BUCKzology's USA Debt Clock

Nation's Finances
National Debt Clock

Thursday, July 16, 2009

Stocks-Buy and Hold and Hold and Hold

The idea of investing for the long term seems to be kind of foreign to most investors, especially nowadays with the loss of so many people's retirement savings due to the global financial debacle over the past year or so...take a look at the chart at left (click on it to enlarge for readability) which shows Global Household Savings Rates from the World Bank estimates for several countries...Americans have never really been good savers currently saving at a rate of 1.2% of household income in 2009 (although we are not the worst) with France being the best savers at a rate currently of 12.3%. Long term investing even seems to be less so with young people today as they tend to invest more in the short term for a quick buck to get instant gratification that abounds with youth...but when viewed and analyzed over the long term (20 years or more) stocks never appear to lose money. Here is a surprisingly informative article on this subject from Dr. Jeremy J. Siegel, a contributing editor from Kiplingers.com:

"Buy and Hold? You Bet"
Over periods of 20 years or longer, stocks have never lost money, even after inflation.
Jeremy J. Siegel, Contributing Editor

Stock-market investors are an unhappy bunch. Standard & Poor's 500-stock index is no higher than it was 12 years ago, and over the ten years ended in May, stocks have returned a dismal -1.7% per year. So it's no surprise that investors wonder whether "buy and hold" and "stocks for the long run" are discredited concepts (see
Can You Time the Market?).

The short answer is that stocks are still the best long-term investments. As bad as the past decade has been, there have been other ten-year periods during which stocks have recorded even bigger losses. Yet over periods of 20 years or longer, stocks have never lost money, even after inflation. Including the latest bear market, stock returns have averaged 7.8% per year over the past 20 years and 11% annually over the past 30. Nevertheless, the assault on buy-and-hold investing continues. Robert Arnott, of Research Affiliates, recently observed in a widely publicized article that over the past 40 years, even lowly government bonds had outperformed stocks. Just a few months later, though, events overtook that claim as stocks rallied from their March lows and bond prices skidded.

Brighter future. After periods of sluggish returns, stocks tend to regain their oomph. Stock returns over the past five and ten years have fallen to the bottom quartile when measured against all five- and ten-year periods since 1871. But history shows that after reaching such a low, stocks' average return for the next five years has been almost 9.5% annually after inflation.

Furthermore, once stocks have plunged 50% from their highs, which they have done during the current bear market, investors have always been rewarded with winners over the next five years -- and that includes the Depression decade of the 1930s. In Dec-ember 1930, stocks were 50% off their highs of September 1929. Yet, over the next five years -- when the economy was experiencing the greatest con-traction in its history -- investors were rewarded with an annual return of 7% after inflation.

Value stocks. All the returns I've quoted reflect indexes based on market capitalization, the indexes that are used to measure market performance. But research has shown that investors would have done better if they had tilted their portfolios toward value stocks -- stocks that have higher-than-average dividend yields and lower-than-average price-earnings ratios. Even after the collapse of financial stocks over the past year (most financials fell into the value category), the Russell 3000 Value index has outperformed the capitalization-weighted index over the past five, ten, 20 and 30 years.

Evidence suggests that investors may be able to outdo the indexes by pursuing an activist strategy that shifts into or out of stocks depending on their valuation. However, this strategy requires investors to sell stocks of companies that have done well and buy shares that have done poorly -- an exercise that requires a huge (and often impossible) amount of self-control.

But now there are new indexes that rebalance stocks automatically and have outperformed both capitalization-weighted and even value indexes. These so-called fundamental indexes rank stocks by their dividends or earnings (or some other measure of a company's worth) instead of by their market value. Fundamental indexes automatically sell stocks that move up in price beyond their dividends or earnings and buy stocks whose prices lag. Dividend-weighted indexes have outperformed value indexes over the past ten, 20 and 30 years; earnings-weighted indexes have done even better.

In the long run, stocks are still the way to go. And if you want to give your returns an extra kick, value-oriented stocks and fundamental indexes may be your best bet.

Source: Kiplinger's Personal Finance Magazine August Issue 2009
(Columnist Jeremy J. Siegel is a professor at the University of Pennsylvania's Wharton School and author of "Stocks for the Long Run". He also advises Wisdomtree Investments, which issues low-cost, fundamentally weighted ETFs.

Thursday, July 9, 2009

Visa-2009 Explosive Earnings Growth And In Future

Visa is a favorite stock of mine since I have been in it from its initial public offering back in March of 2008...here is another opinion on the validity of why you should invest in this stock now if you haven't already done so...remember that Visa is not a finance company...it provides financial transaction processing...the more the use of "plastic" (credit & debit cards) by the general public worldwide the greater their business and earnings growth potential:

"In the current difficult macroeconomic environment it is hard to find companies that are earning a meaningful profit, let alone growing earnings. But Visa has
been rewarding investors with explosive earnings growth and stock performance to boot.
Visa (NYSE: V):
"Headquartered in San Francisco, Visa operates the world's largest retail electronic payments network and manages the world's most recognized global financial services brand. Visa has more branded credit and debit cards in circulation, more transactions and greater total volume than any of its competitors. Visa owns a family of well known, widely accepted payment brands, including Visa, Visa Electron, PLUS and Interlink, which they license to customers for use in their payment programs. Visa came public in March 2008, after reorganizing from a private, for profit association.

Earnings Growth:
For the six months ended March 31, 2009, Visa grew its EPS 56% to $1.45. For the three months ended March 31, 2009 grew its EPS 82% to $0.71 on a GAAP basis.

Earnings Prospects:
Analysts on average see Visa earning $2.81 per share this year (FY09), which is up 193% from the $0.96 earned last year (FY08)! Next year (FY10), analysts on average see Visa earning $3.34 per share, which would represent growth of 19%. High estimates for FY10 is $3.78, which would represent earnings growth of 35%! With a shift secular shift toward payments with plastic, solid revenue growth and margin expansion, Visa will continue to show explosive earnings growth for years to come.

Stock Performance:
YTD shares of Visa are up 15.2%, versus a 2.3% slide in the S&P 500. Over the last year, shares of Visa are down 20.3% versus the 29.1% slide in the S&P 500. Visa came public in March 2008 at $44 per share and is up 37% from that price, versus the 33.6% slide in the S&P 500.
V as of 09JUL2009: $60.44
+0.95 +1.60%
Volume: 6,654,013"

source: streetinsider.com