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Spring Training and Dow 30,000: When to Buy

February 18, 2020

By Joe Zappia, Principal and Co-Chief Investment Officer, LVW Advisors

Undoubtedly, we are at an important inflection point in the US economy and financial markets. Just recently, the Dow Jones Industrial Average, an index of 30 large companies, eclipsed a new all-time high and is approaching 30,000. Many investors are asking: Where do we go from here?

Now that Major League Baseball spring training is in full swing, we felt it apropos to draw an analogy from hitting a major league pitch. Arguably, the greatest hitter of all time and the last man to hit over .400 in a regular season was Ted Williams in 1941. Before even talking about the mechanics of a swing, Williams instructed all would-be hitters to first develop the mindset to “get a good ball to hit.” Investors would be wise to follow the same advice: be patient and wait for the good one.

2019 was an impressive year for almost all risk assets, and now 2020 is off to an even better, though perhaps irrational, start. While the mood is continuing to improve, the economic data does little to support the rapid ascent in equity prices. We are in no way trying to predict the direction of the market but we are suggesting that at current prices there is little margin for error or disappointment. Not much different from a batter with an 0-2 count.

Ted Williams was famous for almost always taking the first pitch at every at-bat figuring that the pitcher would try to tempt him with a pitch just outside the strike zone. His theory was that if you swung at the first pitch, the pitcher would continue to move the ball farther and farther from the plate until you were forced to swing at a ball, merely to protect the plate. He said, “Before you know it, you are making 50 outs a year on pitches you never should have swung at.” The stock market can be likened to a pitcher on the mound, hurling out stock prices to ready investors at bat, hoping they will continue swinging despite ever decreasing odds of above-average future returns. As investors, we have to decide when to swing and when to have a good eye and let one pass.

The success of any investment is largely determined by the entry point or the price you pay for that investment. But we don’t have to take a cut. As Warren Buffett explained in his 1999 Annual Report, “The stock market is a no-called-strike game. You don’t have to swing at everything – you can wait for your pitch. The problem, when you’re a money manager, is that your fans keep yelling, ‘Swing, you bum!’”

Might the US stock market and other risk assets continue to march higher despite high valuations and little economic growth? Absolutely! It was John Maynard Keynes who said, “the market can remain irrational a lot longer than you and I can remain solvent.” We think investors would be wise to remain patient and disciplined. Wait for the market to throw you a “fat pitch.”

Disclosure: This information is provided by LVW Advisors for general information and educational purposes based upon publicly available information from sources believed to be reliable – LVW Advisors cannot assure the accuracy or completeness of these materials.  The information presented here is not specific to any individual’s personal circumstances.  To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.  The information in these materials may change at any time and without notice.  Past performance is not a guarantee of future returns.

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