‘Wow, who’d have thunk it!’ –Mortimer Snerd

With several of the major indexes hitting all-time highs this week, you can’t blame Mortimer for scratching his head. After all, you’ve got the fiscal cliff, sequestration, ballooning government deficits, political gridlock and who knows what else to worry about. What the heck is going on?

Behind all the negative publicity in front of you, you’ve also got an improvement in housing, automobile sales, employment, manufacturing, consumer confidence, corporate profits and stock prices. Yeah, yeah, yeah, but sooner or later those ballooning deficits everyone keeps telling us about are going to come home to roost!

Well, yes you might be right, but that could be next month, next year, five years from now or heck they might even do something about them before all hell breaks loose! We just don’t know. So let’s not bet the farm on that one. After all, debt only matters when it matters and by then it’s usually too late.

Ok then, what should we do? Well a reasonable place to begin is to look at the valuations for both stocks and bonds. I tend to believe that even after hitting all-time highs, stocks are still at a fair price. Not too hot and not too cold.

Some things are cheaper than others and some more expensive. Obviously, you want to increase your ownership in the cheaper ones (Devon Energy, Apple, Tesco PLC.) and lighten up on the more expensive (Google). But shouldn’t we worry about the all-time high profit margins we keep reading about? Sure profit margins are at record highs, but that doesn’t mean they have to revert back to the historical averages anytime soon or ever for that matter. Ok, we’ve heard that one before…’this time is different’, famous last words. I’m not saying they can’t decline, but it wouldn’t necessarily be a bad thing if it were the result of a strengthening economy, accompanied by an increase in hiring, sales and corporate earnings.

Look, I understand you’re nervous after two significant market declines in the last thirteen years, but you’re going to have to get used to stock prices moving up and down. Our focus is to invest in businesses with competent managers running profitable companies for the benefit of their shareholders. Trust me, it really doesn’t matter if your stock symbol moves up and down day-to-day. What matters is that the company grows in the years to come. Markets will always move between fear and greed. The goal is to use this to your advantage; buy when the market is pessimistic and sell when it becomes overly optimistic. Of course it’s easier said than done, but you get the idea.

Makes sense, but what about the money we don’t want to put at risk? Everyone knows bonds have outperformed stocks over the last thirty years, so that sounds pretty good. True, but because interest rates are near all-time lows, it’s virtually impossible to repeat past performance. So forget it, negative, nada, not happening! My suggestion for your risk-free investments is to keep them in short-term securities, such as money markets, cd’s and treasury bills. I know they don’t pay anything, but it is what it is. That too will change and when it does, you’ll be glad you waited for much higher rates.

I know this sounds way too simple. You’re not supposed to pay attention to the media, be patient and buy good businesses when their prices are down, wait for interest rates to move higher and keep some money handy in case today’s government deficits turn out badly.  Gosh, if that’s all you need to know, what’s everyone supposed to listen to on the radio or watch on TV?

Adios Rush Limbaugh, Chris Matthews, CNBC and Fox News. Hola Classic Rock, the Rat Pack, Nat Geo and ESPN!

The information contained herein does not suggest or imply and should not be construed, in any manner, a guarantee of future performance and/or investment advice. Past performance does not guarantee future results. Therefore, no current or prospective client should assume that the future performance of any specific investment, investment strategy (including the investments and/or investment strategies recommended and/or purchased by Burgess Investments), or product made reference to directly or indirectly on this newsletter or company website, or indirectly via link to any unaffiliated third-party website, will be profitable or equal to corresponding indicated performance levels. Returns are historical and based on data believed to be accurate and reliable. We believe the above information is reliable and true but cannot guarantee its accuracy.
David Burgess