, “What a treat! It’s great to have all these quotes in a single spot.”

I list them in some 50 categories, such as “fear and greed”… “risk and reward”…. “predicting the future”… “humility and vanity”… “financial privacy”… “diversification vs concentration”… “worrying about losses”… “market timing”…“missed investment opportunities”… “dividends and income investing”… “value vs. growth”… “penny stocks and gold bugs”… “when to sell”… and “making it big on Wall Street.”

It includes lots of stories by Bernard Baruch, Joe Kennedy, Jesse Livermore and the “Rich Man’s Pearls of Wisdom.”

New 10th Anniversary Edition Just Published

The “Maxims” has been a big success, with over 40,000 copies sold. I just updated the 10th anniversary edition, hot off the press for the new year.

Kim Githler, president of the MoneyShow, said “It’s my favorite book.”

What’s new? I tell the story “A Young Widow’s Lazy Way to Riches.”

A young widow inherited a lot of securities from her deceased husband. Not knowing anything about finance, she took a very simple approach to this newfound wealth. She kept only those stocks that continued to send her regular dividend checks and sold any stocks which omitted dividends, or which didn’t pay any dividends at all. Over the years, her wealth increased dramatically, and she died a wealthy woman.

See p. 184 under the section, “Dividend-paying stocks.”

Here’s a couple of other great quotes just added to the second printing:

“If you mix your politics with your investment decisions, you’re making a big mistake.” — Warren Buffett (p. 149)

“There are two kinds of people who lose money: those who know nothing and those who know everything.” — Henry Kaufman (“Dr. Doom”) (p. 122)

“The trend is your friend until the bend is at the end.” — Kurt Merkel (p. 115)

“The first rule of racing is to break off the rearview mirror.” — Italian racecar driver (p. 64)

There are many others that have been added to this edition.

“Maxims” has been endorsed by Warren Buffett, Jack Bogle, Alex Green, Barron’s and many others. Kim Githler, the president of the MoneyShows, says: “It’s my favorite book. Every quote is a lesson in finance.”

Dennis Gartman, the editor of the Gartman Letter, says it best: “It’s amazing the depth of wisdom one can find in just or two lines from your book. I have it on my desk and refer to it daily.” 

Half Off If You Order More than One Copy

I autograph, date and number each copy. To order your copies now, go to www.skousenbooks.com. The price is $20 for the first copy, and all additional copies are $10 each. They make a great gift for investors, clients, friends and relatives.

If you order a box (32 copies), the price is only $300 (less than $10 per copy). As Hetty Green, America’s first female millionaire, said, “When I see a good thing going cheap, I buy a lot of it.” (p. 38)

I pay all postage if the books are mailed inside the United States.

Start the new year off with a fresh copy of “The Maxims of Wall Street.” You’ll be glad you did.

You Nailed It! Finally, a Government Cares about the Health of Its Citizens During the COVID-19 Pandemic

“This is exactly what U.S. should be doing.” — Steve Moore, Committee to Unleash Prosperity

El Salvador is our savior! It is making headlines for adopting Bitcoin as its official currency.

And now it has started a campaign in favor of healthy living instead of just focusing on the symptoms of COVID-19 (wearing masks and getting vaccinated).

It is about time a nation came out with a new ad campaign in favor of having a heathy diet, getting plenty of exercise and sleep and avoiding stress through yoga or reading a book. Wearing masks and getting vaccinated only deal with the symptoms. Watch the one-minute video here: https://www.youtube.com/watch?v=dv1zK521oVM.

Pass it along!  

Wearing masks and taking the shots are short-term solutions, but they don’t change the fact that over 70% of Americans are overweight, and way too many suffer from heart disease, diabetes, cancer and strokes, all preventable if we adopted a healthy living lifestyle.

The post The Greatest Pro-Investor Breakthrough in Wall Street History appeared first on Stock Investor.

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The Coming Of The Police State In America

The Coming Of The Police State In America

Authored by Jeffrey Tucker via The Epoch Times,

The National Guard and the State Police are now…

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5 hours ago

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March 9, 2024

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The Coming Of The Police State In America

Authored by Jeffrey Tucker via The Epoch Times,

The National Guard and the State Police are now patrolling the New York City subway system in an attempt to do something about the explosion of crime. As part of this, there are bag checks and new surveillance of all passengers. No legislation, no debate, just an edict from the mayor.

Many citizens who rely on this system for transportation might welcome this. It’s a city of strict gun control, and no one knows for sure if they have the right to defend themselves. Merchants have been harassed and even arrested for trying to stop looting and pillaging in their own shops.

The message has been sent: Only the police can do this job. Whether they do it or not is another matter.

Things on the subway system have gotten crazy. If you know it well, you can manage to travel safely, but visitors to the city who take the wrong train at the wrong time are taking grave risks.

In actual fact, it’s guaranteed that this will only end in confiscating knives and other things that people carry in order to protect themselves while leaving the actual criminals even more free to prey on citizens.

The law-abiding will suffer and the criminals will grow more numerous. It will not end well.

When you step back from the details, what we have is the dawning of a genuine police state in the United States. It only starts in New York City. Where is the Guard going to be deployed next? Anywhere is possible.

If the crime is bad enough, citizens will welcome it. It must have been this way in most times and places that when the police state arrives, the people cheer.

We will all have our own stories of how this came to be. Some might begin with the passage of the Patriot Act and the establishment of the Department of Homeland Security in 2001. Some will focus on gun control and the taking away of citizens’ rights to defend themselves.

My own version of events is closer in time. It began four years ago this month with lockdowns. That’s what shattered the capacity of civil society to function in the United States. Everything that has happened since follows like one domino tumbling after another.

It goes like this:

1) lockdown,

2) loss of moral compass and spreading of loneliness and nihilism,

3) rioting resulting from citizen frustration, 4) police absent because of ideological hectoring,

5) a rise in uncontrolled immigration/refugees,

6) an epidemic of ill health from substance abuse and otherwise,

7) businesses flee the city

8) cities fall into decay, and that results in

9) more surveillance and police state.

The 10th stage is the sacking of liberty and civilization itself.

It doesn’t fall out this way at every point in history, but this seems like a solid outline of what happened in this case. Four years is a very short period of time to see all of this unfold. But it is a fact that New York City was more-or-less civilized only four years ago. No one could have predicted that it would come to this so quickly.

But once the lockdowns happened, all bets were off. Here we had a policy that most directly trampled on all freedoms that we had taken for granted. Schools, businesses, and churches were slammed shut, with various levels of enforcement. The entire workforce was divided between essential and nonessential, and there was widespread confusion about who precisely was in charge of designating and enforcing this.

It felt like martial law at the time, as if all normal civilian law had been displaced by something else. That something had to do with public health, but there was clearly more going on, because suddenly our social media posts were censored and we were being asked to do things that made no sense, such as mask up for a virus that evaded mask protection and walk in only one direction in grocery aisles.

Vast amounts of the white-collar workforce stayed home—and their kids, too—until it became too much to bear. The city became a ghost town. Most U.S. cities were the same.

As the months of disaster rolled on, the captives were let out of their houses for the summer in order to protest racism but no other reason. As a way of excusing this, the same public health authorities said that racism was a virus as bad as COVID-19, so therefore it was permitted.

The protests had turned to riots in many cities, and the police were being defunded and discouraged to do anything about the problem. Citizens watched in horror as downtowns burned and drug-crazed freaks took over whole sections of cities. It was like every standard of decency had been zapped out of an entire swath of the population.

Meanwhile, large checks were arriving in people’s bank accounts, defying every normal economic expectation. How could people not be working and get their bank accounts more flush with cash than ever? There was a new law that didn’t even require that people pay rent. How weird was that? Even student loans didn’t need to be paid.

By the fall, recess from lockdown was over and everyone was told to go home again. But this time they had a job to do: They were supposed to vote. Not at the polling places, because going there would only spread germs, or so the media said. When the voting results finally came in, it was the absentee ballots that swung the election in favor of the opposition party that actually wanted more lockdowns and eventually pushed vaccine mandates on the whole population.

The new party in control took note of the large population movements out of cities and states that they controlled. This would have a large effect on voting patterns in the future. But they had a plan. They would open the borders to millions of people in the guise of caring for refugees. These new warm bodies would become voters in time and certainly count on the census when it came time to reapportion political power.

Meanwhile, the native population had begun to swim in ill health from substance abuse, widespread depression, and demoralization, plus vaccine injury. This increased dependency on the very institutions that had caused the problem in the first place: the medical/scientific establishment.

The rise of crime drove the small businesses out of the city. They had barely survived the lockdowns, but they certainly could not survive the crime epidemic. This undermined the tax base of the city and allowed the criminals to take further control.

The same cities became sanctuaries for the waves of migrants sacking the country, and partisan mayors actually used tax dollars to house these invaders in high-end hotels in the name of having compassion for the stranger. Citizens were pushed out to make way for rampaging migrant hordes, as incredible as this seems.

But with that, of course, crime rose ever further, inciting citizen anger and providing a pretext to bring in the police state in the form of the National Guard, now tasked with cracking down on crime in the transportation system.

What’s the next step? It’s probably already here: mass surveillance and censorship, plus ever-expanding police power. This will be accompanied by further population movements, as those with the means to do so flee the city and even the country and leave it for everyone else to suffer.

As I tell the story, all of this seems inevitable. It is not. It could have been stopped at any point. A wise and prudent political leadership could have admitted the error from the beginning and called on the country to rediscover freedom, decency, and the difference between right and wrong. But ego and pride stopped that from happening, and we are left with the consequences.

The government grows ever bigger and civil society ever less capable of managing itself in large urban centers. Disaster is unfolding in real time, mitigated only by a rising stock market and a financial system that has yet to fall apart completely.

Are we at the middle stages of total collapse, or at the point where the population and people in leadership positions wise up and decide to put an end to the downward slide? It’s hard to know. But this much we do know: There is a growing pocket of resistance out there that is fed up and refuses to sit by and watch this great country be sacked and taken over by everything it was set up to prevent.

Tyler Durden Sat, 03/09/2024 - 16:20

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Low Iron Levels In Blood Could Trigger Long COVID: Study

Low Iron Levels In Blood Could Trigger Long COVID: Study

Authored by Amie Dahnke via The Epoch Times (emphasis ours),

People with inadequate…

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9 hours ago

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March 9, 2024

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Low Iron Levels In Blood Could Trigger Long COVID: Study

Authored by Amie Dahnke via The Epoch Times (emphasis ours),

People with inadequate iron levels in their blood due to a COVID-19 infection could be at greater risk of long COVID.

(Shutterstock)

A new study indicates that problems with iron levels in the bloodstream likely trigger chronic inflammation and other conditions associated with the post-COVID phenomenon. The findings, published on March 1 in Nature Immunology, could offer new ways to treat or prevent the condition.

Long COVID Patients Have Low Iron Levels

Researchers at the University of Cambridge pinpointed low iron as a potential link to long-COVID symptoms thanks to a study they initiated shortly after the start of the pandemic. They recruited people who tested positive for the virus to provide blood samples for analysis over a year, which allowed the researchers to look for post-infection changes in the blood. The researchers looked at 214 samples and found that 45 percent of patients reported symptoms of long COVID that lasted between three and 10 months.

In analyzing the blood samples, the research team noticed that people experiencing long COVID had low iron levels, contributing to anemia and low red blood cell production, just two weeks after they were diagnosed with COVID-19. This was true for patients regardless of age, sex, or the initial severity of their infection.

According to one of the study co-authors, the removal of iron from the bloodstream is a natural process and defense mechanism of the body.

But it can jeopardize a person’s recovery.

“When the body has an infection, it responds by removing iron from the bloodstream. This protects us from potentially lethal bacteria that capture the iron in the bloodstream and grow rapidly. It’s an evolutionary response that redistributes iron in the body, and the blood plasma becomes an iron desert,” University of Oxford professor Hal Drakesmith said in a press release. “However, if this goes on for a long time, there is less iron for red blood cells, so oxygen is transported less efficiently affecting metabolism and energy production, and for white blood cells, which need iron to work properly. The protective mechanism ends up becoming a problem.”

The research team believes that consistently low iron levels could explain why individuals with long COVID continue to experience fatigue and difficulty exercising. As such, the researchers suggested iron supplementation to help regulate and prevent the often debilitating symptoms associated with long COVID.

“It isn’t necessarily the case that individuals don’t have enough iron in their body, it’s just that it’s trapped in the wrong place,” Aimee Hanson, a postdoctoral researcher at the University of Cambridge who worked on the study, said in the press release. “What we need is a way to remobilize the iron and pull it back into the bloodstream, where it becomes more useful to the red blood cells.”

The research team pointed out that iron supplementation isn’t always straightforward. Achieving the right level of iron varies from person to person. Too much iron can cause stomach issues, ranging from constipation, nausea, and abdominal pain to gastritis and gastric lesions.

1 in 5 Still Affected by Long COVID

COVID-19 has affected nearly 40 percent of Americans, with one in five of those still suffering from symptoms of long COVID, according to the U.S. Centers for Disease Control and Prevention (CDC). Long COVID is marked by health issues that continue at least four weeks after an individual was initially diagnosed with COVID-19. Symptoms can last for days, weeks, months, or years and may include fatigue, cough or chest pain, headache, brain fog, depression or anxiety, digestive issues, and joint or muscle pain.

Tyler Durden Sat, 03/09/2024 - 12:50

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February Employment Situation

By Paul Gomme and Peter Rupert The establishment data from the BLS showed a 275,000 increase in payroll employment for February, outpacing the 230,000…

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March 9, 2024

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By Paul Gomme and Peter Rupert

The establishment data from the BLS showed a 275,000 increase in payroll employment for February, outpacing the 230,000 average over the previous 12 months. The payroll data for January and December were revised down by a total of 167,000. The private sector added 223,000 new jobs, the largest gain since May of last year.

Temporary help services employment continues a steep decline after a sharp post-pandemic rise.

Average hours of work increased from 34.2 to 34.3. The increase, along with the 223,000 private employment increase led to a hefty increase in total hours of 5.6% at an annualized rate, also the largest increase since May of last year.

The establishment report, once again, beat “expectations;” the WSJ survey of economists was 198,000. Other than the downward revisions, mentioned above, another bit of negative news was a smallish increase in wage growth, from $34.52 to $34.57.

The household survey shows that the labor force increased 150,000, a drop in employment of 184,000 and an increase in the number of unemployed persons of 334,000. The labor force participation rate held steady at 62.5, the employment to population ratio decreased from 60.2 to 60.1 and the unemployment rate increased from 3.66 to 3.86. Remember that the unemployment rate is the number of unemployed relative to the labor force (the number employed plus the number unemployed). Consequently, the unemployment rate can go up if the number of unemployed rises holding fixed the labor force, or if the labor force shrinks holding the number unemployed unchanged. An increase in the unemployment rate is not necessarily a bad thing: it may reflect a strong labor market drawing “marginally attached” individuals from outside the labor force. Indeed, there was a 96,000 decline in those workers.

Earlier in the week, the BLS announced JOLTS (Job Openings and Labor Turnover Survey) data for January. There isn’t much to report here as the job openings changed little at 8.9 million, the number of hires and total separations were little changed at 5.7 million and 5.3 million, respectively.

As has been the case for the last couple of years, the number of job openings remains higher than the number of unemployed persons.

Also earlier in the week the BLS announced that productivity increased 3.2% in the 4th quarter with output rising 3.5% and hours of work rising 0.3%.

The bottom line is that the labor market continues its surprisingly (to some) strong performance, once again proving stronger than many had expected. This strength makes it difficult to justify any interest rate cuts soon, particularly given the recent inflation spike.

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