3 Things 4-25
04/25/2022 Although MAS is a financial services company, not everything published herein will be about numbers or investing. But no matter the topic, we hope for three things: 1) That you find the time you spend engaged worthwhile. 2) That you’ll reach out to us for help in any of our areas of expertise if something we discuss creates an urging in you to do so. 3) That you’ll share this with somebody new each time you read it. Thing One TINA “…Bonds and cash are safe, and stocks are too risky. That's what we've all been taught. But it's wrong. And it will be even more wrong in the future. Blue-chip stocks with dividends are safer investments than cash, bonds, and even government debt, assuming we're interested in enhancing our purchasing power over time and protecting the value of our hard-earned savings from inflation…” That was written in a blog post by a long-time investor and good friend, Bob Cook, way back in April of 2013. He was writing about the TINA factor, an acronym attributed to former Prime Minister of Great Britain, Margaret Thatcher. As the story goes, Thatcher was asked a question about socialism versus capitalism and she declared her unwavering belief that there is no alternative (TINA) to a free market system for a free and prosperous self-governing people. Investors latched on to the idea and an investing acronym was born. In another blog post from around the same time, he said the following: “…The case for long-term ownership of stocks is always a strong one. Today it's even stronger. Well-run companies are in better financial condition than most governments, and they also pay dividends whose yields are higher than the yields on government bonds. And for stock investors, there's also the additional kicker of both inflation-adjusted share price and cash dividend growth over time as well. There are no guarantees, of course, but the presence of the 'TINA' factor, when added to the prospects for solid long term earnings gains by blue-chip companies, bring us about as close as we will ever come to being presented with the opportunity to make a no brainer investment decision…” It’s good to be reminded of that when you see near 1000-point drops in the DIJA like we saw on Friday and start thinking stocks are the wrong place to be.
Thing Two Why Bonds Are Riskier Than Stocks Here’s another bit of excerpted wisdom from Bob courtesy of the blog post time machine. This one was written at the end of 2012: “The conventional wisdom is that stocks are risky and that bonds are safe. "Everybody knows that."We also were taught that homes were a great investment. "Everybody used to know that," but now we know better. But what about the conventional wisdom of bonds being preferable to stocks? Is it true? No, it isn't. So let's take a few minutes here and explain why investing in bonds is in fact riskier than owning stocks generally, as well as why it's a much more risky approach currently. But before we begin, let's be clear about one thing. We're talking about investments and not quick trades. I don't engage in short-term trading and don't recommend it for others either. So let's return to the relative merits of investing in bonds or stocks, and why investing in bonds makes no sense either now or anytime soon. When rates increase, the value of bonds declines. The lower the beginning point of the interest rate level from which the rate increase begins, the worse will be the loss on the value of bonds owned. Today's interest rates are at historically low levels. Over time, rates definitely will increase. As a result, bond values will decline. It's just math. The aforesaid increase or decrease in the principal value of the bond is then added to or subtracted from the interest rate paid on the bond, aka the coupon rate, to arrive at the total return or loss of the investment, as the case may be. Thus, if the loss on the principal value of the bond exceeds the interest rate on that bond, the individual will suffer a loss on his investment, interest income included. And if the interest rate paid is lower than the inflation rate, the real inflation-adjusted loss will be even greater than the nominal loss. The point is simple. Do not invest in bonds in a period of rising interest rates…” No need to add any further commentary to that.
Thing Three Just A Thought “Continuous improvement is better than delayed perfection” – Mark Twain