8 Things That May Surprise You for 2015

  •  US auto and truck sales have been outstanding in 2015.  Chrysler is at the highest level since 2005 and Ford had their best July since 2006.
    • The average age of vehicles on the road is now 11.5 years old, a record length.
    • New vehicle sales were 12.7 million in 2011, 16.5 million in 2014 and should exceed 17 million in 2015.
  • The US and world stock markets have been volatile recently.  This should NOT be a surprise.
    • Stock markets can be volatile, especially over the shorter term.
    • For 2015, the S&P 500 is down less than 1%.
    • From 12 months ago, the S&P 500 is up over 2%.
    • On Thursday, the S&P closed at 2,036.  Three years ago, it was around 1,400.
      • That is a 45% increase.  Does that surprise you?
      • Does that help you to focus more on the long term?
  • Amazon’s market capitalization (value of all shares of its stock) is $242 billion.
    • Amazon’s 2014 net sales were less than $100 billion, and lost money for 2014.  Amazon reported $92 million of profits for the 2nd quarter of 2015.
    • Wal-Mart had revenue of $482 billion for the fiscal year which ended January 31, 2015.  Net income for the year was $16.4 billion.
      • Wal-Mart’s market capitalization is now $221 billion, which is less than Amazon’s.
      • It is hard to predict the future success of a company and their stock.  The stock market clearly feels that Amazon will one day be more financially successful than Wal-Mart.  Time will tell if these valuations are accurate.
  • The price of crude oil has dropped from $57/barrel at the beginning of 2015 to approximately $41/barrel today.
    • The US Energy Information Agency “Annual Energy Outlook 2015” predicted prices well above $50 per barrel, with “prices to rise steadily after 2015” up to $80 per barrel in 2020.  Their “high oil price” scenario predicted $122 per barrel for 2015.
    • This shows how difficult it is to make forecasts and why predictions should generally not be followed in making investment decisions.
  • The 10 year total annualized return for General Electric stock is .06% per year (almost 0% per year), through 8/19/2015.  GE stock purchased for $1 million 10 years ago would still be worth about the same today.
    • During the same 10 year period, the S&P 500 has returned 7.73% on average per year.  The same $1 million invested in the S&P 500, 10 years ago, would now be worth $2,020,000.
    • This shows the risk of investing in one stock.  Even though a company is considered to be “blue chip,” it may not be successful stock to hold forever.
  • The Federal Reserve was widely expected to increase interest rates this year.
    • The 10 year Treasury Note was 2.173% on 12/31/14.
    • The yield has actually gone down, not up, and is now 2.085%.
    • Predicting short term interest rate moves is very difficult and why we build balanced fixed income portfolios.
  • The top US individual income tax rate is 39.6%
    • In 1977, the top tax rate was 70% for income above $203,200.
    • In 1982, the top tax rate was 50% for income above $85,600.
      • Did you realize how much this has changed and how high rates were a few decades ago?
  • US crude oil production is around 9.4 million barrels per day.
    • Production almost doubled from 5 years ago.
    • In 2010, 5.5 million barrels were produced per day.
      • This would not have been predicted.  Great technological breakthroughs led to production increases and will have significant societal impacts.
It should not be a surprise that we, as a society, are continually surprised by what the future brings. Uncertainty is always with us. Our investment approach is designed to help you effectively deal with this uncertainty.

 

Note: The sources for this blog post are available upon request

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