From the Desk of David Burks
Senior Vice President and Equity Income Analyst David Burks has been with Hilliard Lyons, A Baird Company, since 1983. David has been nationally recognized for his stock recommendations eleven times: seven times by Thomson Reuters and four by The Wall Street Journal. David has appeared regularly on CNBC over the years.
Random Observations from Three Decades as an Analyst & Investor
In this month’s publication we deviate from our usual approach and adopt a more personal, anecdotal style. We would like to share a variety of differing thoughts and views, from both an analyst and investor perspective, based on a multitude of experiences. We hope several observations will resonate.
First, for all the emphasis that is justifiably placed on investing, it all starts with savings. History has shown that it’s better to be a great saver and an average investor than to be an average saver and a great investor. It is much better to spend after you save than save after you spend.
Sooner or later, you’re going to regret uncomfortably high levels of spending. Likewise, sooner or later you’re going to come to appreciate and be grateful for uncomfortably high levels of savings.
This is strictly anecdotal, but if you ever find yourself repeatedly looking at your 401k balance to track your growing wealth after a big upward move in the market, a correction may be in the offing. Greed seemingly invites karma to pay a visit.
When I was young I was fortunate enough to have a sage-like uncle named Howard Hopkin. He believed in me and encouraged my interest in investing. A self-made man that became a very successful engineer, Uncle “Hop” also lived through the Great Depression. Perhaps as a result, he always stressed the importance of “living below your means.” He was right, as he typically was. Uncle Hop was a very wise man who achieved financial security and helped others.
Investing without outside help is certainly possible, but may not always be the best idea. Imagine not consulting with a doctor on a medical issue; an electrician on an electrical issue; a mechanic on a car issue. It is invaluable to get an objective, outside perspective from a financial professional. Sometimes it’s hard to see the forest because of the trees. Our advisors can help.
Sometimes the best investment strategy is to do nothing. This is extremely difficult when the market is plunging and your emotions scream, “Do something!”
We may someday see the Dow Jones Industrial Average hit 50,000, even 100,000. Sound crazy? Well, it’s not. When I began with Hilliard Lyons in 1983, the Dow was at 1,246. Since then it has risen more than 20-fold. A 50,000 Dow is less than double from here. A 100,000 Dow less than a quadruple. Granted, it may take many years to get there and I may not see it, but it is likely to eventually happen.
Despite projecting future gains, I wish I could tell you there won’t be recessions, bear markets, and corrections. But there will be. One cannot ignore history.
The Rolling Stones once sang, “Time Is on My Side.” This song should resonate if you’re a long-term investor in stocks. The longer your timeframe, the greater the likelihood of achieving investment success. And time was indeed on the Stones’ side as they toured North America this summer, 57 years after forming in 1962. A model long-term success story.
While all investors seek “Satisfaction,” a more realistic investment philosophy might be “You Can’t Always Get What You Want.” Not only is this true, but keep in mind what comes next: “But if you try sometimes, you just might find, you get what you need.” By continuing to regularly invest, you can still achieve your long term financial goals.
Stocks have been the single best performing asset class over long periods of time. We expect that to remain the case. However, stocks are inherently volatile and carry risk. Volatility is the price that investors must be willing to pay to have the opportunity to participate in long-term gains.
It is extremely difficult to build wealth quickly through investing. However, for a patient, disciplined investor, long-term success is generally very achievable.
Analysts are no different than investors when it comes to their stocks. If they’re recommending six and five are performing well, they think primarily about the one that is not.
One thing that both analysts and investors hate: when a recommended stock idea performs poorly. It is frustrating and torments us (at least it did me) days, nights, weekends, etc. Don’t believe me? Ask my wife and daughters.
There are always reasons not to invest. However, by staying on the sidelines, you might potentially incur large opportunity costs. The longer you don’t invest, the higher the cost. I believe there is ultimately a greater risk being out of the market than in the market. Missed gains are very costly, especially over the longer term.
Life inevitably brings surprises, both good and bad. Having ample cash reserves on hand allows you to take advantage of the good and respond to the bad.
Diversification matters. I once lost a great deal in WorldCom, a telecom and Internet company. The company declared bankruptcy in 2002 after it was found guilty of accounting fraud. Moreover, I compounded the error by owning a disproportionately large position in my own account. It was a painful lesson, but one I learned: Diversify and really know what you own.
Speaking of pain, the anguish of the 2008-2009 severe bear market has receded with the passage of time. However, it should not be forgotten. In those days, the highlight of the week was 4 p.m. on Friday when trading finally ceased and stocks could no longer decline for 2½ days – until selling resumed on the following Monday on news of yet another financial institution under duress. Yet bear markets produce the greatest opportunities. Be alert to them.
“Pay yourself first.” Simple, basic concept, right? Sure, but a very effective way to create and build wealth. Keep investing in good times and bad.
There can be a place for all types of assets in a portfolio: stocks, bonds, REITs, precious metals, CDs, cash, alternatives, etc. Diversification isn’t just for stocks. Consider utilizing all types of asset classes and having international exposure. However, know there is risk associated with all types of investments. Don’t fool yourself into thinking only stocks carry risk.
I’ve been fortunate enough to have been recognized 11 times nationally for my stock recommendations. So, could a monkey throwing darts at a list of stocks outperform me? Certainly not. Well, okay, there’s always a chance. Heck, it’s a very distinct possibility! Being an analyst going up against efficient markets can be a very humbling proposition.
Don’t constantly compare your investment returns to the market. In all likelihood you’re just setting yourself up for disappointment. This is one of the reasons we’ve seen such a dramatic increase in the growth of index funds. Moreover, remember that comparisons to the market are even less applicable if you have significant fixed income exposure.
Never underestimate the importance of risk. At some point we will inevitably experience an extended period of lower stock prices. For some, that takes not only a financial toll, but an emotional one as well. It’s important to realistically assess how much risk you can accept.
I’ve now reached the age where I am beginning to see real proof of compounding in action. It really does exist and is a wonderful thing. For you long-term investors – your time is coming.
Multiple studies of retirees have shown failure to save enough for retirement as their single biggest financial regret. Make sure you don’t provide the same response in some future survey.
Have you ever heard anyone complain, “Ugh, I wish I hadn’t contributed so much to my 401K?” Nope, me either. Wonder why that is? Hmmm…
Allow me to conclude with two final comments. First, due to changing circumstances, this will be the final edition in the series of “From the Desk of…” publications. It has been both an honor and a privilege to write them. We appreciate your taking the time to read them and offer your feedback, ideas and support. I wish you much fulfillment in the good times, strength and resilience in the bad times, and ever growing success and knowledge in your financial journey.
Secondly, on a personal note, I’d like to finish by paying tribute to my longtime friend and colleague, the late Steve O’Neil. Steve was a highly respected and award winning analyst with Hilliard Lyons for over 30 years. However, he was an even better person. He was truly one of the warmest, most engaging, courageous and kindest people one could ever hope to meet. He was the colleague that visited my child in the hospital; encouraged me during the tough times; and celebrated with me during the good times. He touched many lives, including mine.
We miss you, Steve.
Each client’s investment needs, risk tolerance, and goals are different. This newsletter is not meant to be advice for any specific investor. Nothing in it should be construed as an offer to sell, or a solicitation of an offer to buy, any securities. This should not be used as the sole basis for an investment decision. Any opinions or estimates are subject to change without notice. For information about how any of this information applies to your personal financial situation, please contact your Wealth Advisor.
Past performance is not a guarantee of future results.
Although the information provided to you in this newsletter was obtained or compiled from sources that we believe are reliable, J.J.B. Hilliard, W.L. Lyons, LLC, A Baird Company, cannot, and does not, guarantee that the information or data is accurate, timely, valid, or complete.
All investing involves risk, including the possible loss of principal. You should carefully consider investment objectives, risks, charges, and expenses of any investment before investing. Diversification and asset allocation do not guarantee a profit or guarantee against a loss. Note: It is not possible to invest directly in an index.
Stock markets, especially foreign markets, are volatile and can decline significantly in response to adverse issuer, political, regulatory, market or economic developments. The bond market is also volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect can be more pronounced for longer-term securities.) Fixed income securities also carry inflation risk, liquidity risk, call risk, and credit and default risks.