3 Things 9-6
09/06/2021 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 Investing 101 The following is "from the vault" of the writings of a good friend and very successful investor. From time to time I'll share some distilled nuggets of his wisdom. I hope you find them useful. "...In comparing investment opportunities, we need to consider the relationship between interest rate levels and stock prices, since stocks and bonds are competing investment choices. As an example, if the price of a stock is $90, its per-share earnings are $6 and the then-current 30-year treasury bond interest rate is 4.5% (some use the ten-year bond rate and others use the corporate bond yield, but we'll use the 30-year treasury yield), we have enough facts to render a reasonable opinion regarding whether stocks are a good investment choice. Here's how we look at it in simple terms. If the company's stock price is $90 and the company's earnings per share are $6, the P/E (price to earnings) ratio is 15, which is calculated as follows: 90 divided by 6 = 15. The reciprocal of the P/E ratio is known as the earnings yield: 6 divided by 90 = 6.67%. When the earnings yield is less than the bond yield (in this example 4.5%), stocks are usually overvalued. When the earnings yield is greater than the interest rate on bonds, stocks are usually undervalued. Since the earnings yield on the stock is now 6.67% and the bond yield is 4.5%, we get substantially more current "earnings" by owning stocks." Again, that was written several years ago. As a point of comparison, today's S&P (forward) earnings yield is roughly 4.7% ($215 per share / $4535) while the 30-year Treasury yield is 1.9%. The argument for stocks still stands. And when coupled with the notion that interest rates are more likely to rise than fall in the coming years, the argument gets stronger.
Thing Two What Are You Doing With Your Dash? I attended the funeral of a good friend this past weekend (it seems I'm doing that more and more) and one of the speakers read a poem that I thought I'd share with you. You may already be familiar with, "The Dash", by Linda Ellis, but in case you're not, here it is: I read of a man who stood to speak at the funeral of a friend. He referred to the dates on the tombstone from the beginning… to the end. He noted that first came the date of birth and spoke of the following date with tears, but he said what mattered most of all was the dash between those years. For that dash represents all the time they spent alive on earth and now only those who loved them know what that little line is worth. For it matters not, how much we own, the cars… the house… the cash. What matters is how we live and love and how we spend our dash. So think about this long and hard; are there things you’d like to change? For you never know how much time is left that still can be rearranged. To be less quick to anger and show appreciation more and love the people in our lives like we’ve never loved before. If we treat each other with respect and more often wear a smile… remembering that this special dash might only last a little while. So when your eulogy is being read, with your life’s actions to rehash, would you be proud of the things they say about how you lived your dash? We STILL live in the most amazing country on the planet and, despite what some want us to think, we are in control of our dashes. It's good to be reminded of that from time to time.
Thing Three Just A Thought "All we have to decide is what to do with the time that is given us." - J. R. R. Tolkien