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Market Commentary 10/01/2016

Halvorson Research Associates LLC is closing its operations as a registered investment advisor as of 9/30/16. Those of you who have been with us for several years will understand how devastating the loss of our founder is, but the family members hope to continue his research into investments in some other form.

Our Favorite 30, Tiny and Model portfolios will no longer be available online. Please contact us at custserv@hrastockpicks.com if you have any questions or comments.

As for our dialogue, we will be happy to speak to individuals about our thoughts and market sentiment on a private, non-published basis, but we will no longer be giving out investment advice.

What does this mean to HRA and the average investor?

Looking ahead, we see a divergence in possible futures, based on the result of the presidential campaign currently being waged.

ON the one hand, we see the opportunity for renegotiation of trade agreements (re: BREXIT), reestablishment of energy policy using fossil fuels, stiffer immigration policy, a return to privatized health insurance and additional choices for American citizens, and some attempt to reduce the intrusiveness of federal government on American lives.

ON the other hand, we see a continuation of liberalized policies, the continuing loss of transparency and accountability in government, the loss of America’s primacy in world leadership, and business regulation and taxation that will strangle efforts to grow the American economy.

Which road the American people will take is anyone’s guess. Our hope is that, as in all things, moderation will prevail – the strength of our economy relies on the ingenuity and the productivity of our population, and we hope for continuing growth in employment, in ideas, and in earnings for American companies and the American people.

As of 9/30/16: *

1-Month

YTD

1-Year

Favorite 30

0.54%

-3.05%

5.65%

RGP 12

0.42%

-0.40%

12.29%

Tiny 6

-1.91%

-9.47%

-0.84%

S&P 500

-0.91%

5.24%

12.04%

*(The Realistic Growth Portfolio did not come into existence in its current form until 12/31/13)

*(Note: the HRA Favorite 30, Realistic Growth, and TINY stock picks are treated as theoretical portfolios; they do not include any costs of trading, make certain assumptions i.e. pricing at close, and do not include any portfolio management expenses or dividends. See our Performance page for full disclosure.)

Current markets are showing a 10-year T-bill rate of 1.61%, a 10-year (historical) average return on equities of 4.88% as measured by the S&P 500 Index (including the 2008 financial bubble). Our Favorite 30 is showing an average 5.87% 10-year annual increase, and our TINY 6 portfolio is showing an average 2.72% 10-year annual increase.* *(Note: the HRA Favorite 30, Realistic Growth, and TINY stock picks are treated as theoretical portfolios; they do not include any costs of trading, make certain assumptions i.e. pricing at close, and do not include any portfolio management expenses or dividends. See our Performance page for full disclosure.)

Where are we investing?

With summer over, our portfolios saw good growth in September, despite worries of interest rate increases. THESE RATE INCREASES WILL HAPPEN, and we believe that there will be a short, shallow correction in the equity markets until the economy re-stabilizes around a slightly higher base interest rate.

During this unsure time, money has undoubtedly flowed into passive funds. This is evidenced by the slow and steady rise of indexes over the past months to even higher highs. We are an active manager and we believe in the utility of passive funds but start to worry when they become large enough to affect the market. More and more of the actual trading in the underlying securities (individual stocks) is to maintain the bases for passive funds and derivatives. This aggregation leads to the potential for higher volatility in the marketplace.

HRA believes that the earnings generation ability of growth stocks that are reasonably (or under-) priced will be rewarded by increases in price going forward. This investing style fits a portion of every investor’s portfolio needs, and has shown the best annualized average returns over time of almost all investing disciplines, with a 20-year average return for the HRA Favorite 30 stock picks of 9.71%, versus the S&P 500 Index’s 5.87% 20-year average annual return (as of 9/30/2016).

On the more personal side, all investments should be based on the individual investor’s risk tolerance – if you want to be aggressive, and can live with volatility over the short-term, then investing in stocks over the long-term may provide increased returns along with that higher level of risk.

Remember, not all investments are suitable for all investors – check with a financial advisor if you plan to make major changes in your portfolio. Also, remember that historical returns are not predictors of future returns, and HRA does not believe that you can time the market. With those qualifiers, we at HRA wish you luck in your investing!


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Fundamental U.S. Stock Research

Halvorson Research Associates LLC has closed its investment advisory as of 9/30/16. The firm will no longer provide stock recommendations to clients.

For those of you who have been with us over the years, our heartfelt gratitude to you! We wish you all good luck in your investment future!