Even Santa, with his magic powers, would have trouble wrapping his head around this volume of mail:
According to a recent study released by the Radicati Group, a technology market research firm, the number of email users worldwide is 3.7 billion, and the amount of emails sent per day is 269 billion. That means 2.4 million emails are sent every second and 74 trillion emails are sent per year.
Amid this sea of digital debris, your emails to the Mind Over Markets inbox stand out as important. Most of your emails share important knowledge, ask well-reasoned questions, or serve a valuable corrective function.
Christmas Day, when the markets and businesses are closed, is a good time to read letters. Let’s dig into the latest batch.
Seven timeless trends…
“Thank you for your regular insightful articles. The Seven Investment trends sound great but there are a myriad of companies that could fit into any of the sectors. Can you throw out some company names in each trend that would be good investments during these times?” — Dave S.
In my recent article (7 Mega-Trends That Will Outlive Today’s Chaos), I unveiled recession-resistant themes that will continue to unfold over the long-term, regardless of economic fluctuations or market ups and downs. Not surprisingly, these trends are tech-oriented.
The mission of this column is to flesh-out financial, business and economic macro-trends and within that context, provide overall investment moves and allocations.
One mega-trend that will continue to unfold in 2020 and beyond is the roll-out of 5G wireless technology. Click here for our favorite 5G plays.
Protecting your nest egg…
“Where is a safe place?” — Barbara D.
The moves you make now depend on whether you’re a long-term or short-term investor.
If you’re more than five years or so from retirement, don’t sell stocks in which you have profits but believe that unrealized growth potential exists over the long term.
Read This Story: How to Avoid “Wealth Evaporation”
The last thing you want to do is bail out of a falling market, thereby locking in your losses. You’re usually better off waiting out a downturn, instead of panicking.
IRAs: Don’t play it too safe…
“Should I follow the same investment strategy in an Individual Retirement Account that I once did in my 401k?” — Susan D.
Yes. Keep in mind, many investors who roll their 401k into an Individual Retirement Account (IRA) short-change themselves by being more timid than they were in their 401k.
There’s no investment that beats the returns of stocks over the long term — and an IRA represents long-term money. Why shoot yourself in the foot by playing it too safe?
According to IRS statistics, about three-fourths of self-directed IRA monies are in money-market funds, government bonds or other fixed-income securities. That defies common sense.
A common “risk-averse” mistake is to put rolled-over IRA money into tax-exempt investments, such as annuities and municipal bonds. These investments already are tax-exempt, so there’s no tax advantage to putting them in a tax-favored IRA.
To make an IRA or 401k really worth it, you’ve got to stay heavily weighted toward stocks, although allocations should grow more conservative the closer you are to retirement.
It’s crucial to create the right allocations, based on your stage of life and current market conditions.
Read This Story: Take Your 401k to the “Max”
Pinpointing value…
“You warn that stocks are overvalued, but how do you define overvalued stocks? I sense that the classic P/E ratio or PEG is not enough. What other financial metrics should be looked at?” — John M.
It’s not just the price-to-earnings or price/earnings to growth ratios. By almost every valuation measure, this bull market is frothy.
These key valuation metrics include the price-to-book ratio (P/B), which indicates what investors are willing to pay for each dollar of a company’s assets; price-to-sales ratio (P/S), which indicates the value placed on each dollar of a company’s sales or revenues; and enterprise value-to-EBITDA, which is determined by dividing a company’s enterprise value (EV) by its earnings before interest, taxes, depreciation and amortization.
The latter allows investors to compare the value of a company, debt included, to the company’s cash earnings less non-cash expenses.
Valuations are all out of whack with projected earnings results. We’ve just enjoyed a stellar 2019, but stock gains should be more modest in 2020. One reason is the disconnect between earnings growth and valuations.
Read This Story: Are We Witnessing a Market Melt-Up?
As we face the start of a new year, you should increase your exposure to defensive sectors, which tend to perform well during the late stage of the economic cycle. One such sector is utilities. For our list of reasonably valued, high-yielding utilities stocks, click here now.
Got a question or comment? Drop me a line: [email protected]. In the meantime, have a wonderful holiday.
John Persinos is the managing editor of Investing Daily
