You might be watching NFL football this Sunday, but just as exciting was the kick off to earnings season south of the border. U.S. stocks had been stumbling and fumbling in recent months, but stocks are now running again thanks to putting some impressive numbers on the board. It was hit after hit. Yes, I’ve just about exhausted any football analogies. Those earnings hits lifted U.S. stocks, the S&P 500 increased 3.2% from the lows on Tuesday. Earnings season gives stocks a lift on the Sunday Reads.
OK, what’s up with this? Two weeks in a row I’m delivering good news in the markets. I’m going to lose my reputation as a worrywart.
My latest for MoneySense
Check out Making Sense of the Markets for a look at an earnings snapshot. Financials were batting lead off (yes I’ve shifted sports analogies for those keeping score) and they did not disappoint. My BlackRock (BLK) continues to knock it out of the park. That is one of my two market-crushing stock picks that you’ll find in the U.S. stock portfolio. The other pick is Apple (AAPL). We also hold a defensive selection in Berkshire Hathaway (BRK.B) – it is in one of my wife’s accounts. Mr. Buffett is still waiting for a real stock market correction to go shopping with the $140 billion sitting in cash.
A good stock portfolio plays offense and defense. In retirement, semi-retirement or for those who are approaching retirement, it is defense that wins championships.
In that MoneySense post you’ll see that Canadian stocks have led the way in 2021. I also included this incredible dividend calculator from Dividend Athlete.
U.S. stocks are still expensive
The earnings boost is good news, make no mistake about that. FactSet offers that the estimated earnings growth rate for S&P 500 members is 27.6% for the third quarter. That said, we see that the stocks (price) have jumped way ahead of historical earnings. That’s a big gap to fill.
One of the most reliable metrics for future total returns prospects is the cyclically-adjusted Shiller PE ratio. A higher numbers points to a lesser actual earnings and earnings trend.
The Shiller PE ratio smooths out actual earnings over time to eliminate any short-term distortions.
Historically when we were at these levels, future returns for a decade or more, were more than challenged. Of course, it is possible that earnings can remain robust and stocks continue to move higher. With low interest rates and low bond yields investors are willing to pay more for less earnings, especially when the earnings include great growth prospects.
All said, the good news must be put in historical context. I owe that to readers.
A well-balanced all-weather portfolio can help navigate the times.
More Sunday Reads
And here’s a clash with the above on U.S. stock valuations and asset allocation – on Findependence Hub, how much should you own in Canadian stocks? From that post.
The typical Canadian still allocates 60% of their investments to Canadian stocks. The Behavioral Investor author Daniel Crosby reports that U.S. investors typically allocate 90% of their holdings to the U.S. market; U.K. investors allocate about 80% of their holdings to the U.K.
Steve Lowrie the author of the post suggests, based on the markets being efficient …
Based on all of the above, efficient portfolio theory argues your allocation to Canadian stocks should range between 3% to 30% of the equity side of your portfolio. That’s also based on individual preferences on additional details we won’t get into today.
Off the top, I’d have to disagree that the markets are efficient. They are often ‘efficient enough’ over time, but they make some serious mistakes along the way.
I will leave it to you as to how much valuations (aka earnings) should affect your geographic asset allocation, if at all. And of course, we can always seek value in any market that we might think is overvalued on the whole.
There was a host of good posts on The Hub this week.
Can money buy happiness?
On My Own Advisor the when enough is enough weekend reads edition. When does enough money and wealth lead to personal happiness? It is well known that there is a sweet spot. And that number is different for everyone based on their lifestyle. My opinion and experience suggests that money can certainly buy happiness. At least it can greatly help the cause as it can remove financial stress and deliver a certain amount of personal freedom.
If $1,000,000 is your number, you might have a read of how to become a millionaire in Canada, on Million Dollar Journey, by no surprise.
On MDJ, I recently updated my post on Canadian dividend energy stocks.
And on this site, it was exactly one year ago that I suggested investors take a look at Canadian energy stocks.
Also make that 137% ago …
Bob at Tawcan offers a Q&A and some good reads from the personal finance community.
GenYMoney has a very interesting look at the online learning resource known as the Enriched Academy.
On the MapleMoney podcast, the right way and the wrong way to pick stocks.
Also on the podcast front, 4 ways to start investing from Mike The Dividend Guy.
And bitcoin tops $60,000 thanks to the approval of a U.S. bitcoin ETF. It will be futures-based unfortunately, not holding bitcoin. But hey, it’s a start and another massive notch in the belt for ongoing and widespread bitcoin adoption.
I employ bitcoin in my balanced portfolio.
This week, I also offered a performance update post on the core ETF portfolios on Cut The Crap Investing.
Stay the course my friends
While there is a lot of noise out there and many uncertainties, if you’re portfolio is prepared for most anything, there is not much to worry about. We get what we get.
Invest within your risk tolerance level. Diversify by geography and with non-correlated assets. I’m still happy to hold some bonds and cash, commodities (that includes energy stocks) and bitcoin. If you’re early in the accumulation stage and going all-in on stocks, be prepared for battle. Be ready to be greedy while others are fearful.
If you need a master plan, look for an advice-only financial planner.
For asset allocation ETFs or build-your-own, you will need to open a discount brokerage account. At Questrade, you can purchase ETFs for free. They also recently introduced a very slick trading app. They are Canada’s top-ranked discount brokerage.
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