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How Technological Advances Impact Inflation as Measured by CPI

In 1973, my family got its first color television -- a 19" Zenith -- for around $300. The picture was small, the color a bit faded, and there was no remote control. Now you can buy a 42" HD Smart TV for $250. Not only has the price declined, but the quality has significantly improved.

The somewhat controversial Consumer Price Index (CPI) considers two factors in determining the changes in the cost of goods and services. The simple part is the change in price. The cost of a haircut, for example, has risen over time (offset, of course, by a growth in wages). This is fairly easy to track.

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How Six U.S. Stocks Dominate

I find the following chart very interesting:

 

The chart above shows that the combined market capitalization of the FANMAG stocks (Facebook, Apple, Netflix, Microsoft, Amazon, and Google) exceeds that of every major country, except for China. The remainder of the U.S. stock market -- excluding the FANMAG stocks -- is still the largest market in the world.

What does this mean? Like a Rorschach test, the chart can mean different things to different people. For some, it shows that while the FANMAG stocks have done extraordinarily well, there is still a whole investment universe out there, including stocks that may have more attractive valuations. For others, it shows a dominant group of successful companies that exhibit no sign of slowing down (even with heightened regulatory scrutiny).

What do you see? Let me know your thoughts.

Words of Wisdom

The conference was worse than a Rorschach test: There's a meaningless inkblot, and others ask you what you think you see, but when you tell them, they start arguing with you. -- Richard Feynman

When Time is Not Like Money

Time is money, so the saying goes; except when it isn't. Time and money are both highly desired. But money doesn't lose its value when divided, whereas time is arguably less beneficial when broken up into smaller periods.

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What's Up with Bonds? They're Down!

Bonds play an important role in diversifying your portfolio. They typically have lower volatility, thereby dampening your downside risk. (Remember March of last year?) By acting as a ballast when the market drops, bonds allow us to hold on to our stocks as well as provide liquidity if we need to raise cash.

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All-Time Highs in the Stock Market are Meaningless

Many people express concern about investing in the stock market when the indices are at an all-time high. But a recent peak does not tell you whether the market is particularly expensive or cheap at any given moment. Rather, it's just part of the historic tendency for stocks to rise over time. As an investor, you are, after all, rooting for stocks to go up.

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