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Not Every Company Can Weather the Test of Time Not every company proves to be a good investment, in fact, many make horrible investments. The chart below is just a small fraction of companies that have not come back from their highs. Many well-known companies that we all use every day have not fared well, companies like Boeing, Citigroup, Zoom, Perrigo, & Intel just to name a few. Fallen Stocks Will Not Always Bounce Back 
Boeing has struggled for 10 years to get back to its all-time high, Citigroup has been challenged for over 15 years, and Intel for 25+ years. Boeing is off almost -60% from its high, Citigroup is down -87% and Intel is off -73%. Newer companies like Zoom and Peloton are off -85% and -94% respectively. Why is this? The business world is hyper competitive. Companies face unique challenges, things like disruptive competition, mismanagement, changing consumer preferences, or technological obsolescence that can permanently diminish a company’s value. Do you remember Kodak or Blockbuster, they famously failed to adapt and subsequently failed. What about Lehman Brothers and Bear Sterns during the financial crisis, or the fraudulent company Enron? The list is long. The cemetery is filled with companies that didn't make it. Investors must recognize that holding onto a struggling company with the hope that it’s stock will rebound can lead to even further loses and lost opportunities. The market rewards adaptability, innovation, and growth...and not every company can or will be able to achieve this. Avoid companies that are not able to adapt, innovate, and grow. No company is immune from deterioration or even extinction. "Fallen Stocks Will Not Always Bounce Back." The Risk is Real. -Paul R. Rossi
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 Pullbacks, or temporary declines in the stock market, are often viewed with trepidation, but they play an essential role in healthy market cycles. A pullback typically involves a drop of 5-10% from recent highs is quite normal, and common, happening several times a year on average. And the best part, it many times offers great opportunities. Why Pullbacks Are Important and Necessary
When the Inevitable Happens, What Should You Do? Instead of fearing pullbacks, savvy investors think about and use them as opportunities.
Pullbacks can become a powerful ally in building wealth. As the saying goes, "The best time to buy is when there’s fear in the market." -Paul R. Rossi, CFA If you want to purchase real estate and have an investment portfolio...you have options.
Very good options. Before getting a traditional mortgage, the cost on using your investment portfolio as collateral is less expensive, easier, and quicker than using the real estate property as collateral (traditional mortgage). And there are several advantages over a traditional mortgage:
-Paul R. Rossi, CFA 2024 was an anomaly. 2024 was an abnormally low year in terms of volatility (see the red box in the 10- year chart below). There were only two drawdowns of 5% or more which is far below the long-run average of 4.6 times per year the market experiences these types of events. While I don't purport to have a crystal ball, we should expect the stock market in 2025 to experience increased volatility, especially since 2024 was relatively calm by historical standards. 
In 2024 markets benefited from a combination of easing inflation, a steady interest rate environment, and strong corporate earnings. These factors helped suppress volatility, making it one of the least turbulent years in the last decade. However, this calm could set the stage for a rockier 2025 due to several possible risks. Potential Catalysts for 2025 Volatility
While market volatility can be unnerving, it also creates opportunities for investors to capitalize on mispriced and/or underpriced assets. The bottom line: Investors should expect increased volatility - which could mean a significant draw down of MORE than 5%. It can be helpful to mentally prepare for such increased volatility so if and when it comes, we are not surprised by it and have already thought through what we may or may not do. As with so many other areas of life, being mentally prepared is a substantial part of being successful. -Paul R. Rossi, CFA Population growth plays a significant role in economic power which drives stock market returns. A larger population translates to a bigger labor force, which is essential for producing goods and services, driving innovation, and supporting industries. Additionally, a higher population means more consumers, which fuels domestic demand and economic growth. This relationship is particularly evident in GDP, as it is fundamentally tied to the size of a country's labor force and productivity. Population Growth and GDP Population growth contributes to GDP growth in two main ways:
When population growth slows or declines, as seen in many countries around the world, especially in aging nations like Japan, economic growth stagnates, unless it's more than offset by substantial productivity gains which is extremely difficult to do. Population and Stock Market Performance Population growth also influences stock market performance. How?
 Countries like the U.S., with steady population growth and high productivity, have experienced strong GDP growth and therefore stock market success, reinforcing the importance of demographics in economic power. Many other countries haven't fared nearly as well, Germany, Italy, Japan, and Poland just to name a few. Their populations have generally stagnated over the last 30 years, and in the case of Japan and Poland have actually shrunk. Not surprisingly their markets haven't performed nearly as well as the United States (see chart below). The United States population has grown nearly 3x that of the European Union. Which is a contributing factor to the U.S. stock market outperforming the E.U. by over 3.5x over the last 10 years. 
A larger, growing population supports corporate revenues through robust consumption and workforce-driven production. Over time, this contributes to stronger earnings growth for companies, which is a key driver of stock market valuations Is population growth the only factor that drives economic growth and stock market returns? No, of course not, but it's an important driver. There are other factors, but don't underestimate the power of population growth. -Paul R. Rossi, CFA  Look in the mirror...you, me, and everyone else in the United States holds the vast majority of the United States massive debt. And as the largest holders of our countries debt, it's in our best interest to make sure our government can pay its bills and is a good steward of our money. -Paul R. Rossi, CFA  Thanksgiving’s here, it’s time to reflect, On family, friends, and your portfolio’s trek. The market’s a turkey, it squawks, and it dives, But smart, steady planning keeps your dreams alive. The gravy boat flows, like compound returns, Patience is key—it's the lesson that burns. If inflation’s the stuffing, bloated and dense, A diversified plate just makes more sense. The cranberry sauce may be bitter or sweet, Much like the risks we strategically meet. The feast takes some planning, with balance and care, So too does your future—we’ll always prepare. With gratitude flowing like fine cabernet, I’m thankful for trust you’ve shown every day. As you carve through life’s choices, both simple and tough, You are the reason I can’t thank you enough. So, here’s to your health, your wealth, and your cheer, May this Thanksgiving bring joy year to year. Let’s toast to the journey, through markets and strife, You are building a wonderful prosperous life! I hope you enjoyed my Thanksgiving Ode from Me, and a little help from ChatGPT. -Paul R. Rossi, CFA  The Dow Jones Industrial Average (DJIA), a cornerstone of U.S. equity markets, may reach the milestone of 100,000 points sooner than many might think. Although such a leap might seem daunting, historical data and realistic growth rates suggest it’s achievable within the foreseeable future. Scenario 1: 3% Annual Returns Even with abnormally low annual growth rate of 3%, substantially below the historical returns for the DJIA, the index would cross 100,000 in 2052 (about 27 years) from its current level of roughly 44,000. Scenario 2: 5% Annual Returns At 5%, the Dow would hit 100,000 in 2042 (just under 17 years). This scenario reflects balanced market conditions with modest corporate earnings and moderate interest rates. Scenario 3: 9% Annual Returns And if the Dow achieves a strong average growth rate of 9%, which would be driven by strong economic expansion, the index could reach 100,000 in 2035 (9.5 years). However, this path aligns with previous periods of rapid growth, such as the 1990s tech boom. Drivers of Growth Several factors could fuel these scenarios:
While reaching 100,000 might seem overly optimistic, the compounding effect of even moderate growth rates demonstrates how this milestone could become reality within a generation. Investors should stay focused on having a well-thought-out plan to capture these opportunities. -Paul R. Rossi, CFA  I don't typically make predictions, but... The S&P 500 Earnings Per Share (EPS) metric has seen significant fluctuations over the years, reflecting periods of growth, periods of modest growth, slowdowns, and more severe recession-induced downturns. Over the past three and a half decades, EPS growth has been largely positive, driven by corporate expansion, technological advances, and economic growth. However, several downturns have periodically interrupted this trend, some being triggered by economic recessions, financial crises, or global events.
Historically, it's taken the S&P 500 four to five years for quarterly EPS to recover from previous peak levels following significant downturns. However, this recovery time varies, depending on the nature and severity of the downturn, as well as the economic conditions and policy responses that follow. Despite these cycles, long-term EPS growth has been positive, with historical growth rates averaging over 6% per year, which in turn, has contributed to strong stock market performance. This trend of economic growth underlines the importance of staying focused on the long-term benefits of riding the wave of growth. Market prediction:
Bonus Prediction:
Why do I make this prediction and why is it important?
Understanding the hard truths might help make enduring the lumpy times ahead just a bit easier. -Paul R. Rossi, CFA P.S. *Ignore anyone that claims they can predict the short-term.  The challenge for investors is trying to come up with a reasonable value for a company that is growing fast but also is considered expensive when compared to other companies or the overall market. There is a solution. One idea to help investors understand some of the risks in valuation, is looking at current P/E (price/earnings) vs. future P/E ratios and then this relationship to future growth rates. Examples tend to help illustrate the thought process around this idea. Let's use an example to help us understand the concept. A company that has been growing it's EPS (earnings per share) on average by 25% for the last several years and the market has been valuing the company with a P/E of ratio of 45. In this example, we are comfortable with the future EPS growth rate of 25%, as we expect growth this to continue for some time. However, we are concerned that the P/E multiple might come down from its current 45 and be repriced with a more inline market multiple of 25. If the market reprices this company, how long will it take the companies EPS to justify a P/E of 25? Let's calculate. Current Valuation: The initial P/E is 45, so the P (Price) = 45 * EPS (Earnings Per Share) Target Condition (the risk): The company P/E will now be 25 without changing the price, so we'll need the EPS to grow until the stock price dividend by the EPS equals 25. (P / Future EPS) = 25 Growth in EPS: Future EPS = E * (1 + .250) ^ n Setting up and solving the equation: P/E * EPS = Future P/E * Future EPS
So this tells us that a company that is expecting to grow at 25% would take approximately 2 years and 8 months to support a P/E ratio of 25. If an investor is comfortable with this assumption of growth and possible P/E compression, then if could make sense to buy a company that is trading at what would initially look like a very lofty valuation in relationship to the market averages. We can also run various "what-if" scenarios, like reducing the growth rate from 25% to 20%. How much does this impact the number of years to support a P/E ratio of 25? In this case, it would take 3.22 years. Additionally, if you purchased a security, this process can be used to help determine if you "over paid," and if so, how long will it take for the company's earnings to catch up with its valuation. Like personal growth, strong company growth can help overcome a lot, even if your initial starting point was less than ideal. -Paul R. Rossi, CFA  What might (sort of) look like an EKG (Electrocardiogram) chart which measures the electrical activity of the heart, it's actually the CBOE (Chicago Board of Options Exchange) Put/Call Ratio. For savvy investors, the CBOE Put/Call Ratio can be used to help gauge market sentiment by comparing the number of traded Put options as compared to the number of traded Call options. What are Put and Call options? They are collectively part of a group of securities called derivative instruments. Put options give the holder the right to sell an asset at a specific price within a certain timeframe. Investors often buy puts when they believe the market, or a specific stock is going to decline. Put options are also used as a hedging tool. Call options give the holder the right to buy an asset at a specific price. Investors purchase calls when they expect the market or a stock to rise. The put-call ratio shows how many puts are being traded relative to calls. A ratio of 1 means an equal number of puts and calls are being traded. Interpreting the Put/Call Ratio High Put/Call Ratio (>1): A higher ratio indicates that more investors are buying puts, expecting a market decline. For example, if the ratio reaches 1.3, this means 1.3 puts are being traded for every call, suggesting investors are largely bearish and putting hedges in place. Extremely high levels can sometimes be seen as a contrarian signal. When too many investors expect a downturn, it can indicate a market bottom, where prices could stabilize or even rise. Low Put/Call Ratio (<1): A lower ratio can suggest more calls are being bought, reflecting optimism in the market. For instance, a ratio of 0.6 means more calls are being traded, signaling that investors are bullish. Again, extremely low levels could be a contrarian signal, suggesting the market is overly optimistic and may be ripe for a correction. For example, imagine the stock market has been declining for several weeks, and investors become increasingly pessimistic. The CBOE Put/Call ratio rises to 1.8, indicating that far more puts are being bought than calls. This heightened bearish sentiment might suggest that investors are hedging or speculating on further declines. However, such a high ratio could also be seen as a contrarian indicator, implying that too many investors are expecting bad news and that the market might be nearing a bottom. If the ratio starts falling, signaling more calls being bought, it could suggest a change in sentiment and the potential for a market rebound. In this way, the Put/Call Ratio offers a window into investor sentiment, and when used in conjunction with other market data, it can provide valuable insights for timing market turns. -Paul R. Rossi, CFA  Although markets have performed well this year, some investors may be nervous about upcoming events such as the presidential election, the Fed’s next rate decision, and the state of the economy. Along with the uncertainty of the past few years, it’s no wonder that gold prices have also risen to record levels above $2,600 per ounce. While gold can serve a purpose, some investors may focus on it as a standalone investment rather than as a component of a well-constructed portfolio. In today’s market environment, what role should gold play in long-term investment and financial plans? There are many reasons investors might be drawn to gold.
The case for gold really depends on the portfolio objective. Across economic environments, gold can serve at least two investment purposes. 1. First, as a precious metal with consumer and industrial uses, the value of gold can rise over time due to limited supply and steadily increasing demand. This is in addition to demand for gold as a luxury good. As a result, it can serve as a store of value when the world is uncertain and can also protect against inflation as the economy heats up or as central banks increase stimulus, as they have done this year. It's also clear that many investors flock to gold for safety when markets get choppy. In many ways, this is no different from how some investor's view cash or bonds - as a tool to protect their portfolio from short-term market swings. Unlike cash and other safe-haven assets, however, gold does not generate any portfolio income. Thus, it's important to distinguish between gold as a one-off investment and as a part of a portfolio tailored to achieve financial goals. 2. The second and more important consideration is whether gold can help diversify portfolios. Much like bonds, gold tends to perform differently to stocks. The relationship between gold and the stock market since 2008, shown in the accompanying chart, makes this clear. Although gold outperformed stocks during the global financial crisis, it fell in value and flat-lined for years while the stock market climbed to new record highs. Gold also jumped in value during the pandemic, and again more recently as the Fed began to cut rates. 
What may be surprising is that gold was relatively flat during the recent inflationary period that began in 2021. This is partly because the Fed raised rates rapidly in 2022, increasing the attractiveness of cash and other short-term assets. This reveals that understanding the underlying drivers of gold price movements and Fed policy is important when it comes to making portfolio decisions. It’s also important to note that over this full period, the stock market outperformed gold, just as it has against most other asset classes. Of course, constructing a portfolio is not just about investing in the best performing asset – it’s about diversifying to reduce risk and help smooth the ride and to meet financial objectives. While gold may be attractive to investors for a variety of reasons, it’s always important to view it with respect to other asset classes, including stocks, bonds, cash, alternative investments, and real estate. Why Have Gold Prices Risen Recently? Gold often performs well when interest rates decline, as lower rates make non-yielding assets like gold more attractive. The Federal Reserve typically cuts rates to boost economic growth, which can signal an economic slowdown or rising inflation—both positive for gold as a hedge against rising prices. However, falling rates also benefit stocks and bonds. A "soft landing," where inflation slows and rates fall, can create a favorable environment for the stock market and boost bonds, as higher-yielding bonds become more valuable. Recently, though, market-based rates have risen, with the 10-year Treasury yield nearing 4.1%. Like all investments, gold is best (if used) as part of a diversified portfolio. Various asset classes, such as international stocks and small caps, have contributed to market performance this year. Rather than focusing on a single asset, building a resilient portfolio to weather changing market conditions is key. Geopolitics and other concerns will continue to impact markets, the principles of a well-designed portfolio remain steady. What’s the bottom line? Gold’s recent rally can be attributed to Fed rate cuts, geopolitical tension, and fiscal concerns. Investing in gold or any investment should always be considered in the context of a designed investment strategy rather than as a standalone investment. As Led Zepplin so aptly sang: And as we wind on down the road Our shadows taller than our soul There walks a lady we all know Who shines white light and wants to show How everything still turns to gold And if you listen very hard The tune will come to you at last When all are one, and one is all, yeah To be a rock and not to roll -Paul R. Rossi, CFA  Chances are you are not a billionaire, and chances are you will not become a billionaire. But you can ensure your great-great-grandchildren are. We’ll call this the Billion-Dollar Family Portfolio. Let’s describe it and how to do it. Starting with a $100,000, it's possible to build a $1 Billion Dollar Family Portfolio It might seem like an impossible goal, but with discipline and the power of time, it can be achieved over multiple generations. Assuming a 9% annual return (below the stock market's historical average) this ambitious target can become a reality by maximizing time and reinvesting returns. Let’s break down how you can create a lasting financial legacy for your family. The Power of Time Let’s use the sage ideas of Warren Buffett, “Time is the friend of a wonderful company and the enemy of a bad one.” A growth portfolio can be thought of similarly, a well-designed portfolio can grow to become something of wonder given enough time. Compound interest is one of the most powerful tools in wealth creation. By reinvesting your returns year after year (not spending it), you create a snowball effect where your money starts to generate more money on its own. The key to growing a $100,000 portfolio into $1 billion is to give your investments enough time to grow through compounding. At a 9% annual return, your portfolio will double approximately every 8 years. Let’s see how your $100,000 would grow over time: - After 8 years: $100,000 becomes $200,000 - After 16 years: $200,000 becomes $400,000 - After 24 years: $400,000 becomes $800,000 (8x original investment) - After 32 years: $800,000 becomes $1.6 million - After 40 years: $1.6 million becomes $3.2 million - After 48 years: $3.2 million becomes $6.4 million - After 56 years: $6.4 million becomes $12.8 million (128x original investment) - After 64 years: $12.8 million becomes $25.6 million - After 72 years: $25.6 million becomes $51.2 million - After 80 years: $51.2 million becomes $102.4 million - After 88 years: $102.4 million becomes $204.8 million - After 96 years: $204.8 million becomes $409.6 million - After 104 years: $409.6 million becomes $819.2 million (8,192x original investment) After just over a century—potentially spanning four generations—the portfolio would approach $1 billion. While this is a long journey, it illustrates the power of compound interest and disciplined investing over time. You’ll notice after the first 50 years it doesn’t seem like the portfolio will get anywhere near the $1 billion mark, however it’s the second 50 years where the “magic” happens. This is where the power of time really starts to have an unbelievable effect on the dollar value of the portfolio. Creating a Multi-Generational Legacy Building a billion-dollar portfolio requires more than just time and returns, it requires passing on sound financial principles to future generations. Over the course of a 3-4 generations, the family wealth could grow exponentially, providing financial security for future heirs. Consider the example of the Rothschild family, who amassed significant wealth in the 18th and 19th centuries...and still continues to this day. Some estimates have the vast family's wealth approaching a trillion dollars. By employing a long-term strategy and ensuring that future generations followed similar investment principles, they were able to sustain and grow their wealth. Today, the Rothschilds remain one of the wealthiest families in the world, thanks to the power of multi-generational investing. Doing What Most Won’t Do Most people are drawn to short-term gains and quick wins, which is why building a $1 billion portfolio is hard and requires the discipline to avoid instant gratification. Warren Buffett, famously said, “The stock market is a device for transferring money from the impatient to the patient.” Those who are patient, disciplined, and willing to stay the course reap the greatest rewards. The Biggest Challenge The difficulty lies in maintaining this discipline through difficult market cycles over generations. Tough times lie ahead, they always do. You can be virtually certain that over the next 100 years there will be many panics, wars, and countless scary times that will need to be endured to build the Billion Dollar Family Portfolio. Think about building this portfolio in 1900 and what happened over the next 100 years: 2 world wars, a great depression, countless recessions, stagflation, many smaller wars, a presidential assassination, and several government shutdowns. The key to building long-term generational life changing wealth is sticking to a consistent investment strategy over many decades, even when the vast majority will be tempted to deviate. How To
Achieving a $1 billion portfolio from $100,000 requires time, patience, and discipline, but it’s possible to achieve across a few generations. By ignoring the noise, and focusing on a long-term growth portfolio, and passing down sound financial principles, you can build a lasting legacy that ensures your family’s financial security for generations to come. While the journey may be long, the results will speak for themselves. -Paul R. Rossi, CFA P.S. Some interesting facts about the starting value. If you start with $10,000 instead of $100,000, you can factor that it will take an additional 25 years or so to get to a billion dollars. What if you start with $1 million dollars? It will take 20 years less, so the Billion Dollar Family Portfolio will be achieved in about 80 years. *The statistics show that 0.00022% of Americans are billionaires.  What are Alternative investments? They are financial assets outside of traditional stocks, bonds, and cash. They often include private equity, private credit, hedge funds, real estate, direct start-up investing, commodities, and venture capital. While they can potentially offer higher returns, they also carry unique risks. Investors commonly use alternative investments to enhance portfolio diversification, hedge against market volatility, or seek long-term growth opportunities in niche markets. These assets, often unlisted on traditional stock exchanges, promise unique opportunities and the potential for significant returns and the allure of alternative investments can be irresistible. However, while getting into these investments is easier than ever, a crucial question often goes unasked: How will you get out? Let's take a look at some of the positives and the potential drawbacks of investing in the alternative investment space. But keep in mind there are unique and sometimes stark differences between the various types of alternative investments and even within the same asset category. Positives of Alternative Investments 1. Diversification Benefits Alternative investments, such as hedge funds, private equity, and real assets (e.g., real estate, commodities), often have low correlation with the traditional stocks and bond market. This helps reduce overall portfolio risk by spreading exposure across different asset classes. 2. Higher Potential Returns These investments can offer the potential for higher returns compared to traditional investments. For instance, the top private equity firms and venture capital funds have historically provided substantial gains for investors willing to accept the risks and long holding periods. The big differential between the top tier funds and the rest is quite large, so having access to top firms is extremely important. 3. Access to Unique Opportunities Alternative investments provide exposure to opportunities unavailable in public markets, such as direct investments in startups, private real estate, or infrastructure. This can lead to enhanced portfolio customization and risk-adjusted returns. 4. Tax Efficiency Some alternatives, like real estate, offer tax advantages. Real estate investments allow for depreciation deductions, which can reduce taxable income. Additionally, gains in private equity and venture capital are often taxed as long-term capital gains, which have lower rates than ordinary income tax. Negatives of Alternative Investments 1. Illiquidity Many alternative investments are not easily tradable, which can make it difficult to access capital once you've invested. Investments in private equity or real estate funds often have long lock-up periods, many for up to 10 years or more. Always ask yourself, how will I get out? Selling these assets can be complex and expensive. Since there's no active market for these investments, you may have to sell at a deep discount, often far below their reported value. How deep is the discount? When exiting these investments, you may face a discount of 20% or more. And in a downturn, the lack of demand can make selling even harder, increasing your potential losses. 2. High Fees Alternatives typically come with higher fees than traditional assets. For example, private equity funds charge both a management fee (often 2%) and a performance fee (usually 20% of profits), which can eat into net returns. These fees dramatically impact what the investor actually make. 3. Complexity and Lack of Transparency These investments are often more complex, requiring a deeper understanding of the asset class and specific strategies. Additionally, most of the time they lack the same level of transparency as publicly traded assets, making it difficult to the management teams, assessing risks, or performance in real-time. Many times, these investments are a black box, you don't really know what's inside. 4. Potential Tax Disadvantages Certain alternative investments, such as hedge funds or limited partnerships, may generate taxable events such as unrelated business taxable income (UBTI) or require investors to file complex tax forms like K-1s. These tax issues can add complexity and add the additional need for professional tax help which reduces net returns. While alternative investments can provide diversification and higher returns, they come with real risks such as illiquidity, complexity, and tax implications. Investors need to weigh these factors carefully to ensure alignment with their financial goals and risk tolerance. -Paul R. Rossi, CFA  When the Federal Reserve cuts interest rates last week, it impacts consumers and investors alike. The recent 50 basis point cut (0.50%) affects borrowing, investing, and saving in both the short and medium term. Implications for Consumers Short-Term (3 months)
Medium-Term (12 months)
Implications for Stock Market Investors Short-Term (3 months)
Medium-Term (12 months)
Implications for Bond Market Investors Short-Term (3 months)
Medium-Term (12 months)
Important Considerations The Fed's decision to cut rates by 50 bps is an important piece of information, but it should not be the sole driver of your investment decisions. While rate cuts can influence market conditions, they are just one part of a complex economic and investment landscape. Investors should use the rate cut as a signal to review their portfolios and strategies but make decisions based on a comprehensive assessment of market conditions, risk tolerance, and long-term objectives rather than reacting solely to changes in interest rates. -Paul R. Rossi, CFA Lessons from the CEO of the first non-tech company to be worth more than $1 Trillion Dollars9/17/2024  In August 2024, Berkshire Hathaway, under Warren Buffett’s leadership, reached a historic milestone by becoming the first non-tech company in the U.S. to hit a $1 trillion market capitalization. This feat is particularly impressive when you consider that Berkshire is fundamentally different from its trillion-dollar peers, like Apple, Microsoft, Nivida, and Amazon. The milestone was achieved just two days before Buffett, the Oracle of Omaha, turned 94. The Origins of Berkshire Hathaway Berkshire Hathaway started as a struggling textile manufacturing company. When Warren Buffett began purchasing shares in the 1960s, he saw little future in textiles and pivoted the company into an investment powerhouse. By 1965, Buffett took full control, transforming Berkshire into one of the world’s most diversified conglomerates. His investment strategy buying undervalued businesses across a variety of sectors. Factors Behind Buffett's Success and the $1 Trillion Valuation: Diversification and Acquisitions Berkshire Hathaway’s success can be attributed to its highly diversified portfolio, which spans insurance, energy, railroads, and consumer goods. Key acquisitions such as GEICO, See's Candy, BNSF Railway, and Dairy Queen provided consistent cash flows, protecting the company from downturns in any one sector. The Power of Compounding Buffett has long championed the power of compounding. By reinvesting profits, Berkshire has grown its capital base significantly. This long-term approach has allowed Berkshire to avoid short-term pressures and steadily grow over time. He stated several times, it's not the person with a 160 IQ that does in the investment arena, it's the person with the right temperament. Insurance: The Cash Flow Engine Berkshire Hathaway’s insurance businesses, particularly GEICO, generate significant cash flow in the form of “float,” which Buffett reinvests in high-return opportunities. This strategy provides Berkshire with a continuous and low-cost source of capital. Strong Corporate Governance and Leadership Buffett’s leadership, marked by transparency and integrity, has built investor trust. His conservative investment philosophy has helped Berkshire weather financial storms and contributed to its long-term success. Warren Buffett has not only built an investment empire but has also shared his wisdom with the world, here are a few key lessons:
Standing the Test of Time Berkshire Hathaway’s journey to a $1 trillion market cap highlights Buffett’s disciplined approach, sterling reputation, and commitment to long-term value creation. As the first non-tech company to achieve this milestone, it serves as a model for investors seeking enduring success. -Paul R. Rossi, CFA  Investing in risky assets is a probabilistic endeavor. There are no guarantees, that is indeed why the returns can be greater than non-risky assets. Taking on risk is the price all investors pay for the potential for greater returns. However, taking risk doesn’t guarantee a better return, it just is one of the requirements for the possibility of a greater return. Question: Want to load the probability curve in your favor? Answer: Zig when the market zags. Question: What does this mean? Answer: Let’s look at history as a guide to give some perspective on what you might consider doing. Here are the stock market returns one year after the bottom during the three most recent major market downturns: Great Recession (2008-2009)
Dot-Com Crash (2000-2002)
COVID-19 Crash (2020)
These periods highlight the power of buying when most investors are selling. Essentially all three periods experienced 70%+ returns over the next year. Incredible returns to say the least. This tells us, you can do very well, by doing the opposite of what most others are doing during periods of frantic selling. Of course, it’s not a guarantee, but you are stacking the odds in your favor. It’s a bit like counting cards at the casino, and who doesn’t like to beat the house. Hit the easy button. -Paul R. Rossi, CFA  On September 11, 2001, the world changed forever, and for those of us alive then, we all remember exactly where we were when the attacks happened. The tragic events of that day, when terrorists attacked the Twin Towers, the Pentagon, and attempted a third strike, left an indelible mark on our collective memory. But amid the heartache, we saw extraordinary acts of courage and heroism—especially from the first responders who ran toward danger to save lives. Firefighters, police officers, paramedics, and countless volunteers worked tirelessly in the immediate aftermath. Many lost their lives while rescuing others, and many more have since faced long-term health challenges from the conditions at Ground Zero. Their selflessness reminds us of the incredible bravery it takes to protect and serve, even in the face of danger. In the days and months following the attack, our nation turned its focus to protecting the freedoms we hold dear. Thousands of men and women in our military answered the call to serve, deploying to unfamiliar lands, often far from their families. These brave soldiers, sailors, airmen, and Marines carried with them the responsibility of defending our country and ensuring that such acts of terror would not happen again. Today, we remember and honor all those who sacrificed on 9/11 and in the years since. Whether first responders running into burning buildings or military members serving in far-off battlefields, their commitment to defending our freedoms remains an inspiration. As we reflect on this day, let us not only express gratitude but also ensure that we never forget the spirit of unity and resilience that carried us through, we need to remember this unity now more than ever. We owe an immeasurable debt to those who have stood on the front lines, protecting the values that make our nation strong. -Paul R. Rossi, CFA  1. Thousands of Investment Choices, (literally thousands more) A huge advantage of rolling over a 401(k) into an IRA is the expanded range of investment options. While most 401(k) plans offer a limited menu of funds (typically under 30), an IRA opens up access to literally thousands of investments, which includes individual stocks, bonds, ETFs, options, mutual funds, and alternative assets. This gives you more control over tailoring your portfolio to your investment goals, risk tolerance, and financial goals. 2. Lower Fees and Better Cost Control, (substantially lower fees) IRAs are far less expensive. 401k plans, have (often hidden) administrative fees and higher expense ratios on the available funds within the plan. I've seen plans where the all-in fees are north of 2% annually. Why? Well, 401k plans incur expenses running the plan for the company you worked for, expenses like the Third Party-Administrator (they handle reporting, tax filing, legal testing requirements, etc.), the plan advisor (picks and manages the investment options), and the record keeper (handles the trades, record keeping, and statement generation). All of these groups charge for their services, which comes out of your 401k returns. With an IRA, these pieces can be eliminated, so you can actively seek out low-cost options which can translate into significant savings over time. 3. Consolidation and Simplified Management Many investors accumulate multiple retirement accounts over their careers, which can make managing your overall retirement strategy complicated. Rolling over your old 401(k)’s into one IRA allows you to consolidate your retirement assets in one place, making it easier to manage and adjust as needed. In addition, the ability to make changes to your holdings is vastly easier within an IRA. 4. Greater Flexibility for Beneficiaries and Estate Planning IRAs offer more flexibility when it comes to naming beneficiaries and structuring how those assets will be passed on to heirs. Many 401(k) plans have strict rules regarding spousal inheritance or limited options for non-spouse beneficiaries. With an IRA, you have more control over how your assets are distributed, giving you the ability to create a more comprehensive estate plan. -Paul R. Rossi, CFA P.S. What does the picture of the world's fastest plane (SR-71) have to do with rolling your 401k into an IRA? Nothing, I just like picture. My family, not too long ago, attended a special presentation by a former SR-71 pilot (Brian Shul) who described what it was like being a part of this planes storied past during the cold war.  What's the worst month of the year for investors? September has earned a reputation as a challenging month for investors. Understanding why this is the case, and what the data shows, helps set proper expectations and guide decision-making. Looking back at over a century of data, September consistently stands out as one of the weakest months in terms of average returns. Since 1928, the S&P 500 has averaged a decline of about -1.0% during September, and -1.7% since 2000. This performance is in stark contrast to other months like April or November, which typically boast more positive averages. This phenomenon isn’t just a recent trend. In fact, between 1950 and 2023, the Dow Jones Industrial Average has dropped in September about 60% of the time. The idea behind September’s poor performance is the impact of institutional investors, who may be adjusting their portfolios at the end of the third quarter. Additionally, the end of the summer typically sees lower trading volumes, which can lead to increased volatility as trading can have a larger impact on pricing. The good news is that these declines are often relatively small and short-lived. For savvy investors, September’s volatility doesn’t necessarily need to be a cause for alarm, in fact it can be an opportunity take advantage of some mispricing. It’s also worth noting that while September has historically been a weak month, there have been some notable exceptions. For instance, in 2010, the posted a +8.8% gain, defying the typical September trend. Similarly, 2013 saw the index rise +3.0% in the month. -Paul R. Rossi, CFA  What do the following dates have in common? October 27, 1997 March 16, 2020 December 1, 2008 October 19, 1987 March 12, 2020 These are the 5 single worst days in stock market history since the great depression. On October 19, 1987, often referred to as Black Monday, the Dow Jones Industrial Average dropped by an unprecedented 22.6% in one day, marking it the largest one-day percentage decline in its history. Other global markets experienced similar collapses, triggering a widespread financial panic. To put this drop in perspective, that would be similar to a 10,000+ point drop in the market today. What caused the 1987 crash Several factors contributed to the crash, including growing concerns about rising interest rates, economic uncertainty, and the overvaluation of stocks. One significant factor was the rise of computerized trading and portfolio insurance strategies that automated sell orders once prices started falling, exacerbating the market's decline. Some news goods about the ’87 crash The crash led to reforms in market regulation, such as circuit breakers, which pause trading during extreme volatility, to prevent a similar collapse. Despite its severity, the 1987 crash didn’t trigger a prolonged economic recession but served as a reminder of the dangers of market speculation (the market ended up for 1987) and automated trading systems. Sounds familiar. What would you do if there was a 10,000+ point drop in the stock market, do you have a plan in place should something similar happen today? Do you know how your investments would fare? Do you know what you own, and why? The best time to make changes is well before the possibility becomes a reality, when you are not under mental anguish. While I’m not predicting another 1987, you shouldn’t completely rule it out either. History has shown the market can drop hard and fast. What should your next 3 moves be? Plan. Prepare. Execute. -Paul R. Rossi, CFA 
When investing, concerning yourself with who is currently, or who will be occupying the White House, isn’t as important as you might think. (But this isn't to say elections don't matter, they absolutely do. Policies have important and long-lasting implications). So, if the person who calls the White House home isn't important in terms of investing, what is important? Investing is about probabilities, understanding those probabilities and taking measured risks. What is important? It is understanding who the likes of Tim, Darren, Mary, Jane, Andy, Satya, Mark, and Sundar are. Who are these people? They are Tim Cook of Apple, Darren Woods of Exxon Mobile, Mary Barra of General Motors, Jane Fraser of Citigroup, Andy Witty of United Health Group, Satya Nadella of Microsoft, Mark Zuckerberg of Facebook, and Sundar Pichai of Google. These are some of the largest and most important companies in the world, and these people, as well as other CEOs, are more important to how well your investments will do than any politician. Do interest rates affect the market? Yes. Does tax policy affect companies? Yes. Can legislation affect business climate? Absolutely. All of these effect businesses (and many more). But CEO’s and their management teams are paid hefty sums to navigate the ever-changing hyper competitive business landscape. No matter what is thrown at them, they are expected to overcome virtually any obstacle, even poor policy decisions made by elected officials. While parties change, including who is President or who controls Congress, they are often less important than the internal factors that define a company's success. Betting on CEOs and Management Teams The quality of a company’s leadership is arguably one of the most critical factors in determining its long-term success. A great CEO can steer a company through difficult times, capitalize on opportunities, and foster innovation and growth. Take Apple, for example, under the leadership of Steve Jobs, Apple transformed from a struggling computer manufacturer into one of the most valuable companies in the world. Jobs’ vision, innovation, and relentless pursuit of excellence were key drivers of Apple’s success. Even after his passing, the strong culture and management team he built have continued to lead Apple to new heights under Tim Cook. Similarly, companies like Amazon, Tesla, and Berkshire Hathaway owe much of their success to the vision and execution of their CEOs—Jeff Bezos, Elon Musk, and Warren Buffett, respectively. These leaders have not only created strong business models but have also built teams that can execute their visions effectively. For investors, betting on these leaders and their ability to continue driving growth is often a more reliable strategy than worrying about political shifts. The Importance of Business Models While leadership is crucial, the underlying business model is equally important. A solid business model provides a competitive advantage, ensures sustainable revenue streams, and allows a company to adapt to changing market conditions. Companies with robust business models can withstand economic and political fluctuations, making them more resilient investments. Consider companies like Google and Facebook, their platforms have become essential parts of our lives, giving them a competitive edge that is difficult to challenge (up to this point). The recurring revenue from advertisers, coupled with massive user bases, provides a strong foundation that can weather political or economic changes. Similarly, companies like Visa and MasterCard operate on business models that are deeply embedded in the global financial system. Their networks facilitate billions of transactions daily, and their value is tied to the growth of digital payments, a trend that is likely to continue regardless of who holds political power. Politics vs. Corporate Fundamentals It’s easy to get caught up in the news cycle, especially during election seasons, and to worry about how political changes might affect the market. However, history has shown that while political events can cause short-term volatility, the long-term success of investments is more closely tied to corporate fundamentals (management and business models) than to political leadership. Great business models and management teams have shown to do well in both good times and bad, regardless of what is going on around them. By betting on strong CEOs, capable management teams, and resilient business models, investors can position themselves for long-term success, regardless of who is in the White House or Congress. The key is to remain focused on what truly drives value in the companies you invest in, rather than getting distracted by the noise of politics. -Paul R. Rossi, CFA  Noise is all around us, it's everywhere. The phone we all carry not only makes calls, it's also a noise amplification machine...making it difficult to discern between all the noise around us and valuable signals. The stock market is no different. Stock market "noise" refers to the short-term fluctuations and irrelevant information that can obscure the truth and the true underlying value of financial assets. Noise is the background chatter that can cloud good judgment. It includes the daily price swings, news headlines, rumors, and random market movements that do not reflect the underlying fundamental value. Noise is often driven by factors such as investor sentiment, market speculation, and external events that have little to no long-term impact on a company's performance or the broader market. For example, a sudden drop in stock prices due to a rumor about an economic policy change, which later proves to be unfounded, would be considered market noise. Noise can make it difficult for investors to distinguish between meaningful signals—indicators that genuinely reflect changes in value—and irrelevant distractions. This can lead to impulsive trading decisions based on short-term events rather than long-term investment strategies, potentially resulting in suboptimal financial outcomes. While short-term market volatility is noise. Over the course of market cycles, the stock market mirrors the trajectory of corporate profits - this is the signal. This is because shares of a stock represent an ownership claim on a company's profits. So, while markets can and do experience short-term turbulence, a steadily growing economy and rising corporate profitability drive long-term market returns. This is clearly demonstrated in the accompanying chart which shows that while markets and earnings do not move in perfect lockstep, over the medium to long-term they are highly correlated.  Over the past twelve months, S&P 500 earnings have risen to $232 per share, a healthy growth rate of 7.4%. This has accelerated with second quarter S&P 500 earnings rising at a blended growth rate of 10.9% (FactSet data). If there was one superpower to have, it would be the ability to accurately filter out the everyday noise. We are being bombarded with noise...ignore the noise and focus on the signal. -Paul R. Rossi, CFA  I was extremely close to my grandfather growing up, we spent a lot of time together, which I am eternally grateful for. He was part of what has been colloquially called the “greatest generation,” a proud American, my grandfather dropped out of high school and enlisted in the Marine Corps at 17. He always took great pride in being a Marine in WWII, which included combat in the Pacific on the islands of Tinian and Saipan where he “acquired” a samurai sword from a Japanese solider when he and other Marines were attacked in the early morning of August 2nd, 1944. The formative years of his life were spent in the Marines where he learned and embraced the Marine Corps tenants, such as Semper Fidelis (Always Faithful), honor, courage, and commitment. He always had a strong belief in taking personal responsibility for his safety and instilled this into me. With these thoughts in mind, I've been wanting to enhance my family's awareness and preparation around personal safety. My daughter is now driving and will soon be heading off to college, and my oldest son will be driving before long. My children are now out and about, getting gas, shopping, etc., which is now happening without their dad’s watchful eye. So, the timing for getting the best professional training was important, and I wanted the training to cover various aspects of personal safety. Fortuitously, I recently heard Robert “Ninja Bob” Porras on a recent episode of The Shawn Ryan Show podcast, and his background and demeanor were exactly what I was looking for. Link here ninjabobsolutions.com/about/ Bob served in the United States army for 20 years in a variety of capacities, most of which were in elite Special Forces units within the Army. While most have heard of the Army Rangers, the Green Beret and Navy SEAL’s, which are Special Forces themselves, there is an even more elite unit in the Army, called Delta Force, officially known as the 1st Special Forces Operational Detachment-Delta (1st SFOD-D), it is the U.S. Military’s most elite and secretive special operations unit. It was established in 1977 in response to the increasing need for a highly specialized force capable of counterterrorism, hostage rescue, and other high-risk direct-action missions. Colonel Charles Beckwith was the driving force behind the creation of Delta Force, he himself a highly experienced Green Beret who had served with the British Special Air Service (SAS) on an exchange program in the 1960s. During his time with the SAS, Beckwith was impressed by their counterterrorism capabilities and saw the need for a similar unit within the U.S. military. Delta Force quickly became known for its rigorous selection process and intense training regimen. The unit recruits from all branches of the U.S. military, though most candidates come from the Army Special Forces and Rangers. The selection process is grueling (to say the least), with a focus on physical endurance, mental toughness, and the ability to operate independently under extreme stress. It is known that a very small percentage of candidates successfully complete the training and are admitted into “the Unit.” Some numbers floating around suggest a failure rate of 90+%, in fact, there have been selection classes where no one met the standard, and therefore zero new candidates progressed, confirming that the standard at Delta is never compromised. Former Delta Force operators have said, “It’s the hardest job to get, and the easiest to lose.” And “You never really make it; selection is an ongoing process.” Over the years, Delta Force has become a key contributor in the United States counterterrorism efforts, conducting missions around the world, including hostage rescues, direct action operations, and high-value target captures. The unit operates typically under a veil of secrecy, and its missions are rarely publicized. However, from time to time, news gets out about the work Delta has been doing. Some of these include operations in Somalia, most famously during the Battle of Mogadishu in 1993, which inspired the book and movie “Black Hawk Down.” Delta was also involved in the capture of Panamanian dictator Manuel Noriega and the capture of Saddam Hussein. Following the 9/11 attacks, Delta operators were among the first U.S. forces on the ground in Afghanistan, hunting Taliban and al-Qaeda leaders. They were also involved in the successful 2006 mission that resulted in the death of al-Qaeda leader Abu Musab al-Zarqawi in Iraq. More recently, Delta Force operators were part of the 2019 mission that led to the death of ISIS leader Abu Bakr al-Baghdadi in Syria. Delta’s contributions to our national security have made it one of the most respected and feared special operations forces in the world. They develop their operators into real-world John Wicks. This was the world Bob Porras operated in for years, and after a full career in Delta, he spent an additional 16 years working for the CIA. So, to say Bob was qualified to teach what I was looking for is a gross understatement. When I reached out to Bob to set up training, he was gracious enough to travel out with his wife to provide 3 full days of instruction for my family, which included:
The training more than met my expectations, and we all learned a tremendous amount. We learned so many valuable life skills that we will take with us wherever we go, and with all that is going on, personal safety is more important than ever. The added benefit of our training is that my children now want to go shooting at the range as they feel very comfortable safely handling a handgun, and their dad now gets more quality with them. A win/win. Thank you Bob (and Laura), and thank you for your service to our country. -Paul R. Rossi, CFA  A bear market in the stock market is defined as a period during which stock prices decline by 20% or more from recent highs across a broad market index, such as the Dow Jones Industrial, the Russell 2000 or it could be a somewhat narrower part of the market, such as the Technology sector, or Consumer Discretionary, etc. This decline is typically sustained over a period of time, reflecting widespread pessimism and negative investor sentiment. Definition and Key Points A bear market is defined as a decline of 20% or more in from its recent peak. Historical Data
Comparisons
Factors Influencing Duration
Recent Examples
 What causes a Bear market? Bear markets can be sparked by various factors, including economic recessions, geopolitical events, financial crises, or significant changes in investor expectations. During a bear market, investor confidence is generally low, leading to reduced spending and investment, which can further exacerbate an economic downturn. And unfortunately, a powerful negative loop cycle can take hold that deepens what was the initial catalyst. A bear market in the stock market can be triggered by several factors that lead to widespread investor pessimism and a significant decline in stock prices. Here are the top five triggers: Economic Recessions
Rising Interest Rates
Geopolitical Events
Financial Crises
Negative Corporate Earnings
Bear markets are typically triggered by a combination of these factors, often occurring simultaneously or sequentially, creating a feedback loop that drives stock prices lower. Investors react to these triggers by selling stocks, which further amplifies the downward momentum. Investors often use this historical context to help set expectations during market downturns, although smart investors understand that each bear market has its unique characteristics. -Paul R. Rossi, CFA |