It’s been a while since we’ve had to talk about you. The world has been focused on many changes which sometimes leaves you to quietly do your thing while we catch our breath. We’ve ushered in a new year, the United States has a new President and administration, and we’re finally seeing some light at the end of the tunnel with regards to the most surreal pandemic one could imagine.
How have you been… Mr. Market?
Up, down, sideways, and all over the place…That’s how.
Today we write you a quick note to share our all-time favorite chart as well as a reminder to all those investors who may fall prey to short-term memory lapses. The recent stock market sell-off is a great wake up call to the fact that markets obviously don’t just go up in a straight line. It’s a bit more than that though…
Below is our all-time favorite stock chart and we’re going to share why it’s important to look at this every so often.
Why do we bring up this article now? Lots has changed but lots has not! More than anything we believe that our current environment has so many unknowns embedded in it after one of the wildest rides in stock market history. We won’t dig into the weeds too much but one could easily make the case that any of the following scenarios could take place over the next year:
The Stock Market could absolutely continue to defy odds and climb higher.
We could see another market crash like we saw in the spring this year as there are plenty of issues that have not gone away (Covid-19, political unrest, handcuffed economy, geopolitical concerns)
A deteriorating dollar, inflation on the horizon, a ticking time bomb of debt, and more fear of a prolonged recession, negates any appeal for stocks for quite some time.
We trade up, down, and basically sideways as this market consolidates and digests one of the most tumultuous years in history.
Without rehashing all that has transpired in 2020, we believe that being properly allocated and prepared for just about anything that comes our way seems like a wise way to go. The market is almost always unpredictable but there are times when reading the tea leaves and figuring out clear direction is even more difficult; we believe that’s exactly where we’re at right now.
If you didn’t read our old article from 2013, the basis for the Permanent Portfolio strategy is simple at face value: You divide your portfolio into four distinct and fairly uncorrelated asset classes (Cash, Bonds, Gold, and Stocks). Ideally at any point in most economic cycles one of these asset classes will stink it up but the others could compensate and outperform. During prosperous times Stocks should win. When there is inflation a case can be made for Gold. Should the opposite occur and we get deflation you would ideally see long-term Bonds do well. Lastly, during a severe recession Cash is perhaps your best friend. When coupled together you may never hit a home run but this approach can mitigate disaster and still produce modest long-term returns.
November 3rd is looming large in many minds this year. That’s right, it will be Dolph “Ivan Drago” Lundgren’s 63rd birthday! Big news for sure, but unless you’ve been living under a rock, you know we also have a presidential election to decide.
We know one of these three will be celebrating November 3rd. How about the other two?
Okay, you may not be celebrating the great movie villain that day, but hopefully you do have a plan for voting. Many investors are wondering if they need to have a plan for their portfolios, either leading up to or following election day. There are interesting market factors to consider around election years, but are they compelling enough to act on?
In the most recent edition of “the Guide“, we focused it much on how the election will potentially pan out and what “Mr. Market” has done in years past as well as how that could play out in this very unusual environment. Click here to view the newsletter.
We’ve written you hundreds of letters over the past decade and on occasion it’s nice to put a face with the name! Last week, Matt Pixa of My Portfolio Guide, LLC, was given the honor and opportunity to present an Economic Outlook to the Seal Beach Chamber of Commerce.
We share it with you here and look forward to your feedback and questions!
Do you remember what happened right before the peak of the dot com bust? Before rehashing any history let’s quickly revisit a quote that has been used and altered by several over the years:
“Those who cannot remember the past are condemned to repeat it.”
– George Santayana (former Harvard professor and philosopher)
Right before the needle slowly approached the overly inflated (tech/internet stock) balloon in late 2000…it was not uncommon for a financial advisor to field phone calls requesting to buy stocks like Cisco Systems (CSCO). OK…at least one could make a case for a company like that, albeit overvalued, as they actually earned money and had a viable business plan. It’s when those phone calls turned into “how about we also buy some of this stock I’ve heard called EToys?” Investors…(cough)…speculators poured money into so many internet startups with the hopes that these companies would one day turn profitable. We all know how this party ended and like many other past bubbles it won’t be the last. Continue reading →
In many of our letters to you we discuss the ups and downs of the stock market. In doing so, we often times will share basic knowledge and investing reminders to our readers to help guide them. Without question, even a rookie investor will have learned the simple advice of diversifying their portfolio. “Do not put all your eggs in one basket!”
While that “advice” is intuitive and seems to make sense, it’s mainly regurgitated by every financial advisor because of one alarming reason. Yes, on one hand it’s with the intent of managing risk but part of the dark reality is because most people (pros included) don’t know what they’re doing. This last sentence may sound harsh but our job is to be candid and also share ideas and truths that you may need to know yet not always hear elsewhere.
If you stop reading this article right now do yourself a favor and at least spend seven minutes when you have more time. The seven minutes we want you to spend are watching the following clip of Warren Buffett and Charlie Munger. Click here to view it and learn their basic belief that most investors over diversify and are simply “protecting themselves from ignorance”.Continue reading →
For some of our newer readers it might serve us well to remind everyone of who you are and what this “Mr. Market” character is all about. If you haven’t read Benjamin Graham’s book, The Intelligent Investor, you need to. Even though it was written in 1949, much of what Graham wrote is still applicable today and it’s simply one of the best books on the stock market ever written. Warren Buffett himself loves the book and says that it changed his life. Here’s a summary from Buffett and his description of our very own “Mr. Market”: Continue reading →
We have commented many times on how people have short memories. In the case of recent stock market behavior, however, there is no way one could forget what a ride we’ve all been on. Our job today is not to draw attention to the very obvious past but to one area of the market that is not always directly connected to stocks or bonds.
Do you have gold in your portfolio and if so, should you buy more, hold on to what you have, or dump it? Continue reading →
We won’t rehash what’s happened to the stock market due to the global pandemic of COVID-19. Like many right now, it’s been overwhelming and just hearing the word “Coronavirus” with constant updates has become all-consuming in everything we do. That said, there will of course be areas of the stock market that continue to get punished but others that provide opportunity once we get through this.
We believe the broad market will recover to the full levels we recently saw within the next three years. Some economic sectors, however, will struggle more than others as have a few additional conflicts to resolve. One such sector is oil and with the SaudiArabia and Russian trade spat we saw U.S. oil prices drop -34% in one night! Which stocks will survive and which have the best chance to recover?