Bruce “The Boss” Springsteen and the Anatomy of a Value Stock
Bruce Springsteen continues to have a prolific six-decade career as a Rock and Roll mega star. He has sold over $140 million records, which makes him the Warren Buffett of contemporary music. His long-term success can only be envied by investors as long-term is our overriding mantra. But Bruce as a value play, let’s look… Value investing can easily be described by a quote from Charlie Munger…”All intelligent investing is value investing…acquiring more that you are paying for. You must value the business in order to value the stock.” It involves going against the favored crowd, anticipating the prospects years down the road, the ability of a company to scale, and the opportunity for long-term wealth generation. The Wall Street Journal recently highlighted the 50-year anniversary of the release of the Bruce Springsteen studio album “Greetings from Asbury Park, N.J.” in January of 2023. Upon its release, the album garnered little fanfare as compared to the “shiny new” progressive rock bands of the time like Jethro Tull and the Moody Blues. The album only managed at its best to reach 60th place on the US charts (two years after its release) and did not even chart in the UK. The reviews were good, but the masses did not see the value. Springsteen was well known in his market and extremely diligent at his craft, but was considered “a cheap, bar band take-off of Bob Dylan”. The rest is history…after tireless touring all over the country, the band became more than the east coast leader of the Jersey Shore Sound and after the release of “Born to Run” they were off to the races. The “Greetings” album, which took years to even chart, ultimately did chart in the UK at 41 in 1985 and is ranked 37th on the Rolling Stone’s list of greatest debut albums. Value is in the eyes and the ears of the beholder, whether the art form is music or investing. As for 2022, the recap is well known now. It was a very difficult year for both stocks and bonds (fixed income) as the Fed realized they missed the mounting inflation problem and continues to attack higher prices with interest rate hikes to slow the economy. We continue to believe that current inflation is a direct result of the record amounts of stimulus added to the economy because of the Pandemic and will most likely just need time to dissipate through the system. For the record, value investing was the best house in a bad neighborhood as the Dow was down 8.78% last year versus a drop of 33% for the Nasdaq, 19% for the S&P 500, and not to be outdone, a drop of 11% for fixed income. Looking ahead, we believe that a combination of earnings that are stable, mixed with a significant drop in prices from peak inflation could help us bounce back in the year ahead. Whatever happens on Wall Street, we will continue to search for value in our investments and look forward to seeing everyone personally in the New Year. Thank you again for your confidence in our firm.
There is Always A Bull Market Somewhere
With stocks and fixed income both in the red this year, we continue to remind people that “there is always a bull market somewhere”, making the case for a diversified portfolio. 2022 to date has certainly tested the resolve of investors, the classic 60-40 stocks to bonds allocation model is suffering its worst performance since the Great Depression, currently down about 18%. We have had some re-assuring good news in several stocks that many of our clients own (full disclosure). For example, a huge spike in energy costs has lifted Chevron up 56% year to date. In the arena of health and bio-tech, Regeneron just recently had the first FDA approval for an eczema treatment (Dupixent)for adults. The stock is up 17% this year. With the attention and funding going into infrastructure projects, combined with high crop prices, John Deere has managed a 15% increase this year. Finally, as the Fed combats inflation with higher interest rates, regional bank NBT is up close to 24%. The point is, stocks move with the market in both bull and bear markets, but having a diversified portfolio with investments that don’t always correlate with these moves can help mitigate the risks. Performance data as of 11/4/2022. Past Performance is no guarantee of future results.
How To Save For Retirement
When it comes to saving for retirement, most Americans fall short. According to the Federal Reserve, about a quarter of Americans have no retirement savings at all, and almost two-thirds of non-retired adults are concerned about being able to meet their retirement savings goals. Don’t let those numbers get you down. If you’re worried about your retirement savings game, or haven’t started saving for retirement yet, this guide can get you on track regardless of where you are in life or how much you have to invest. And if you’re a little further along in your retirement savings journey, we’ll show you how to maximize your strategy by taking full advantage of different types of retirement accounts. 7 Steps to Save for Retirement Saving for retirement doesn’t have to be intimidating. Follow these seven steps to develop your personal retirement investing strategy: 1. Set Your Retirement Savings Goal It’s relatively easy to estimate how much you need to save for a new car purchase or a home down payment. How much to save for retirement, on the other hand, is a much bigger, more challenging personal finance goal—it may feel a lot harder to get right. There are so many variables to consider. How much will you need for vacations? Could you end up facing big medical expenses? What age will you stop working entirely? How long will you actually live? According to the Center for Retirement Research at Boston College, most of us should start savings around 15% of our income starting at age 25 if we hope to retire by age 62. If that amount sounds too high, too early, that’s okay. Starting later just means you may have to save a higher percentage, reduce your expenses, or work longer. Someone who started saving at 35, for example, could hypothetically fund a comfortable retirement by contributing 24% of their income until age 62 or 15% of their income until age 65. Use the 25x Rule to Calculate Your Retirement Needs If you have a better idea on what your annual expenses might be in retirement, you can create a more personalized goal for yourself using the 25x rule. Estimate your annual expenses in retirement and multiply that figure by 25. If you think your annual expenses will be $50,000, for example, the 25x rule suggests you’d need a total of $1.25 million saved to retire without having to worry about depleting your nest egg early. The theory behind this rule of thumb is the 4% safe withdrawal rate. The 4% rule suggests that over a 30-year retirement, you can safely withdraw 4% of your portfolio in year one of retirement, then keep withdrawing the same dollar amount, adjusted for inflation each year, to prevent running through your savings early. Determine Your Monthly Savings Rate Once you’ve determined your total retirement savings goal, estimate how much you’ll need to set aside each year to reach it using a retirement savings calculator. Estimate market returns at a conservative 6% per year, even if historically market returns have been higher. Assuming a 6% rate of return and the $1.25 million figure from our earlier example, you would need to save about $218,000 over 30 years to reach this hypothetical retirement goal. That works out to $7,266 a year or $605 a month. 2. Open a Retirement Account Once you’ve figured out how much you need to save, it’s time to open a retirement account. Historically, investments in the stock market have offered significantly better returns than savings accounts, making them the preferred tool for growing your retirement savings. Not all investment accounts are ideal for retirement savings. To encourage people to save for retirement, the federal government has created special types of investment accounts, popularly known as retirement accounts, that provide certain tax advantages. There are two main types of retirement accounts: employer-sponsored retirement accounts, like 401(k)s, and individual retirement accounts (IRAs). In general, both types of accounts are available in traditional and Roth varieties. Both offer tax-advantaged growth of your investment money, but you pick whether you’d prefer an income tax break now or in retirement. Employer-Sponsored Retirement Accounts Employer-sponsored retirement plans are benefits companies offer their employees. The most well known is the 401(k) plan, but depending on where you work, you may have access to a 403(b) plan, 457(b) plan, SEP IRA, or SIMPLE IRA. With a workplace retirement plan, you’re generally able to have a portion of your paycheck deposited into your retirement account automatically each pay cycle. In addition to the tax benefits they offer, employer-sponsored retirement accounts are valuable because they may offer employer contributions or 401(k) matches. These are funds invested in your retirement account for you by your company. With a 401(k) match, you have to contribute a certain percentage of your salary to your retirement account. In return, your company invests an amount that reflects that percentage, effectively doubling your money. Outside of matches, some companies may offer other employer contributions to your retirement account, like profit sharing or safe harbor contributions, that you don’t have to do anything to receive. With a 401(k), 403(b), and 457(b), you can contribute up to $19,500 per year ($26,000 if you’re 50 or older) in 2020 and 2021. SEP IRAs do not allow for employee contributions, but your employer can contribute up to the lesser of $58,000 in 2021 ($57,000 in 2020) or 25% of your salary. With SIMPLE IRAs, you can contribute $13,500 per year ($16,500 if you’re 50 or older) in 2020 and 2021. Individual Retirement Accounts (IRAs) If you don’t have access to a retirement account at work or are looking to save for retirement outside of it, you have two main choices: traditional IRAs and Roth IRAs. To contribute to either, you must have a taxable income for the year. Roth IRAs come with further income restrictions. To contribute the maximum amount to a Roth IRA, you must make less than $124,000 if you’re single or $196,000 if you’re married and filing
Alone With My Thoughts – 10/17/2022
It is October and we have entered the Clown House of volatility with intra-day swings of 5%+, so buckle up for the ride. For markets, the Fed’s reaction to inflation is the key, as higher interest rates are kryptonite to stock values. Unfortunately, politicians do not seem to understand the basics. If you throw literally trillions of dollars into the economy at the same time there are supply issues, you will by definition get inflation. The Fed will then raise rates to slow the spending and cool off the economy. Hard stop. If the government continues to print money, the Fed cannot raise rates high enough and fast enough. Politicians need to stop handing out money to voters. A recent Barron’s article. “States’ Stimulus Spending is a Negative for the Fed”, points this out, that states are prepared to spend $31 billion in stimulus programs. For example, Kirsten Gillibrand is doing the Thruway tour touting the $1 billion dollars of funding for higher heat costs this year. Feel good moment, yes, helping combat inflation…just the opposite. Social security going up 8.7%, a nice boost for seniors and a nice boost for inflation. Forgiving student debt, does not forgive higher inflation. The bottom line, inflation-relief measures tend to increase inflation which crushes the working class. Beware the Clown bearing gifts.