1. How to think about Risk

    We read a lot every day, from company financials to research reports to general interest publications. Occasionally we run across something that succinctly condenses a large topic to something much more manageable. The following link does just that on the topic of investing risk and reminds us that we have more control than we think. Click here to read the article. Please click here to view our disclosures.

  2. Social Security – Don’t count on it too much

    The following Bloomberg article offers an updated look at the real state of Social Security and reminds us to take control of our retirement savings. Click here for the Bloomberg article. Please click here to view our disclosures.

  3. Market Outlook – Q2 2017

    Equity and bond markets posted positive returns for the quarter, which were spread evenly throughout.  Longer interest rates ended slightly down, giving fixed income investors a small boost.  First quarter earnings reports revealed a 14% year-over-year improvement, the best in over five years.  Supporting these gains was the best European growth in seven years, particularly benefiting domestic companies with large international operations.  The range comprising that average is wide with Financials up 20%, and Tech up more than 17%, while Utilities were up 5% and Telecom was down 5%.  This also explains the large gap between the increase in earnings and our own GDP.  We are encouraged to see our two economies finally moving in the same direction again and this supports our expectation for earnings growth of 8-10% through year end. Among larger companies, revenue growth is picking up.  Using the S&P 500, average revenue growth over the last five years through Q1 2017 was 5.6%.  Over the final twelve months of that period it was 7.4%.  Since 2009 companies have better managed their expenses and bought back a great deal of their own equity, both of which contributed to rising earnings per share in the face of relatively flat revenue growth.  Increasing the revenue line provides a more direct and longer-lasting path to earnings growth and we believe this will continue for now.  Trading currently at 17.7x next years projected earnings, stocks remain reasonably priced. This should keep the stage set for continued equity appreciation through year-end, though perhaps at a slower pace…

  4. What is your number?

    Imagine saving to buy your first home. You might talk to a banker, or a real estate agent, to get an idea of what price point is right for you. Based on that you can pretty easily determine how much you need to save for the down payment. How about a vacation? You could consult a travel agent, or do some research on Expedia, and determine pretty quickly what you need to set aside to make that happen. How about retirement? Everyone is saving for retirement, or should be. At least we talk about it a lot. So what is your number? This time it gets trickier. You can scour the web for a free calculator, punch in your data and it will spit out a number. Is it right? Depends upon the assumptions behind the model. Which is why you will see a different number for every model created. No two will have the same assumptions. When will you retire? How much will you need to spend in retirement? How long will you live? What kind of drawdown will you be comfortable with? How much can you earn on your investments? All you can do is give your best, most reasonable guess. Truth is, nobody knows for sure. Nevertheless, it is still a worthwhile exercise. Saving for retirement is like a long hike, towards a moving target that we cannot see. If we don’t stop periodically to check our progress and realign ourselves to the map, we can easily lose focus and progress slows…

  5. Aren’t low oil prices good? It depends on why.

    Back before “fracking” became a household word, most people considered cheap oil a good thing. Gas was once under a dollar a gallon; airlines liked cheap aviation fuel; chemical companies liked cheap raw materials. Of course, we were dependent on imported oil, and every OPEC meeting sent a ripple of unease through the markets as the threat of a price increase hovered in the air. Expensive oil was considered bad for the economy. Now that fracking and other improved recovery methods have dramatically increased domestic supply, there are concerns that cheap oil will stall the economy. Does this make sense? It is true that oil producers and economies dependent on oil production are facing serious issues. Venezuela is the poster child for a directed socialist economy reliant on oil and failing as its income declines. Russia, OPEC and domestically, Texas, are all feeling the pinch. Profitability of oil producers and their suppliers is affected as the price declines, but the corollary is that consumers of oil benefit, and there are more consumers than producers. Oil is used for all forms of transportation – road, rail, air and water. Heating oil is a winter necessity for much of the world. Oil is vital for lubricants and the petrochemical industry — fertilizer, synthetic fiber, synthetic rubber, pesticides, perfumes, paints, dyes and on and on. The reason oil’s price has declined is not that the economy is weakening, it is that production has increased, and even as the price has declined, producers are finding cheaper ways to extract…

  6. Save now, compound later

    We’ve all heard about the miracle of compound growth. It’s not really a miracle; it’s just arithmetic and it was our topic at last week’s Third Thursday talk. It’s not just about growth. You need to save, consistently. What you invest in is a separate decision, but be consistent about saving, no matter how markets may behave. The combination of adding to principal and compounding on the growing total can produce pretty amazing results. For example, starting with zero and saving $100 a month for thirty years at a 6.5% rate of return will result in a total of over $110,000. This does not include tax consequences, which is why it is so important to invest in an IRA or 401K. Which kind would be more beneficial is a discussion for your CPA. If you save $300 a month, the end result triples. There are plenty of calculators on line enabling you to plug in your own contribution, interest rate and timeline assumptions. One can be seen here. Whatever the result of your assumptions, it should be clear that long-term, consistent saving is the key to building wealth. We talk about similar subjects of interest on the third Thursday of every month at the Bier Station at 120 East Gregory at 6:00pm. Come join us. Please click here to view our disclosures.

  7. What happened to tech last week?

    Stocks go up; stocks go down. Tech stocks tend to do those things more extremely than most other stocks. They are volatile because their underlying businesses grow quickly and have become huge. They are subject to consumer preferences and the ebb and flow of innovation and product cycles. That said, they represent the most dynamic and fastest growing sector of the economy, and technology is not going away. They cannot be ignored. The recent correction among tech stocks last week was to be expected. They have led the market all year. There is a rolling correction going on throughout the market, and this is a healthy phenomenon. It is far preferable to a major overall correction which can cause unnecessary panic. We monitor profit/earnings ratios and growth rates carefully. We understand that no stock will go up forever, but also that investors in even the most successful companies must be prepared for some volatility in their stock prices. We also believe that volatility can at least be moderated by investing in suppliers to the tech giants. This flattens the risk with diversification while still participating in the sector. We see no need for alarm in the recent tech stock pullback, but we remain alert to news from the companies they represent and from government and media sources that may affect their future performance. For investors with a lower tolerance for volatility than may occur in the Mitchell Capital growth portfolio, which holds a substantial set of tech-related stocks, we also offer value and international portfolios,…

  8. A tipi for the troop

    Boy Scouts of America Troop 10 @Troop10BSA, is the largest troop in the Heart of America Council. Mitchell Capital President, Ken Green, is presently Committee Chair of the troop and has been committed to the troop in other capacities for eight years. The troop recently acquired a tipi. Not just any tipi. This tipi was on display on the lawn of the Nelson-Atkins Museum as part of a Native American arts exhibit in 2015, and was subsequently donated to Troop 10. It is being painted by Troop 10 scout leaders to symbolize the importance Honor Scouting Programs, such as the Order of the Arrow and the Tribe of Mic-O-Say and to recognize other Native American traditions. The photo shows Ken at work, paintbrush in hand. We will leave discussion of the artistic merits for another day. The completed tipi will be displayed later this month at the Bartle Scout Reservation Campout at Osceola, Missouri, where it will serve as a ceremonial center. The campout is the high point of the summer for the troop, and will be attended by 140 scouts and 55 leaders.

  9. The heavy hand of regulation

    There has been a lot of recent discussion about the hidden cost of government regulation — the legal and administrative requirements placed on businesses and individuals to meet regulations imposed by the myriad of governmental agencies at all levels. Compliance costs money. The Competitive Enterprise Institute, an admittedly conservative think tank, estimates that the last eight years have added $600 billion in hidden costs to the economy, a number greater that the GDP of Italy. Annual costs are estimated at more than 10% of our $18.5 trillion economy. This is a problem without partisanship. A link to the report is below if you are interested in reading further. Of course regulation is necessary, but there is a point beyond which it acts as an anchor for economic growth. If you’ve visited a doctor or applied for a mortgage lately — to choose a couple of examples — you have to wonder at the stack of papers required. And these are minimal compared to what you face should you have a wetland on your property or want to build a pipeline. The current administration has vowed to reduce this burden, but it will be very difficult for many reasons. First, of course, is Congress, which continues to pass broad laws and hand application of those laws over to bureaucrats. Those bureaucrats have job security, and plenty of time to write regulations attempting to cover every possible question that might arise from the legislation. Once on the books, these regulations are seldom reviewed by anyone, including the…

  10. Six ways to get rich

    There was an article by Stacy Johnson on line recently explaining how to get rich. Naturally, we read it. It wasn’t head-smackingly enlightening, but sometimes it’s useful to remember the basics. It asserted that there are only six ways to get rich: 1. Marry money 2. Inherit money 3. Exploit a unique talent 4. Get exceedingly lucky 5. Either own or lead a successful business 6. Spend less than you make and invest your savings wisely over a long period of time. It didn’t mention crime, but perhaps that is included number three. Not that we recommend it. Whatever your success in achieving any of the first five, you will not go wrong in slavishly following number six. There are some rules offered to facilitate this process. 1. Never spend more than you make. Ever. 2. Avoid debt like the plague. 3. Buy during panic; sell during euphoria. 4. You can look rich or be rich, probably not both. 5. Live like you’ll die tomorrow; invest like you’ll live forever. 6. The riskiest thing you can do is take no risk. We all know these things, at least on an instinctive level, yet most of us fail to heed them consistently. Life gets in the way. Emotions take over. Perhaps the most important of these is number six. It’s tempting to be very cautious with your money, but here are a couple of examples to consider: $200 dollars invested monthly for 30 years at two percent will yield almost $100,000, irrespective of taxes. The same…