Sunday Morning Coffee

There were a couple of articles I think are related, one in the FT and the other Barron's that are worth touching on. The article from the FT included this chart of the average holding period for US equities.

While this is drastic I am a little surprised how low it was back in 1980 and also a little surprised that it now is as high as a year given what we hear about HFT dominating the volume.

The Alphaville post where the chart comes from talks about patience which everyone could use more of. I believe issues involving impatience are a tie in to emotion. People see a related stock to what they own doing better so they switch or they hear on TV that "you gotta lighten up going into the long weekend" or someone else saying they don't want to get in front of the Fed this week (in a week where they are meeting).

For the vast majority of market participants a lot of turnover is very unnecessary. It is very rare that a good company becomes a bad one over night of course it does happen occasionally (Bank of America's purchase of Merrill Lynch as a glaring example). Despite what some will tell you an earnings miss does not necessarily mean a company is a bad stock. A slowdown in growth for a growth company could be a warning but selling immediately because a company missed by a penny is more akin to trading than long term investing. There is nothing wrong with being a trader if that is what you are it's just that some people don't know whether they are a trader or not.

To the point of an earning miss not being the be all end all, Cummins Engine (CMI) for a while was a serial disappointer. It was chronic for a while there, don't know now as I have lost touch with it, but for the last ten years the stock is up 853% versus a decline of 27% for the S&P 500.

Likewise whatever it is that makes Chile a compelling, IMO, investment destination is not going to change this week. If you pick a country fund this week you will not be fundamentally right or wrong next week or even next month. Your price could turn out to be bad of course like a purchase made on September 10, 2001, but a country's budget or current account will not turn completely inside out next week. A resource rich country won't run out of whatever is in the ground next year without notice.

While I do believe in the need for something that tells you you're wrong I lean toward a stock not playing the role(s) envisioned, a change in the fundamental story or maybe an unjustified move higher. I do not believe in arbitrarily putting an 8% stop under every stock we own; how can the same 8% stop order be right for both Proctor & Gamble (PG) and Baidu (BIDU)?

WRT to the Barron's article, it checked in with a bunch of strategists from various Wall Street firms to get an updated sense from them about where they thought the US equity market was going with a few of them offering names they favor. There were no foreign stocks mentioned and no comments about any foreign markets.

This is obviously a drum I beat regularly but look at the problems that the US appears to dealing with; threat of deflation, an unemployment situation that might be structural not cyclical, a distorted bond market, a housing market that could be a long way from being fixed, budget deficit and total indebtedness that could be very problematic and anything else you want to add. I tried to word that list in such a way as to not focus on the magnitude of these issues but merely to point the issues out. Many other countries simply do not have these types of problems (some do and those are better avoided too).

The path of least resistance would seem to be in countries that either do not have these problems or where the reasonable magnitude of consequence might be less. There are plenty of markets accessible with ETFs that up to this point in the year have had a somewhat "normal" return if not better than normal, Bespoke just posted the numbers. Obviously I made the case before that over longer periods of time the difference in returns between these markets and the US can be huge. This just seems easier to me than trying to swim upstream against a market that appears to have substantial obstacles to overcome.