Wyatt Research Week in Review: Aug. 23-29

Wall Street should have sold tickets this week.
The roller coaster ride began Monday, when the Dow Jones Industrial Average opened the trading session down an astounding 1,089 points. The index scraped its way back during the course of the day and finished 588.40 points lower – a 3.6% decline.
In what’s become a familiar tune of late, the sell-off was based largely on the great fall of China. Twelve hours earlier, the Shanghai Stock Exchange witnessed what the Chinese media quickly dubbed “Black Monday.” The Shanghai Composite Index lost 8.5%, its biggest one-day percentage decline since February 2007.
Things were looking up Tuesday – for a while, at least. China’s central bank applied a Band-Aid to the hemorrhaging equities market when it cut interest rates a quarter of a percentage point. U.S. stocks responded, with the Dow surging 442 points at its intraday high. But in the pivotal last hour the sellers stepped in. The U.S. benchmark ended the session down 204.91 points, or 1.3%.
But wouldn’t you know it, Wednesday erased the memory of that disheartening final hour. Federal Reserve Bank of New York President William Dudley – who serves as vice chairman of the Federal Open Market Committee – said that a September interest rate hike is looking “less compelling.” Those two noncommittal words helped spur a rally that saw the Dow close Wednesday up 619.07 points, or 3.95%. It was the Dow’s best daily percentage gain since November 2011.
Thursday’s gains were less historic, but solid. The Dow closed up 369.26 points, or 2.3%.

Dow Jones Industrial Average

Source: Yahoo Finance

That’s a lot of numbers I just rattled off. But the point is this: Speculation is a fool’s game. Day traders who attempt to time the market can be washing down caviar with Dom Pérignon one day, only to be talked off the ledge the next.
Likewise, average investors who panic and reallocate their 401(k) to 100% money market during a broad-based sell-off can be left holding the bag. Sure, Monday was rough, but panic selling would have led to missing out on the “pop day” prized by long-term, disciplined investors.
Wyatt Research analyst Kent Thune shared similar thoughts in an article published Tuesday. As Kent suggested, “Long-term investors need not concern themselves with short-term market corrections. Although a 10% decline in value is not a happy event, to say the least, it is a natural one that should be expected once per year.”
Here are some of my other favorite articles from a frenetically fickle week in Wall Street history:
A Market Made for Hunting Mosquitoes – With the recent market turmoil, stock hunting is challenging. The severity of the market swings can clean you out if you’re trying to move in and out of stocks. So it’s best not to overdo it. Use a mosquito gun. Not an elephant gun. Here’s how.
The Buffett Way: A Study in Buy and Hold – Buy and hold is still alive. Warren Buffett is one of the greatest testaments to that. Buffett was buying Coca-Cola (NYSE: KO) in the 1980s when it was just $5 a share and Wells Fargo (NYSE: WFC) in the 1990s at $3 a share. But part of Buffett’s genius is that he also knows when and how to sell to minimize taxes and maximize portfolio efficiency.
Chinese Steel Overcapacity Hurting Industry – Conditions for the steel industry are poor across the globe. Demand is weakening, but supply from China – the world’s largest steel-producing country – has not declined. Estimates for expected steel exports from China this year are about 100 million metric tons – up from just 53 million tons in 2013. At its current pace, China’s steel exports alone would overtake the total steel production of the world’s No. 2 steel maker, Japan, sometime next year. Is there any hope for steel companies?
A $1 Billion Bet on the Female Viagra – Sprout Pharmaceuticals is the maker of the drug Addyi, the new “female Viagra.” Last week the Food and Drug Administration approved this libido-boosting pill. Then just two days after the FDA approval, Valeant Pharmaceuticals International (NYSE: VRX) announced that it’s acquiring Sprout for $1 billion. Is it time for ladies around the country to rejoice and investors to grab Valeant stock, or is the little pink pill more than a little overhyped?
Warren Buffett and Dividends: A Perpetual-Wealth Combination – Don’t mistake Berkshire Hathaway’s (NYSE: BRK-B) no-dividend policy as a sign of dividend contempt. From from it. Buffett loves dividends, and for good reason: dividend income has been a significant contributor to Berkshire’s long-term success. In fact, Berkshire receives more than $1.95 billion in annual dividend income from just five stocks.
This Company’s Dividend Increase Is Smoking Hot – This tobacco company paid a robust $3.8 billion in dividends last year, and that figure is about to go up. On Aug. 21, it declared a dividend hike of 9%, to $2.26 per share on an annualized basis. That makes 49 dividend increases in the past 46 years – a remarkable track record of dividend growth.
Confidential IPOs: Why So Secret? – Confidential IPOs are a relatively new addition to the public markets, which most investors don’t know a lot about. In July, we learned that mobile payment processing company Square Inc., founded by Twitter (NYSE: TWTR) co-founder and interim CEO Jack Dorsey, is planning to go public and has filed paperwork for a confidential initial public offering. But what exactly are confidential IPOs?
Investing Lessons From China’s Warren Buffett – Buffett’s legendary investment prowess wins him fans all over the world. China is no exception. At this year’s Berkshire Hathaway annual meeting, the delegation from China numbered 2,000. And one Chinese billionaire in particular has taken his investing cue from the Oracle of Omaha.
Have a great weekend!