Tags Posts tagged with "stocks"


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By Michael Christodoulou

You’ll find some big differences between traditional and speculative investments — and knowing these differences can matter a great deal when you’re trying to reach your financial goals.

To begin with, let’s look at the basic types of traditional and speculative investments. Traditional investments are those with which you’re probably already familiar: stocks, bonds, mutual funds, government securities, certificates of deposit (CDs) and so on. Speculative investments include cryptocurrencies, foreign currencies and precious metals such as gold, silver and copper.

Now, consider these three components of investing and how they differ between traditional and speculative investments:

The first issue to consider is risk. When you own stocks or stock-based mutual funds, the value of your investments will fluctuate. And bond prices will also move up and down, largely in response to changing interest rates. However, owning an array of stocks — small-company, large-company, international, etc. — can help reduce the impact of volatility on your stock portfolio. And owning a mix of short- and long-term bonds can help you defend yourself somewhat against interest-rate movements. 

When interest rates fall, you’ll still have your longer-term bonds, which generally — but not always – pay higher rates than short-term ones. And when interest rates rise, you can redeem your maturing short-term bonds at potentially higher rates.

With speculative investments, though, price movements can be extreme as well as rapid. During their short history, cryptocurrencies in particular have shown astonishingly fast moves up and down, resulting in huge gains followed by equally huge, or bigger, losses. The risk factor for crypto is exacerbated by its being largely unregulated, unlike with stocks and bonds, whose transactions are overseen by well-established regulatory agencies. There just isn’t much that investors can do to modulate the risk presented by crypto and some other speculative investments.

A second key difference between traditional and speculative investments is the time horizon involved. When you invest in stocks and other traditional investments, you ideally should be in it for the long term — it’s not a “get rich quick” strategy. But those who purchase speculative investments want, and expect, quick and sizable returns, despite the considerable risk involved.

A third difference between the two types of investments is the activity required by investors. When you’re a long-term investor in traditional investments, you may not have to do all that much once you’ve built a portfolio that’s appropriate for your risk tolerance, goals and time horizon. 

After that point, it’s mostly just a matter of monitoring your portfolio and making occasional moves — you’re not constantly buying and selling, or at least you shouldn’t be. But when you speculate in crypto or other instruments, you are constantly watching prices move — and then making your own moves in response. It’s an activity that requires considerable attention and effort.

One final thought: Not all speculative instruments are necessarily bad investments. Precious metals, for instance, are found in some traditional mutual funds, sometimes in the form of shares of mining companies. And even crypto may become more of a stable vehicle once additional regulation comes into play. 

But if you’re investing for long-term goals, such as a comfortable retirement — rather than speculating for thrills and quick gains, which may disappear just as quickly — you may want to give careful thought to the types of investments you pursue.

Michael Christodoulou, ChFC®, AAMS®, CRPC®, CRPS® is a Financial Advisor for Edward Jones in Stony Brook. Member SIPC.

Artificial Intelligence. Pixabay photo

By Michael E. Russell

Michael E. Russell

Two weeks ago I had the scary experience of watching 60 Minutes on CBS. The majority of the telecast pertained to A.I. (artificial intelligence). Scott Pelley of CBS interviewed Google CEO Sandar Pichai. His initial quote was that A.I. “will be as good or as evil as human nature allows.” The revolution, he continued, “is coming faster than one can imagine.”

I realize that my articles should pertain to investing, however, this 60 Minutes segment made me question where we as a society are headed.

Google and Microsoft are investing billions of dollars into A.I. using microchips built by companies such as Nvidia. What CEO Sundar has been doing since 2019 is leading both Google and its parent company Alphabet, valued at $1.3 trillion. Worldwide, Google runs 90% of internet searches and 70% of smartphones. It is presently in a race with Microsoft for A.I. dominance. 

Two months ago Microsoft unveiled its new chatbot. Google responded by releasing its own version named Bard. As the segment continued, we were introduced to Bard by Google Vice President Sissie Hsiao. The first thing that hit me was that Bard does not scroll for answers on the internet like the Google search engine does.

What is confounding is that with microchips built by companies such as Nvidia, they are more than 100 thousand times faster than the human brain. In my case, maybe 250 thousand times faster! 

Bard was asked to summarize the New Testament as a test. It accomplished this in 5 seconds. Using Latin, it took 4 seconds.  I need to sum this up. In 10 years A.I. will impact all aspects of our lives. The revolution in artificial intelligence is in the middle of a raging debate that has people on one side hoping it will save humanity, while others are predicting doom. I believe that we will be having many more conversations in the near future.

Okay folks, where is the economy today?  Well, apparently inflation is still a major factor in our everyday life. The Fed will probably increase rates for a 10th time in less than 2 years.

Having been employed by various Wall Street firms over the past 4 decades, I have learned that high priced analysts have the ability to foresee market direction no better than my grandchildren.

Looking back to May 2011, our savvy elected officials increased our debt-ceiling which led to the first ever downgrade of U.S. debt from its top triple A rating from S&P. This caused a very quick 19% decline in the S&P index.  Sound familiar?

It appears that the only time Capitol Hill tries to solve the debt ceiling impasse is when their own portfolio is affected.

This market rally has been led by chatbot affiliated companies. These stocks have added $1.4 trillion in stock market value this year. Keep in mind that just 6 companies were responsible for almost 60% of S&P gains.  These are the 6 leaders: Microsoft, Alphabet, Amazon, Meta Platform, Salesforce and of course, Nvidia.

In the meantime, the Administration states that inflation has been reined in.  What stores are they shopping in? Here is the data release from Washington. Year over Year changes March 2022-March 2023:

• Food and non-alcoholic beverages up 8.1%

• Bread and cereal products up 10.8%

• Meat and seafood up 4.3%

• Electricity up 15.7%

When 1 pound of hot dogs rises from $3.25 to $7.50, that is not 8.1%. When Froot Loops go from $1.89 to $5.14 we are in trouble. The bureaucrats in D.C. make up numbers worse than George Santos.

On a positive note, the flowers are starting to bloom, the grass is starting to grow and we live in a special place. Of historic significance, we happen to be home to the second oldest active Episcopal Church in the United States. This year Caroline Church in Setauket will be celebrating its 300th anniversary. Congratulations.

Michael E. Russell retired after 40 years working for various Wall Street firms. All recommendations being made here are not guaranteed and may incur a loss of principal. The opinions and investment recommendations expressed in the column are the author’s own. TBR News Media does not endorse any specific investment advice and urges investors to consult with their financial advisor. 

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By Michael E. Russell

Michael E. Russell

After a rocky start this past February, I am really looking forward to St. Patrick’s Day.

The world economy is showing resilience despite higher energy and food prices as well as rising borrowing costs. This is troubling in that the Federal Reserve may have to continue raising rates in order to bring inflation under control.

The World Bank has been blindsided by the growing vitality shown by the economies of the U.S., Europe and the surprising data coming out of China.

At the close of 2022, the World Bank was predicting that 2023 would be one of the weakest years for the economy in decades. Well, so much for having advanced degrees from the Wharton School and Harvard! I probably should not have said that, but couldn’t help it.

To explain, when the U.S. Central Bank raises rates, emerging markets borrowing costs rise causing currencies and exports to weaken. It is important to note that the 5 major emerging markets are Brazil, India, South Africa, Russia and China.

There is nothing in the near term that indicates that Fed policy has slowed growth and inflation. Many analysts are now saying that a recession will be delayed until 2024. Let us hope that they continue to be wrong! There was a cartoon in last week’s Wall Street Journal that says it all. At an economists meeting a speaker was looking at a report and stated, “This opinion is vague, it needs to be made extremely vague.” And so it goes, always certain but seldom right.

Even the brightest of the bright make mistakes. Goldman Sachs Group Inc. has admitted that its plan to be the bank for everybody failed miserably. Goldman should have stayed with the business model that had worked for decades, managing the wealth of institutions and high net-worth individuals. This model has generated steady fees, no matter what the direction of the market. As an example, their Asset and Wealth unit generated almost $10 billion in profit last year. Why would they want to start servicing checking accounts? Wharton School, Harvard? Oops, sorry again.

Back to the market. February showed that inflation isn’t slowing as fast as expected. Bond and Stock markets underperformed as interest rates spiked. The 10 year treasury bond hit 4% while 1 and 2 year notes reached 5%. The S&P dropped 2 ½%, Dow Industrials down 4.2% and the Nasdaq down 1%.

U.S. equity funds declined by 2.2% cutting the yearly gain to less than 5%. Energy, Science and Technology were the best performers showing losses of less than 1%. At the close of February, Gold fell 5.5%, the worst loss in more than 18 months. Until inflation eases, Gold will probably continue to show losses.

This past week, Barron’s listed what it considers the 100 most sustainable U.S. companies. I have mentioned many of those companies in previous articles. One that I have strongly recommended is Nvidia [Nvda]. This stock was up 13% one day last week. I consider this U.S. company a long term holding in a portfolio. Nvidia is at the forefront of Artificial Intelligence [AI]. The U.S. government is partnering with Nvidia to help harness the power of A.I. to help solve some of society’s biggest challenges. [Purportedly]! They have now teamed with Microsoft to build a massive Cloud A.I. computer. The company has given robust forward guidance estimates for the next 5 years, thus my recommending holding for the long term. As a caveat, AMD is always a threat as well as Intel.  

Lastly, I really love these 2 year treasuries at 5%.

I hope each of you enjoy the coming spring which hopefully will bring lovely weather. On a closing note, happiest of birthdays to youngest son, Andrew Patrick, born on St. Patrick’s Day. Have one on me!!! 

Michael E. Russell retired after 40 years working for various Wall Street firms. All recommendations being made here are not guaranteed and may incur a loss of principal. The opinions and investment recommendations expressed in the column are the author’s own. TBR News Media does not endorse any specific investment advice and urges investors to consult with their financial advisor. 

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By Michael E. Russell

Michael E. Russell

Surprisingly the stock market has started off very strong. I wasn’t sure this would be the case. There are days when the market makes me feel like Fredo Corleone when he says to Michael that he is SMART, but apparently not so.

The S & P was up 6.5% in January with another 1.5% this past week. The NASDAQ is already up 11% for the year. Incredible! Almost all of the sectors that were crushed in 2022 have led this rally. Technology, financials, entertainment and commodities have recovered nicely. The groups that held up well in 2022 when the S & P fell more than 20% are all underperforming — consumer staples, utilities, and healthcare; these groups are all down approximately 3%.

There have been some crazy upward moves by many stocks. Tesla is up 85 points so far this year; NVDA up 68 points, year to date; Netflix up 72 points … I could go on. Viewers of CNBC have heard many analysts speak highly of NVDA. With the advance of artificial intelligence, this company seems to have found a special niche — a long-term holding.

The Federal Reserve raised rates by the expected 25 basis points. A day later, non-farm payrolls increased by 517,000. This was more than 2½ times the economists’ consensus forecast. The unemployment rate fell to less than 3.5%. This level has not been seen since the mid 1960s. Chairman Powell probably wishes he waited two more days before he announced the Federal Open Market Committee’s ¼% increase. The number would have been closer to ½%. I believe that we will see more rate hikes in the future.

I read some comments made by Warren Buffett’s vice chairman, 99 year-old Charlie Munger. Charlie has been an outspoken critic of bitcoin and all other unregulated digital tokens.  He wrote an article in the Wall Street Journal stating  “cryptocurrencies are a predatory scam targeting ordinary citizens.”  He further stated that “cryptocurrency is not a currency, not a commodity and not a security, instead it’s a gambling contract with a nearly 100% edge for the house.” He made a reference to the British Parliament’s passage of the Bubble Act in 1720. This Act banned trading speculative stock. I think Charlie was in the Parliament at the time of the vote!  Wow, 99 years old and still calling it correctly.

Speaking of surprises, Amazon officials have stated that they will probably have a loss this quarter. How can that be? There are 100 Amazon trucks a day in my neighborhood.

Interest rates have come into play. The 10 -year Treasury is yielding 3.5% while the one and two-year Treasury yield is 4.2%. This is called an inverted yield curve — short term rates yielding more than longer term rates. It does not pay to buy a long term bond while shorter duration bonds yield substantially more.

I try to end each article on a positive note but that is difficult this time. The Federal deficit has now reached a staggering 30 trillion dollars. You read that correctly, 30 trillion dollars. What this equates to is that every man, woman and child in this country are on the hook for $102,000 each. This number can only increase with the spending by the administration and congress. The madness must stop. Our elected officials don’t seem to care that we are reaching a point where this deficit cannot be repaid. We have been printing money with little thought as to how it gets paid back. Our Governor has proposed another $775 million dollars for Long Island schools. Where is the money coming from?  

Remember this article was written this past Sunday. A lot can happen in four days.  Did I just hear a balloon pop? No, a balloon was shot down. That will show them. In closing, I hope consumers are price shopping.  Gas prices vary as much as 80 cents a gallon.  Gouging? Probably. Cucumbers are 99 cents at one supermarket and $2 at another. Better cucumber? More importantly, happy hour prices at some local watering holes are all over the place. Please shop wisely. 

Michael E. Russell retired after 40 years working for various Wall Street firms. All recommendations being made here are not guaranteed and may incur a loss of principal. The opinions and investment recommendations expressed in the column are the author’s own. TBR News Media does not endorse any specific investment advice and urges investors to consult with their financial advisor. 

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By Michael E. Russell

Michael E. Russell

Happy New Year to all! At the very least, we can say that we are off to a rousing start. The Dow Jones Industrial Average rose a phenomenal 700+ points this past Friday. Not bad; another 7000 points and most of us will be even. 

My wife states that I always look at the glass as half empty. Somewhat true, but as I write this article, it is Happy Hour; consequently my glass is half empty!

There are so many things to write about. Where to start? Oh yeah, how about our new Congress Person representing New York’s 3rd congressional district. Brought to you by Saturday Night Live, Mr. George, you can’t make it up, Santos. Let me think about his credentials. Baruch College, NOPE. Worked at Citibank, NOPE. Worked at Goldman Sachs, NOPE. Jewish, NOPE. Jew-ish — that’s correct! 

Why do I write about this clown? [I don’t want to offend clowns, sorry]. I write about him because I hope they put him on the Congressional Finance Oversight Committee. A person that claimed he earned $6500 in 2020 was able to donate $175,000 to the Nassau Republican Committee in 2021 and lend his own campaign committee $750,000 in the same year. The man is a genius! How do you do that? I hope to be able to interview him for the next article. Boy oh boy, what we could learn. Alright, enough on this topic. UGH!

Starting with the bad news, it appears that Bed Bath & Beyond will have to close all of its stores — ran out of cash. They were never able to recover after the pandemic.

Sorry to digress, but speaking of clowns, it seems that Party City is also going into bankruptcy. So much for the song, “Send in the Clowns.” I really couldn’t help it!

Tesla is having its share of problems. It is cutting the cost of cars to be sold in China by 30%. Hey, what about us? Elon Musk appears to have become distracted by his purchase of Twitter. He needs to hire a new CEO for Twitter to show investors that he is refocused on Tesla. 

Growth stocks lost their luster in 2022. The Russell 1000 Growth Index fell by 30% versus a 10% decline in the Russell Value Index. This was the widest gap in many years. It appears that high interest will be with us for a quite a while since Treasury yields are the highest in 20 years, thus giving us somewhat of “risk free” returns for the short term. This makes growth stocks less attractive for the present due to falling multiples. Even though the Value Index fared better, an investor should still look at only the companies that have strong balance sheets, thus weathering this awful inflation period we are in.

Companies that looked like they would grow forever made some terrible decisions. Prior to the year 2020, Amazon doubled its staff to more than 1.5 million. Alphabet [Google] increased its staff more than double to 180,000!

What do we do? The 60/40 portfolio model looks much better today than it did 12 months ago. Bond yields are much higher and stock prices are much lower. Bear in mind however, despite falling more than 20% in 2022, the S&P 500 is still trading around 17 times earnings, nearing its historical average.

Please be aware that tomorrow, Friday, brings the start of fourth quarter earnings season, with some of America’s giants — Bank of America [BAC], United Health Group [UNH], JPMorgan Chase [JPM], and Delta Airlines [DAL] — reporting results. The consensus is that several S&P 500 companies are to report fourth quarter losses for the first time in quite a while.

Even though there are more electric vehicles on the road, our giant oil companies have seen their stock prices close to double. Check out my favorite, Exxon Mobil [XOM] — $62 in January 2022, closed Dec. 31 at $110. Make sure you fill up this week!

Once again, wishing all a healthy and prosperous 2023.

Michael E. Russell retired after 40 years working for various Wall Street firms. All recommendations being made here are not guaranteed and may incur a loss of principal. The opinions and investment recommendations expressed in the column are the author’s own. TBR News Media does not endorse any specific investment advice and urges investors to consult with their financial advisor. 

By Michael Christodoulou

It’s unfortunate, but recessions are a fairly normal part of the economic landscape. When a recession occurs, how might you be affected? The answer depends on your individual situation, but regardless of your circumstances, you might want to consider the items in this recession survival checklist: 

Assess your income stability. If your employment remains steady, you may not have to do anything different during a recession. But if you think your income could be threatened or disrupted, you might want to consider joining the “gig economy” or looking for freelance or consulting opportunities. 

Review your spending. Look for ways to trim your spending, such as canceling subscription services you don’t use, eating out less often, and so on. 

Pay down your debts. Try to reduce your debts, especially those with high interest rates. 

Plan your emergency fund. If you haven’t already built one, try to create an emergency fund containing three to six months’ worth of living expenses, with the money kept in a liquid account. 

Review your protection plan. If your health or life insurance is tied to your work, a change in your employment status could jeopardize this coverage. Review all your options for replacing these types of protection. Also, look for ways to lower premiums on home or auto insurance, without significantly sacrificing coverage, to free up money that could be used for health/ life insurance. 

Keep your long-term goals in mind. Even if you adjust your portfolio during times of volatility, don’t lose sight of your long-term goals. Trying to “outsmart” the market with short-term strategies can often lead to missteps and missed opportunities.

Don’t stop investing. If you can afford it, try to continue investing. Coming out of a recession, stock prices tend to bottom out and then rebound, so if you had headed to the investment “sidelines,” you would have missed the opportunity to benefit from a market rally. 

Revisit your performance expectations. During a bear market, you will constantly be reminded of the decline of a particular market index, such as the S&P 500 or the Dow Jones Industrial Average. But instead of focusing on these short-term numbers, look instead at the long-term performance of your portfolio to determine if you’re still on track toward meeting your goals. 

Assess your risk tolerance. If you find yourself worrying excessively about declines in your investment statements, you may want to reevaluate your tolerance for risk. One’s risk tolerance can change over time — and it’s important you feel comfortable with the amount of risk you take when investing.

Keep diversifying. Diversification is always important for investors — by having a mix of stocks, mutual funds and bonds, you can reduce the impact of market volatility on your portfolio. To cite one example: Higher-quality bonds, such as Treasuries, often move in the opposite direction of stocks, so the presence of these bonds in your portfolio, if appropriate for your goals, can be valuable when market conditions are worsening. (Keep in mind, though, that diversification cannot guarantee profits or protect against all losses in a declining market.) 

A recession accompanied by a bear market is not pleasant. But by taking the appropriate steps, you can boost your chances of getting through a difficult period and staying on track toward your important financial goals.

Michael Christodoulou, ChFC®, AAMS®, CRPC®, CRPS® is a Financial Advisor for Edward Jones in Stony Brook. Member SIPC.

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By Michael Christodoulou

Michael Christodoulou
Michael Christodoulou

There are no shortcuts to investment success  — you need to establish a long-term strategy and stick with it. This means that you’ll want to create an investment mix based on your goals, risk tolerance and time horizon — and then regularly review this mix to ensure it’s still meeting your needs.

In fact, investing for the long term doesn’t necessarily mean you should lock your investments in  forever. Throughout your life, you’ll likely need to make some changes.

Of course, everyone’s situation is different and there’s no prescribed formula of when and how you should adjust your investments. But some possibilities may be worth considering.

For example, a few years before you retire, you may want to re-evaluate your risk exposure and consider moving part of your portfolio into a more risk-averse position. When you were decades away from retiring, you may have felt more comfortable with a more aggressive positioning because you had time to “bounce back” from any market downturns. But as you near retirement, it may make sense to lower your risk level. 

And as part of a move toward a reduced-risk approach, you also may want to evaluate the “cash” positions in your portfolio. When the market has gone through a decline, as has been the case in 2022, you may not want to tap into your portfolio to meet short-term and emergency needs, so having sufficient cash on hand is important. Keep in mind, though, that having too much cash on the “sidelines” may affect your ability to reach your long-term goals.  

Even if you decide to adopt a more risk-averse investment position before you retire, though, you may still benefit from some growth-oriented investments in your portfolio to help you keep ahead of — or at least keep pace with — inflation. As you know, inflation has surged in 2022, but even when it’s been relatively mild, it can still erode your purchasing power significantly over time.

Changes in your own goals or circumstances may also lead you to modify your investment mix. You might decide to retire earlier or later than you originally planned. You might even change your plans for the type of retirement you want, choosing to work part-time for a few years. Your family situation may change — perhaps you have another child for whom you’d like to save and invest for college. Any of these events could lead you to review your portfolio to find new opportunities or to adjust your risk level — or both.

You might wonder if you should also consider changing your investment mix in response to external forces, such as higher interest rates or the rise in inflation this year. It’s certainly true that these types of events can affect parts of your portfolio, but it may not be advisable to react by shuffling your investment mix. 

In the first place, nobody can really predict how long these forces will keep their momentum — it’s quite possible, for instance, that inflation will have subsided noticeably within a year. But more importantly, you should make investment moves based on the factors we’ve already discussed: your goals, risk tolerance, time horizon and individual circumstances.

By reviewing your portfolio regularly, possibly with the assistance of a financial professional, you can help ensure that your investment mix will always be appropriate for your needs and goals.

Michael Christodoulou, ChFC®, AAMS®, CRPC®, CRPS® is a Financial Advisor for Edward Jones in Stony Brook. Member SIPC.

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By Michael E. Russell

Michael E. Russell

What we do know is that often, history repeats itself. We tell our children that they need to learn from their mistakes.  However, we never seem to follow our own advice. So where are we?

Trying to get a handle on how to manage our investments is proving to be difficult at best. The stock market is following every comment by Federal Reserve Chairman Jerome Powell, hoping for a guiding light. 

This past Friday, stocks dropped after a strong opening despite a solid August payroll report. The report showed solid job growth, increasing labor force participation and slowing hourly wage increases. Perhaps this shows that inflation may have peaked. The report was positive enough to unlikely change monetary policy. In spite of this the S & P 500 Index still fell 1.1% with the Nasdaq Composite down 1.3%. This capped an awful August in which the S&P 500 fell more than 4%. That followed July’s 9% gain, the market’s most solid month in more than two years.

Okay folks, the lesson for today is which month to believe. Is this the start of a new bull market or is it a bear market rally?

Let’s talk about a sector of the market that is extremely perplexing. Social media is probably the most influential innovation of the 21st century. Think about this. In 2022, if an event does not appear on a social feed, it never really happened! Most of Wall Street has been blind-sided by social media’s troubles. With every passing year, digital advertising is near a point where the market is saturated.

Case in point: Facebook. This stock, under its new name Meta, traded at $175 during 2017. This past Friday, it closed at $160. Over the past five years it traded as high as $380. As we have learned this past year, market realities eventually trump technology.  (Note:  trump with a small ‘t’).

I have not spoken about Crypto in a few weeks, so here are some thoughts. If Bitcoin is crypto’s answer to gold, Ethereum is the closest thing it has to its own internet.  For example, any person who wants to mint a new token or spend $150,000 on a Bored Ape non-fungible token, or NFT, probably uses the Ethereum network.

As of today, more than $3 billion in transaction volume flows through Ethereum daily. About $60 billion in crypto assets sit on its blockchain through third-party apps.  Other than Bitcoin, there is no network that is more critical to crypto’s infrastructure going forward.

A stock I have owned, Nvidia, has been a casualty of a slowdown in hardware purchases. Recently, on the company’s last earnings call, it was stated that the stock has suffered from a slowdown in gaming and other core areas. It was also stated it could not predict how reduced crypto mining might hit demand for its products. 

All of this new technology is growing way too fast for me. I am still having trouble learning all of the features on my iPhone. 

With school classes resuming and the holidays fast approaching, here are thoughts on some retailing stocks. Target (tgt) looks to be a cheaper stock based on its P/E ratio than Walmart (wmt). There is a potential for 20% upside from its Friday close of $164.  It trades at less than 16X earnings, while Walmart trades at 22X earnings — a 33% discount. 

On the interest rate front, it looks like Chairman Powell will be calling for two more rate increases of 50 to 75 basis points each. Banks will be charging more for car, personal, business and mortgage loans, while paying little if any interest on your savings accounts. Hmm, not fair!!

Just a thought …With the President’s new plan on school loan forgiveness, would it not be a good idea to convert your 30-year mortgage to a school loan? Probably not legal, also just kidding! On a closing note, I just cannot wait for the IRS to put the 87,000 new inspectors to work. Have a great September.

Michael E. Russell retired after 40 years working for various Wall Street firms. All recommendations being made here are not guaranteed and may incur a loss of principal. The opinions and investment recommendations expressed in the column are the author’s own. TBR News Media does not endorse any specific investment advice and urges investors to consult with their financial advisor. 

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By Michael Christodoulou

Michael Christodoulou
Michael Christodoulou

You may have heard that you can simplify your investment strategy just by owning index-based or passive investments. But is this a good idea? 

You’ll want to consider the different aspects of this type of investment style. To begin with, an index-based investment is a vehicle such as a mutual fund or an exchange-traded fund (ETF) that mimics the performance of a market benchmark, or index — the Dow Jones Industrial Average, the S&P 500, and so on. (An ETF is similar to a mutual fund in that it holds a variety of investments but differs in that it is traded like a common stock.) You can also invest in index funds that track the bond market.

Index investing does offer some benefits. Most notably, it’s a buy-and-hold strategy, which is typically more effective than a market-timing approach, in which individuals try to buy investments when their prices are down and sell them when the prices rise. Attempts to time the market this way are usually futile because nobody can really predict when high and low points will be reached. 

Plus, the very act of constantly buying and selling investments can generate commissions and fees, which can lower your overall rate of return. Thus, index investing generally involves lower fees and is considered more tax efficient than a more active investing style. Also, when the financial markets are soaring, which happened for several years until this year’s downturn, index-based investments can certainly look pretty good — after all, when the major indexes go up, index funds will do the same.

Conversely, during a correction, when the market drops at least 10% from recent highs, or during a bear market, when prices fall 20% or more, index-based investments will likely follow the same downward path.

And there are also other issues to consider with index-based investments. For one thing, if you’re investing with the objective of matching an index, you may be overlooking the key factors that should be driving your investment decisions — your goals and your risk tolerance. An index is a completely impersonal benchmark measuring the performance of a specific set of investments — but it can’t be a measuring stick of your own progress.

Furthermore, a single index, by definition, can’t be as diversified as the type of portfolio you might need to achieve your objectives. For example, the S&P 500 may track a lot of companies, but they’re predominantly large ones. And to achieve your objectives, you may need a portfolio consisting of large- and small-company stocks, bonds, government securities and other investments. (Keep in mind, though, that while diversification can give you more opportunities for success and can reduce the effects of volatility on your portfolio, it can’t guarantee profits or prevent all losses.)

Ultimately, diversifying across different types of investments that align with your risk tolerance and goals — regardless of whether they track an index — is the most important consideration for your investment portfolio. Use this idea as your guiding principle as you journey through the investment world.

Michael Christodoulou, ChFC®, AAMS®, CRPC®, CRPS® is a Financial Advisor for Edward Jones in Stony Brook. Member SIPC.

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By Michael E. Russell

Michael E. Russell

The S&P rebounded with the biggest weekly increase since February. There have been some encouraging signs, specifically, that the Omicron variant may have less severe symptoms than the Delta variant.

A major concern is growing inflation. Fed Chairman Jerome Powell has radically changed his position on fiscal tightening. This is due to severe price increases that we have seen over the past 6 months.

This week, at the conclusion of the FOMC meeting, we will have a much clearer picture as to what the FED is thinking.

This past week all sectors of the market were higher. Tech and energy were the leaders, while discretionary and utilities did well also. These 2 sectors were up 2.5%

The U.S. Department of Labor reported initial jobless claims fell again. The numbers indicated almost full employment.

CPI data which measures the prices to consumers for goods is used as one measure of inflation.  November numbers indicate a 0.8% on top of a 0.9% advance in October.  These numbers are troublesome in that they are the highest in more than 40 years. For those of us that were around then, think about the years of the administration of Jimmy Carter. As a side note, I remember that the administration sold the Presidential yacht Sequoia for $60,000! I thought that the Treasury was down to its last $60,000.

What to expect for 2022

Wow! So many things to ponder. Putin-Ukraine, China-Taiwan, OPEC, Southern Border Immigration.

The energy sector will be one to focus on. Gas and oil prices are already up 50%.

Supply chain issues will still be in the forefront. Cargo ships are laying at or outside the port of Los Angeles; some have been there for more than 50 days.  A shortage of chips, meat prices up 30%, vegetables up 22%, etc. With all of this inflationary data, the stock market keeps going up. The reason for this is simple. TINA! — There is no alternative.

I am a staunch follower of Jim Cramer.  I closely monitor what the holdings are in his charitable trust. Here are some of my favorites: Abbot Labs, Advanced Micro Devices, Alphabet (Google), Amazon, Apple, Chevron, Costco, Ford and Wells Fargo

Costco is a well run company, opening new facilities in France and China as well as 19 more in the U.S. As I mentioned before, containers destined for Costco are delayed for up to 2 months. If the supply chain issue is resolved, the earnings should be even more robust.

Ford should be looked  at also. Their truck division, specifically the all electric F150, should add to earnings.

To summarize, the stock market should continue to climb with 5-10% corrections interrupting its upward momentum. For those crypto currency followers, I would expect some government regulation to occur.

From my family to yours, we wish all a great holiday and a happy and healthy New Year!

Michael E. Russell retired after 40 years working for various Wall Street firms. All recommendations being made here are not guaranteed and may incur a loss of principal. The opinions and investment recommendations expressed in the column are the author’s own. TBR News Media does not endorse any specific investment advice and urges investors to consult with their financial advisor.