Investing

I believe that I have been fortunate to live in a great country in a great time in history characterized by growth.

The proof of that seems to me to be in the economic growth as represented by the price of the Dow Jones Industrial Average (DJIA) equity since 1929.

 

The graph is courtesy of Value Line, an investment advisory service that I have subscribed to since 1978 and my parents since 1958.

The graph is a plot of the high and low price of the DJIA equity by year shown an equal % change (logarithmic) scale. There are probably better measures of the stock market equity prices but this has been in existence for a long time and it is basically indicative.

I was born in 1937 when the market average was 166. In 2019, 82 years later, the average was 26,500, a 160 times multiple, or an increase of over 7% per year.

Granted that there have been some significant variation by year and that the dollar does not have the same value now as over 80 years ago. But the trends are either flat or up.

Downturns are short in duration

Conclusion: Equities provide an opportunity for anyone to obtain economic growth on a longer term basis.

Growth: I believe that the growth is a result of breakthroughs driven by competition that in turn result in making capabilities available to a wider group of people who in turn create more breakthroughs.

Here are some significant growth producing breakthroughs:

FINANCE:

The ability of virtually all people to participate to their benefit in financial markets.

The invention of the index fund that reduced costs and provided an investing framework and connected actual investment vehicles to known and accepted indicators of performance.

The invention of low cost fund distributions organizations that reduced investing costs.

The removal of fixed trading commissions that resulted in more efficient trade execution.

Widespread public availability of financial information on traded companies encouraging competition in analyzing them.

The movement from organizational control of retirement resources to individual control with the prime beneficiary inheritability and downside of negative individual consequences for mismanaging the resources.

 

INFORMATION:

The ability of virtually all people to efficiently find information for use in making decisions.

The invention of the internet, a system where information can be stored as well as accessed and the physical location of the contributor and user of the information is irrelevant.

The development of search tools to efficiently find desired information in the internet.

 

COMPUTING:

The ability of virtually all people to analyze and present information to encourage communication and decision making.

Continual lowering of the cost and increasing the capability of semiconductor devices and their innovative use in computation equipment.

Improvement of the Interface so that productive use does not require understanding of the structure of the system.

 

POWER:

The ability of virtually all people to access needed power to perform heating, air conditioning, lighting, control and motion tasks.

The investment in grids to transport electricity and the various forms of other fuels with low continuing costs.

The invention of Hydraulic Fracturing to increase the proportion of raw fuels extractable from the sources.

The reduction in investment required to produce a unit of electrical output.

 

TRANSPORTATION:

The ability of virtually all people to get themselves and possessions to anyplace they want quickly and efficiently.

Invention of Hub and Spoke – the shortest distance isn’t necessary the quickest.

Deregulation of transportation industries – increasing speed and reducing costs.

 

COMPETITIVENESS:

The ability of virtually anyone to invent new products and services and create new markets.

Personal devices – and the apps that they make possible.

Retail choices – Products offered to the world with a few keystrokes.

Globalization – bringing the best from all over the world

My Investment goal is to create long term wealth for my family.

Strategy:  Virtually 100% of investible resources in equities as that provides the greatest probability of fulfilling the goal.

Execution:

5% – high risk – high potential reward start-up ventures where I participate in the operation as a co-founder.

45% – Vanguard Total Market Index fund

50% – Individual equities chosen utilizing Value Line and other public data selling when the situation changes.

Review portfolio and Value Line rankings weekly and develop a list of one or two potential new stocks to purchase and the top several stocks where the situation may have changed so that they can be sold.

I am currently experimenting with the American Association of Individual Investors (AAII) Value Momentum Quality (VMQ) system to refine purchase candidate list.  Then, trades are made if the new stocks have a better outlook and the potential sale stocks.

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