(PUB) Investing 2016

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The Independent Adviser for Vanguard Investors • May 2016 • 3 FOR CUSTOMER SERVICE, PLEASE CALL 800-211-7641
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yield an increase in earnings per share
for the oil majors. We might see that
in either the second or third quarters’
earnings numbers, but recent estimates
are that energy companies are going to
be responsible for about 5.6 percentage
points of the estimated 6.1% decline in
earnings for the S&P 500 in Q1.
Contrast that with the jobs picture:
We’ve got solid job growth, the low-
est levels of unemployment claims in
over 40 years, and greater numbers
of workers moving from job to job as
they seek higher and higher compensa-
tion. Incomes are rising—slowly, but
inexorably.
Housing could get another shot in
the arm, too. Rents are up nationwide
almost 9% from a year ago, and if you
live in a hot market like New York City
or San Francisco, you know they’re
up a whole lot more than that. With
mortgage rates still low and job security
strong, this is the perfect time for rent-
ers to take some of their savings and
become buyers, so long as they don’t
overdo it.
I keep wondering what it’s going
to take to loosen the grip on wallets
and pocketbooks, and send the U.S.
consumer back to the store, or onto the
Internet with credit card in hand. We’ll
have to wait to see.
Meantime, expect a reboot on arti-
cles claiming you should “Sell in May
and go away.” Yeah, yeah, I’ve heard
it all before. The bottom line is that
market timing doesn’t pay, and it isn’t
as if the May to October period (when
you’re supposed to sit in cash) is a his-
torical loser. It’s not. As I like to say,
time in the markets, not market timing,
is how you make money. n
I think the current slowdown warrants
panic? Not at all.
While the economy is in expansion,
earnings are in recession. If the defini-
tion of an economic recession is two
quarters of negative growth (another
way of saying two quarters of shrinking
GDP), then the BEA’s reports that after-
tax corporate earnings fell in the two
last quarters of 2015 means we are in
an earnings recession. And it’s looking
as though we’ll add on a third quarter
when Q1’s numbers are tallied, though
by the time we see those numbers in
late May, we’ll be well on our way to
understanding how the second quarter
has played out, and the first quarter will
be long, long gone.
As I’ve noted before, a big chunk of
the current earnings decline is directly
attributable to the energy industry. Oil
prices have begun to pick themselves up
off the floor from the high $20-per-barrel
range in late January. But the damage
has been done, and it will take some
time to work today’s $40-plus prices
through the system that ultimately will
Growth Model Portfolios, and using the
proceeds to buy S&P Mid-Cap 400
Value ETF. Based on Friday’s closing
price, the sales price was $26.98 on
Selected Value. The ETF was purchased
at Monday’s opening price of $96.02.
Why Sell?
A little history is in order before I get
into the nuts and bolts of this decision.
First, you and I didn’t buy Selected
Value upon its inception. Nope. The
fund started out a loser under the guid-
ance of a former Goldman Sachs port-
folio manager working for Barrow
Hanley. Vanguard wasn’t happy, nor
was Jim Barrow, lead partner at Barrow
Hanley, and so he was assigned the task
of righting Selected Value’s ship.
It was shortly after that, given that
I knew and respected Jim Barrow, that
I recommended buying the fund and
put it into the Growth Model Portfolio.
I’d been a fan of Windsor II for years
when Barrow ran it (it has since been
hamstrung by its multimanager format).
So, you and I bought Selected Value
in May 1999, just a couple of months
after Barrow was appointed. And a
year and a half later, in December
2000, I recommended the fund for
investors following the Conservative
Growth Model Portfolio. We’ve added
and subtracted from our holdings over
the years, but Barrow and his co-man-
ager, Mark Giambrone, who joined
Barrow as co-manager in late 2002,
BLUES FROM PAGE 1 >
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VALUE FROM PAGE 1 >
12-Month GDPGrowth
Is Less Volatile
12-month
Annualized
3/00 3/02 3/04 3/06 3/08 3/10 3/12 3/14 3/16
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%