Stock Market Hysteria & Tulips
By: Murray Stahl -Circa 2014

Could a mere tulip bulb be worth $76,000? It is if people are willing to pay for it! It may sound preposterous, but this is exactly what happened in Holland in the 1630’s. It’s a story that sometimes describes the Antique Car market and our Investor World. These are my two main interests and I often revisit this parable in times of Market Stress.

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The seeds of this craze were planted in 1593. A man by the name of Conrad Guestner imported the first tulip bulb into Holland from Constantinople, in present day Turkey. After a few years, tulip bulbs became a status symbol and a novelty for the rich and famous. Eventually, tulip bulbs became a hot ticket item in neighboring Germany, as well. After some time, a few tulip bulbs contracted a non-harmful plant virus called mosaic. The effects of this mosaic virus were tulip petals with beautiful “flames” of color. This unique effect furthermore increased the value of the already rare and highly exclusive tulip bulb.

Initially, only the true connoisseurs bought tulip bulbs, but the rapidly rising price quickly attracted speculators looking to profit. It didn’t take long before the tulip bulbs were traded on local market exchanges, which were not unlike today’s stock exchanges. By 1634, tulip mania had feverishly spread to the Dutch middle class. Pretty soon everybody was dealing in tulip bulbs, looking to make a quick fortune. The majority of the tulip bulb buyers had no intentions of even planting these bulbs! The name of the game was to buy low and sell high, just like in any other market. The whole Dutch nation was caught in a sweeping mania, as people traded in their land, livestock, farms and life savings all to acquire 1 single tulip bulb!

In less than one month, the price of tulip bulbs went up twenty-fold! To put that into perspective, if you had invested $1,000 and came back on month later, your investment would have ballooned to $20,000! Now you can understand the mad rush to buy tulip bulbs at any cost. Tulip bulb mania affected the public psyche to an extreme. One drunk man in a bar started peeling and eating what he thought was an onion, while it was in fact it was the bar owner's tulip bulb on display. This man was jailed for many months!

All common sense and logic was thrown to the wind, and even scoffed at. This is exemplified by how many USEFUL items it cost to buy 1 single tulip bulb:
• four tons of wheat
• eight tons of rye
• one bed
• four oxen
• eight pigs
• 12 sheep
• one suit of clothes
• two casks of wine
• four tons of beer
• two tons of butter
• 1,000 pounds of cheese
• one silver drinking cup.

Mind you, these valuable items COMBINED only equaled the value of 1 tulip bulb! The modern day value of these items is over $40,000!

In 1636, tulips were trading hands on the Amsterdam stock exchange as well as on exchanges in Rotterdam, Harlem, Levytown, Horne and many other exchanges in other nearby European countries. These exchanges started to offer option contracts to speculators. These option contracts allowed tulip bulbs to be speculated upon for a fraction of the price of a real tulip bulb. This allowed people of lower means to speculate in the tulip market. Additionally, options allowed for leverage. Due to leverage, option buyers were able to control larger amounts of tulip bulbs, allowing a greater profit. In a previous example, we showed how a $1,000 dollar investment would have yielded $20,000 in one month. As if this weren’t enough, option leverage allowed this same investment of $1,000 to balloon into $100,000! Unfortunately, leverage is a double-edged sword. If the tulip bulb price moved downwards ever so slightly, the option buyer’s investment would be lost and they might even owe money! Talk about risky. But at this point, it was commonly believed that the tulip market was immune to crashing and that it would “always go up”.

After some time, the Dutch government started to develop regulation to help control the tulip craze. It was at this point that a few informed speculators started liquidating their tulips bulbs and contracts. It was these people, or the smart money, that secured large profits that were now in the form of cold hard cash. In addition, more tulip bulbs were added to the supply due to people harvesting new tulip bulbs. Suddenly tulip bulbs weren’t as quite as rare as before. The tulip market began a slight down trend, but shortly after started to plummet much faster than prices went up. Suddenly the market began a widespread panic when everyone started realizing that tulips were not worth the prices people were paying for them. In less than 6 weeks, tulip prices crashed by over 90%. Fortunes were lost. Wealthy became paupers. Bankruptcies were everywhere due to the negative side of option leverage. People that traded in farms and live savings for a tulip bulb were left holding a worthless plant seed. Many defaults occurred, where speculators couldn’t pay off their debts.

The Dutch government avoided intervening, only to advise tulip speculators and owners to form a council to attempt to stabilize prices and mend public confidence. Every one of these plans failed miserably, as tulip prices plummeted even lower than before.

Assembled deputies of Amsterdam nullified all of the contracts purchased at the height of the mania. The supreme judges of Amsterdam declared all tulip speculation to be gambling, and refused to honor these contracts. As a result, payments were not enforced by any of Holland’s courts. This further fueled the market crash.

The financial devastation that followed the tulip bulb crash lasted for decades, crippling Dutch commerce. The price of tulips at the height of the mania was $76,000; 6 weeks later they were valued at less than one dollar! The only people who prospered from the insanity were the smart money who liquidated at the top.

In market manias, the investors are acting irrationally. Excessive greed causes people to feel financially invincible and make decisions that cause financial devastation. This process occurs regardless of if the market is a commodity market or a paper market like stocks. The moral is clear; the only way to survive is to be the smart money.

As in all thing, “the more things change, the more they stay the same.” The next time you see a nondescript antique car auctioned for big bucks take a seat in your garage, sip a beer and think of tulips. It goes without saying that investing in the stock market “Story Stocks” can resemble the old game of “missing Chairs,” if you have to buy into a bubble be sure you're not left without a chair!

The message Kids is, “be careful out there.”

NOBL--- ProShares S&P 500 Dividend Aristocrats ETF

Fund Strategy
The investment seeks investment results, before fees and expenses, that track the performance of the S&P 500® Dividend Aristocrats® Index (the "index"). The index, constructed and maintained by S&P Dow Jones Indices LLC, targets companies that are currently members of the S&P 500®, have increased dividend payments each year for at least 25 years, and meet certain market capitalization and liquidity requirements. Under normal circumstances, the fund will invest at least 80% of its total assets in component securities.

-----Dividend payout of 1.6% a Year
-----2013 performance of +15.5% Growth in NAV (S&P-500 returned 13.8%)

-----Top-10 company stocks held in NOBL are –Lowes—Target stores—Sherwin Williams—3M Corp.—Genuine Parts (NAPA)----Walgreens Drug----ABBV Drus----Air Products. These ten holdings are 22% of the 54 total holdings in NOBL

Welcome to our "new" taxes

A reminder for those who forgot or for
many that didn't know

Here is what happened on January 1, 2015 :
Top Medicare tax went from 1.45% to 2.35%
Top Income tax bracket went from 35% to 39.6%
Top Income payroll tax went from 37.4% to 52.2%
Capital Gains tax went from 15% to 28%
Dividends tax went from 15% to 39.6%
Estate tax went from 0% to 55%



These taxes were all passed under the Affordable Care Act, aka Obamacare.

PFF-Dividend Play

PFF-- iShares U.S. Preferred Stock ETF

PFF is the symbol for a "Preferred Stock" ETF. It typically produces a capital gain equivalent to the dividend rate yearly. As of this writing it stands at a price of $39.11 about a $1.5 off its 52 week high of $40.15.
YTD Performance 12-16-2914----14.2%
Dividend Yield-----6.95%

The bottom line is that this ETFs yearly trading range runs from $40.15 to $39.05 and as of today it’s well within a “BUY” zone. If your income oriented this is a good horse to ride at this price.

2015, My Investment View:

Since I wrote this on 12-5-2014 on the week ending December 13th the Dow dropped 3.77% and the S&P-500 fell 3.5%. I think there might be another couple of percent on the down side and I’ll be reviewing my shopping list. I believe this is a much needed breather for the market and the 2015 conditions I outline remain relevant.

It’s been a really great ride, seven years of slow. Steady market growth without a meaningful correction beyond the 7% swoon in late September 2014. AS of YTD, December fifth, 2014 we have the Dow-Jones at a gain of 10.8% and the S&P-500 is up 13.75%; this kind of performance deserves a huge Hoorah.

As always, the question on every investor’s mind is what happens now? I think that for a variety of reasons the US stock markets will continue to grow their valuations. In an era when Japan is experiencing negative GNP growth and the EU seems to be slipping back into recession the US economy is the only game in town once again. Investment funds from Asia and Europe are flooding into our markets. With interest rates on savings at close to zero equity holdings are back in favor even for the risk adverse investor class. On top of all of this consumer confidence is at 94% (highest in 8 years) and gasoline prices are header a third lower freeing up cash for purchases long postponed. It’s been slow but unemployment is slowly improving. When you sum this all up and then add that our Socialist-light anti-business national Government took a shellacking in our recent elections I see even better days ahead because an improving economy always drags the market higher.

The simple truth as I see it is that while the Government types continued to dither on tax reform and overregulated almost everything, our major companies learned how to dance in the rain. At the end of third Qtr, 2014 the price-earnings ratio of the S&P-500 stood at 17.2%; this is important because at year end 2013 the same P/E stood at 17.2%. In a very good stock market year the price-earnings ratio stayed static even as stock prices rose. That convergence can only happen if company earnings increased at the same rate as the market price. BTW, that P/E is nicely under the 25 year historic P/E the S&P-500 which is 19% so we aren’t really overvalued. The relatively slow march upward of the stock market indices still has room at the top; our current GNP estimate of 2.6% leaves us with a high probability of upward business growth. If unemployment continues to improve the GNP should conservatively gain a half-point; that’s huge on an economy as large as the United States enjoys; there is plenty of room to grow.

I am planning my investment life for 2015 based on the Dow-Jones returning 8% and the S&P-500 (a much better, more diversified index) growing by 10%, with any surprises on the upside. At any market slump of 3% or more I’ll be adding to my positions in my ETFs that mimic the S&P-500 and the Dividend Aristocrats.
Happy Trails.


WHAT To Buy you say ! Let me reiterate

My perfect put it in a drawer ETF portfolio:

SDY—S&P Dividend ETF—Pays Dividend of 2.19% and returned a 15% annual performance for 5 years
Top Ten holdings are 19.09% of the total holdings of 96 companies; TOP TEN are HCP-T-ED-NNN-TGT-PBCT-MCD-CVX-ABBV-LEG

VIG---Dividend Appreciation ETF—Pays 1.93% Dividend and returned 14.1% annual performance for 5
Years, The Top ten holdings are 36% of the total holdings of 166 companies, TOP TEN are JNJ, PEP, KO, WMT ,QCOM,XOM,IBM,MMM,CVS,UTX

NOBL—Dividend Aristocrat ETF---Pays 1.44% Dividend and began in 2013, has returned 17% annualized.
The Top ten holdings are 20.62% of the total holdings of 55 Companies , The TOP TEN holdings are SIAL,FDO,CTAS,LOW,NUE,SHW,ADM,VFC,CAH,HRL

Note, The NOBL ETF is composed of equities that have increased their Dividend each year for 25 Yrs.

I have significant positions in all three of these ETFs and continue to add to them on any downturn but my advice for the new investor is too wait for a market break of more than 4%; be patient it will come; we had a 7% downturn in late September. As of today’s post buying 100 shares each of all three ETFs would cost $21,300 with all fees paid.

The Good Old Days
By Murray Stahl Nov.2014

I ran into this writing on 1955 recently and thought it so very true. When I was looking at it I remembered one of the quotes of the Greek philosopher Socrates that I think of whenever someone waxes poetic about the “good old days.” He was born in 469B.C. and this quote truly proves that the more things change the more they stay the same.

Socrates thoughts on youth, “Our youth now love luxury. They have bad manners, contempt for authority; they show disrespect for their elders and love chatter in place of exercise; they no longer rise when elders enter the room; they contradict their parents, chatter before company; gobble up their food and tyrannize their teachers.”

Now lets fast forward to 1955,
“I'll tell you one thing, if things keep going the way they are, it's going to be impossible To buy a week's groceries for $20.00.”

“Have you seen the new cars coming out next year? It won't be long before $2,000.00 will only buy a used one.”

“If cigarettes keep going up in price, I'm going to quit. A quarter for a pack is just ridiculous.”

“Did you hear the post office is thinking about charging a dime just to mail a letter?”

“If they raise the minimum wage to $1.00, Nobody will be able to hire outside help at the store. “

“When I first started driving, Who would have thought gas would someday cost 29 cents a gallon.. Guess we'd be better off leaving the car in the garage.”

“I'm afraid to send my kids to the movies any more..Ever since they let Clark Gable get by with saying “DAMN in GONE WITH THE WIND”, It seems every new movie has either HELL or DAMN in it now”.

“I read the other day where some scientist thinks it's possible to put a man on the moon by the end of the century. They even have some fellows they call astronauts preparing for it down in Texas.”

“Did you see where some baseball player just signed a contract for $75,000 a year just to play ball? It wouldn't surprise me if someday they'll be making more than the President.”

“I never thought I'd see the day all our kitchen appliances would be electric. They are even making electric typewriters now.”

“It's too bad things are so tough nowadays.. I see where a few married women are having to work outside of the home to make ends meet.”

“It won't be long before young couples are going to have to hire someone to watch their kids so they can both work.”

“I'm afraid the Volkswagen car is going to open the door to a whole lot of foreign car business.”

“Thank goodness I won't live to see the day when the Government takes half our income in taxes. I sometimes wonder if we are electing the best people to congress.”

“The drive-in, drive-up restaurant is convenient in nice weather, But I seriously doubt they will ever catch on.”

“There is no sense going to New York City or Toronto anymore for a weekend, It costs nearly $15.00 a night to stay in a hotel.”

“No one can afford to be sick anymore, At $35.00 a day in the hospital it's too rich for my blood.”

“If they think I'll pay 50 cents for a haircut, forget it.”
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Here’s a few more of Socrates’ thoughts to ruminate on:
“The only true wisdom is in knowing you know nothing.”

“By all means marry; if you get a good wife, you’ll become happy; if you get a bad one, you’ll become a philosopher.”

“If you don't get what you want, you suffer; if you get what you don't want, you suffer; even when you get exactly what you want, you still suffer because you can't hold on to it forever. Your mind is your predicament. It wants to be free of change. Free of pain, free of the obligations of life and death. But change is law and no amount of pretending will alter that reality.”

“The secret of happiness, you see, is not found in seeking more, but in developing the capacity to enjoy less.”

And so it goes.

Advice for Grandkids

This is By Bill Gates ~ The Richest man in the world:

This should be posted in every school or kid's bedroom.
Love him or hate him , he sure hits the nail on the head with this.!!!
Bill Gates recently gave a speech at a High School about
eleven (11) things they did not and will not learn in school.
He talks about how feel-good, politically correct teachings
created a generation of kids with no concept of reality and
how this concept set them up for failure in the real world.


Rule 1 : Life is not fair - get used to it!

Rule 2 : The world doesn't care about your self-esteem.
The world will expect you to accomplish something
BEFORE you feel good about yourself.

Rule 3 : You will NOT make $60,000 a year right out of high school.
You won't be a vice-president with a car phone until you earn both.

Rule 4 : If you think your teacher is tough, wait till you get a boss

Rule 5 : Flipping burgers is not beneath your dignity.
Your Grandparents had a different word for burger flipping:
They called it opportunity.

Rule 6 : If you mess up, it's not your parents' fault,
so don't whine about your mistakes, learn from them.

Rule 7 : Before you were born, your parents weren't as boring
as they are now. They got that way from paying your bills,
cleaning your clothes and listening to you talk about how cool
you thought you were: So before you save the rain forest
from the parasites of your parent's generation,
try delousing the closet in your own room..

Rule 8 : Your school may have done away with winners and losers,
but life HAS NOT. In some schools, they have abolished failing grades
and they'll give you as MANY TIMES as you want to get the right answer.
*This doesn't bear the slightest resemblance to ANYTHING in real life.

Rule 9 : Life is not divided into semesters.
You don't get summers off and very few employers
are interested in helping you FIND YOURSELF.
*Do that on your own time.

Rule 10 : Television is NOT real life.

In real life people actually have to leave the coffee shop and go to jobs.
Rule 11 : Be nice to nerds who study all the time.
Chances are you'll end up working for one..