Dear Mr. Market:
Dear Mr. Market:
What do you think about the “largest point decline in history” ?!?
Last Monday certainly wasn’t fun for anyone watching their portfolio but if you put things into perspective what you end up with was the 138th largest percentage drop for the S&P 500. The financial media predictably goes bonkers when reporting numbers and this fuels the fire for the average investor. Our beef with them isn’t even the “sky is falling” antics which happen on any big volume or down day but the fact that they skew reality.
We’re not trying to minimize the strong move or the fact that we’re finally seeing volatility back in the markets but keep your common sense hat on when digesting the results. First and foremost, when an index like the Dow Jones is almost at 27,000 points, simple math shows that a -5% drop will equate to about -1,350 points. A five percent pullback is not only par for the course but as we mentioned in our most recent article…very much needed and of course long overdue. With a total of just over -10% we finally have (by definition) reached a correction.
Who knows what Mr. Market has in store for us tomorrow but one thing we can almost guarantee you is that the financial media will be far more excited about it than anyone needs to be. Hysterics and click bait sells more than a rational report explaining stock market action that is actually not unusual nor completely out of historic proportion. Speaking of reports…we invite you to read this special update on our Columbus Strategy.
What matters most in times like this is to level set things and to have a disciplined strategy firmly in place. Our signature approach for accounts over $100k is the Columbus Strategy and aside from its long-term track record what gives many clients some peace of mind is knowing that it ultimately looks to mitigate large and extended stock market drawdowns. We’re not so much focused on one month but over the course of a full market cycle you will be hard pressed to find a strategy that does better.
Nobody can consistently time the market but there are certain tactical adjustments that can be made to at least avoid longer stretches of market chaos. If we were to be visibly headed for a recession our stance on this recent correction would be much different than it is now. For the time being we’re approaching this correction exactly like we should be since it’s not our first rodeo; we’re nibbling at positions that we’ve wanted to add to and rebalancing any allocations that are not in line with a portfolio’s respective strategy.
Other than that the absolute worst thing you can do right now is act human! While that sounds crass we’re simply reminding you that people tend to have short memories and get way too emotional. If you want more information on our Columbus Strategy please contact us. Beyond that we will leave you with a quote and saying that we came up with many stock market corrections ago….
“Stay disciplined to stay positive”.
-My Portfolio Guide
Dear Mr. Market:
Have you seen the movie “Groundhog Day”? If you haven’t it’s comedy-fantasy from 1993 starring Bill Murray. In this movie he portrayed a Pittsburgh weatherman who was on assignment to cover the annual Groundhog Day event in Punxsutawney, Pennsylvania. Murray’s character ends up being stuck in a time loop where no matter what he does he ends up repeating the same day again and again.
Until just the past couple of days it feels like the stock market was also trapped in some sort of Groundhog Day paradigm. We have not experienced a correction in over 15 months and no matter what the headline the results on the markets where the same as the day prior; green, positive tickers, and smooth sailing. We just saw the best January in 20 years after a year where the S&P 500 recorded a positive return every single month for the first time ever. All these records transpired with the lowest market volatility ever. So what just happened?
Did the groundhog pop his head out and cast a different shadow than anyone was expecting? No…not really. Everyone we know (layman or expert) has been saying eventually it would end. Nothing keeps going up forever. While we disagree with lightweight analysis that stocks are overvalued, the bull market eventually has to take a breather in order to make a final push higher. There is no recession in sight so what we’re finally seeing is a long overdue correction.
What is a stock market correction?
It’s been so long that it might be helpful to refresh your memory! First and foremost, you must recall that prior to Groundhog Day (sorry…couldn’t resist!), stock market corrections happened all the time! On average they occur once every 357 days, or at least once a year. They’re part of the economic and stock market cycle and for a healthy market to advance you actually should want to see them pull back every so often. We have strong fundamentals right now and things are trending in the right direction otherwise we wouldn’t be minimizing this recent market action.
By definition a correction is -10%. (a pullback being in the -5% range) A full on bear market is where we would see -20% or more from peak to through. With the average correction, not only can it not be predicted, but by the time people figure it out it’s too late and the market is back to moving higher. Continue reading
Dear Mr. Market:
Almost every letter we write to you has to do with educating people about building or protecting wealth. At the end of the day, however, what does it all mean? Real wealth is more than a number, a status, or some level of material achievement.
To date the best articulation of this (in our opinion) comes from the alleged letter that Apple co-founder Steve Jobs wrote from his death bed. We note “alleged” in that sources closest to him recount it differently but none the less, this is an incredibly powerful message. Continue reading
Dear Mr. Market:
You’ve had some wild days but perhaps none were as volatile or memorable as October 19, 1987! 30 years ago today you plunged -508 points for a record -22% decline in just one day! By today’s standards the 508 point decline wouldn’t be something to celebrate but wouldn’t really move the needle too much; only about a -2.2% decline. Believe it or not we’ve now endured drops like this 17 times since then!
Speaking of today, however, what would it look like if we had another stock market crash? If the stock market lost -22% in one day we would see the Dow Jones drop about -5,094 points as of today’s close.
We have two questions for you with regard to this not so pleasant walk down stock market memory lane: Continue reading
Dear Mr. Market:
We wake up to you every day. Once the morning cup of coffee is poured, whether intentional or not, we constantly digest information for the next 16 hours. Most of us check our email, read and/or watch the morning news, glance at social media, and then mix in conversations with other humans that have almost exactly the same patterns. Does this type of routine parlay itself into one that sets you up for making good investing decisions?
NO…most definitely not!
Let’s take for example yesterday, June 8th. To what could have been just another Thursday certainly turned otherwise; yesterday even had it’s own name…”Comey Day”. Millions watched ex-FBI director James Comey testify in front of the Senate Intelligence Committee. There were literally “watch parties” held at bars, restaurants, and even yoga studios all across the country.
Regardless of your political leanings…take off your partisan hat for just a minute and look back 24 hours ago. For those who busted out the popcorn and awaited impeachment news or a massive decline in the stock market, you were once again served a huge Nothing Burger. The media hype did what it’s good at and drove you to tune in. Who really won yesterday? Trump? Comey? Lorretta Lynch? Russia?
Cable TV networks are enjoying banner years. Fox News viewership is 40% higher than a year ago and CNN is enjoying about 60% higher ratings over this same time period. This sad but very real episode of reality television is captivating America and driving people to make some rash decisions.
Fast forward to this morning and one of the first headlines we were treated to was this: “JIM ROGERS: The worst crash in our lifetime is coming”
Should you listen to legendary investment guru Jim Rogers being interviewed by Henry Blodget? Who are each of these brilliant minds with a platform that has your eyes, ears, and full attention?
First and foremost, Henry Blodget is the CEO of Business Insider. Before heading up what is now the fastest growing and largest business news site on the internet, Blodget was a “top ranked Wall Street analyst”. STOP!
For those of you with short memories, Henry Blodget was head of Merrill Lynch’s global internet research team during the dot-com era and was charged with civil securities fraud in 2003. Blodget is now permanently banned from involvement in the securities industry.
Now let’s educate ourselves on who Jim Rogers is. If you don’t look too closely under the hood you’ll just assume he is as portrayed…a sharp bow tie wearing guy who is introduced as a “guru, renowned investor, author, and financial commentator”.
The reality of it all is that guys like Jim Rogers sell fear…and they’re good at it.
He uses a few polished sentences surrounding one or two pieces of economic data or personal observations and then sensationalizes it all to get you scared. It’s not hard to get people thinking about everything that is wrong in the world and when you add a media platform with a 24/7 news cycle, smart guys like Jim are making money off your fear.
Jim Rogers has been wrong for decades. Over the past few years he has been predicting a massive recession. In June of 2011 he said the global economy would be facing another epic recession. We saw him in person later the next year speaking at an investment conference and he said the U.S. is approaching a financial crisis worse than 2008. The next two years he pitched the same headlines and warned his followers of imminent disaster.
Like a broken clock he’ll eventually be right but if you’ve been listening to him or acting on other fear pitches you may be out of money by that time. What’s more amazing to us than wrongly predicting the same thing every year is being offered the opportunity to continue doing so…
Have a great weekend!
Dear Mr. Market:
It sure seems as though you’re stuck in a rut. Just a few weeks ago Wall Street traders were donning embroidered hats with “Dow 20,000” on them in anticipation of reaching this stock market milestone. As investors approach proverbial milestones, their thinking and decision making process often begins to falter. How was your mindset when the Dow Jones cracked 14,000 in October of 2007 versus not too long afterward when it was at 6,600 in March of 2009?
The number of investors that are still sitting in cash from way back then is mind boggling! Do you take a long time making decisions? Are you worried about making the wrong choice with your investments and therefore don’t take any action? Do you analyze all the options but later on kick yourself seeing that so many opportunities have passed you by?
If any of these questions resonate with you, it’s likely that you suffer from paralysis by analysis! Here are a few steps to consider and break free of this condition: Continue reading