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Weekend Reading List – Vol. 1 (March 21-22, 2015)

The Fed Loses Patience

Federal Reserve Chairwoman Janet Yellen said earlier this week that policy makers may consider raising short-term interest rates after their April meeting if they’re “reasonably confident” inflation will return to their 2% target in the medium term and labor market conditions continue to improve. Ms. Yellen lowered projections for future interest-rate increases based on weaker forecasts for growth and inflation. Other economic news this week painted a picture of sluggishness in industrial output and new home construction during the first quarter.

For the week ended March 20, 2015, the S&P 500 Index rose 2.7% to 2,108 (for a year-to-date total return—including price change plus dividends—of about 2.9%). The yield of the 10-year U.S. Treasury note fell 20 basis points to 1.9% (for a year-to-date decrease of 24 basis points).

Economic Week in Review | Vanguard

Nasdaq Hits 15-Year High

The Nasdaq Composite climbed 34.04 points, or 0.7%, to end at 5026.42 on Friday, its highest level in 15 years. The index is now just 22 points from its previous closing record of 5048.62 achieved on March 10, 2000. The index’s all-time intraday high of 5132.52 was also achieved on that date.

nasdaq

The fact that the Nasdaq is nearing an all-time record is not so important as the length of time that it took for the index to return to such a level. This really speaks to the power of market bubbles. Imagine you had purchased stock in March 2000 at the height of the dot-com bubble . It would have taken fifteen years for you to make your money back following the crash. This is why the price-value relationship is so important and why you should always caution yourself against overpaying.

U.S. Stocks Rise; Nasdaq at 15-Year High | WSJ

Ronald Read’s $8 Million Portfolio

Ronald Read died in June at the age of 92. He lived modestly, working as a maintenance worker and janitor at a J.C. Penney store after a long stint at a service station that was owned in part by his brother. So, his friends were shocked when they learned his estate was valued at almost $8 million. Long widowed and with two stepchildren, he left most of his money to a local hospital and library.

So how did he manage to BF-AJ403A_ULTIM_G_20150319110906pull it off? Besides being a good stock picker, he displayed remarkable frugality and patience—which gave him many years of compounded growth.

Note that Wells Fargo, P&G, and American Express are among the top holdings of Berkshire Hathaway. And like Buffett, friends say that Mr. Read stayed within his circle of competence and only bought shares of companies he was familiar with.

Route to an $8 Million Portfolio Started With Frugal Living | WSJ

Who is the “Fed” and How Does it Affect Your Finances?

The Federal Reserve regularly dominates the financial headlines, but their announcements can often seem like they’re speaking a different language. What is the Fed, and why do so many people pay so much attention to it? More importantly, does it impact your financial life?

In short: yes. Listening to the Fed can help give you an idea of what the economy is currently like, what’s going to happen, and how it affects your business, your job, and/or your investments. It might sound complicated, but knowing the basics can go a long way.

Who Is “The Fed”, and How Does It Affect Your Finances? | Two Cents

Whatever Happened to Buffett’s $1 Billion Bracket Challenge?

Last year, Warren Buffett and Quicken Loans injected a bit of absurdist fun into March Madness by offering to pay $1 billion to anybody who could correctly guess the results of every game. This was, of course, a near impossible feat; with 64 teams playing in six elimination rounds (the contest did not include the play-in games), the rules stated that the odds of winning were 1 in 9 quintillion. (Though, to be fair, a more reasonable number might have been 1 in 128 billion).

While the odds of winning were virtually zero, the challenge was still fun to participate in and the perfect brackets exciting to follow ( the dream died less than halfway through the tournament, when Memphis’ victory over George Washington eliminated the last three contestants). So why wasn’t the challenge offered again this year?

It seems we can probably blame a court case involving Yahoo (which has essentially accused Buffett of contest theft) and one very ticked-off company in the little known business of promotions underwriting.

The Legal Feud that Killed the Oracle of Omaha’s NCAA Tournament Contest | Slate

  • RL

    It’s a shame there was no $1Bn challenge this year although it wouldn’t make much of a difference. My brackets not looking too hot now anyways….

  • Camille Sailer

    good info; enjoyed learning about ronald read.

  • Matt

    Great articles this week