Stock Market: You have 6 months before you can panic…

Dear Mr. Market:th-22

Let’s get this part out of the way…You’ve made a lot of people ill the past few days. As a matter of fact you’re following through on staying true to form by making October another historically miserable month.

After a two day blood bath we’re seeing a little bounce leading into the weekend but the stock market basically negated what was a surprisingly pleasant summer stretch. We’re now sitting around July levels and the previous correction in February of this year is suddenly somewhat deja vu. What’s not much different is the fact that most financial advice remains the same : “Stay the course. Don’t panic” Diversify.”

What happens in September often follows through and even intensifies in October. That being said just because “X happened last time” doesn’t mean “Y will happen this time”. We believe there will be more anxiety than normal this time around. The stock market and it’s bull run are not only long in the tooth but we also have mid-term elections coming up which regardless of real substance…they will stir up emotions and uncertainty.  If we get a “red wave” you’ll likely see the market advance even higher for a few months and if we get a “blue wave” it’s our opinion there will be a sell-off. This is not a political opinion on which party is “better” so please remain calm; it’s simply a fact that if we have a meaningful shift in power there will be political gridlock for a couple of years. Long story short…one result will cause increased volatility and in our opinion the other will lead to that long grinding slow down where we actually could see the stock market finally roll over and enter a new cycle.

So…”don’t panic”? Well….sort of.

We’re going to share some of that same counsel but with hopefully a bit more actionable advice; do something! Continue reading

May Gray turns into June Gloom

 

Dear Mr. Market:Unknown-3

We have discussed many times how emotionally driven you are. On some days you tempt us with your record setting high wire acts and on others we have our lips virtually wrapped around the barrel of a gun in desperation; the stock market is a wicked playground.

We don’t believe that computers or sophisticated investment algorithms can completely mitigate the perils of the stock market or protect everyone from getting out of their own way, but it can at least be used as a starting point. My Portfolio Guide relies on some very unique tools that assess the stock market each month with a fresh set of eyes. While our method of “reading the tea leaves” is not necessarily a crystal ball, it’s definitely not what most investment advisors use….which is the rear view mirror. Sadly enough, many investment advisors are just like you…they’re human and they chase recent returns and mistakenly look back in history as to what has done well. While this method of analysis is the easiest to sell clients (and themselves) it’s not as effective as taking a completely fresh look at what is happening right now and how that is statistically likely to play out in the near-term. Continue reading

What is “long-term investing” anyway?

Dear Mr. Market:th-19

Why is the number 15 important for us to share with you today? In our opinion it’s because everyone seems to have a different idea of what “long-term” investing means. The notion that investors should think long-term is fine, and fairly generic advice, but that time frame has never been concretely defined; until now!
My Portfolio Guide defines long-term as being able to invest for at least a 15 year time horizon.
Using our definition even at retirement you could definitely be considered a “long-term investor”. Granted, you may be closer to needing to live on a fixed income or simply not have the stomach for the ups and downs of the stock market, but by our definition you are a long-term investor.
The average person is living longer so if you hung up the work boots at age 65, for example, going out 15 years puts you at age 80. Assuming you need investment funds to last at least to that age it would be wise to have a decent portion allocated towards growth investments. Putting your investments into bonds, CDs, or cash is a losing proposition once you factor in taxes and the silent and ever-growing killer of inflation.
 
168036_600Look…we get it…the stock market can make you lose your lunch. The roller coaster analogies are plentiful and with a 24/7 news cycle it seems like the slightest hiccup can create a bloodbath on Wall Street.  All that being said, the odds of the stock market being positive over time are overwhelmingly in your favor and it’s still the place to be if you want to grow your wealth. Over one-year periods, between 1926 and 1997, Ibbotson found that stock returns were positive in 52 out of 72 years, or roughly three-quarters of the time. Even so there is obvious risk and volatility with the best year having stocks return +54% and in the worst -43%.
 
But now let’s turn to longer periods. Ibbotson looked at five-year rolling cycles over the same era (1926-30, 1927-31, etc.). Out of 68 separate, overlapping periods, stock returns were positive 61 times which works out to be almost 90% of the time! Over 15-year rolling periods (there were 58 of them) stock returns were positive every time.
Since 1926, the stock market – as measured by the S&P 500 with dividends reinvested, has never had a 15-year rolling calendar period with a loss. If that fact doesn’t register…please read it again. Never once in history has the stock market lost money over a 15 year period. The longer your time horizon the more likely it is that you’ll make money in a diversified stock portfolio. 
One of the reasons financial advisors use other instruments in a portfolio outside of stocks is to diversify; that is also a nice way of saying it’s because they know you will likely be an emotional train wreck when volatility enters the arena. If there was a two horse race and we had to bank our entire livelihood on either the Bond horse or the Stock horse…it is without question which we would choose.
Furthermore, imagine if you could only open your investment account statements once every 15 years? Not only would you most likely be a less stressed and more successful investor, but the odds are substantial that you would have positive returns no matter what happened in the world.

March Madness: Final Four Investing Bracket 2018

Dear Mr. Market:Unknown-2

What’s more exciting to watch: Duke versus North Carolina or Apple versus Amazon? If you’re reading this you know by now that it’s not a trick question but rather our annual opportunity to have some fun spinning the NCAA college basketball tournament into a platform to share our favorite investment themes.

My Portfolio Guide was the first investment firm to publish a March Madness investing tournament where we share our picks and match them up against each other. We break down and assign each of the four “regions” with an asset class and then pick teams (companies) that we think have the best chance at doing well relative to others.

This is the eighth year we’ve done this and it’s become one of the most popular articles on the entire internet!

Click the following link to see the entire bracket for 2018:

Final Four Investing Bracket Picks 2018 

 

Large Cap

Many people now have the rearview mirror or armchair quarterback mentality right now. If you’re to be honest with yourself there are very few folks we met at this point last year that said without question that the stock market would soar to record highs. As a matter of fact, it was quite the opposite. Think back to the start of 2017 as most of us were still digesting the fact that Trump won the election. Most pundits felt that the “Trump bump” would be short lived and that the one thing the stock market doesn’t like is uncertainty …and we had plenty of it!

All that being said, we couldn’t have been more clear that if you kept your politics out of it you could have had a nice year! The easy trade was betting on America and the Large Cap asset class turned in a fine year. Guess what? We still think there is room to run here and the recent correction we experienced is exactly what the doctor ordered.

Key Match-up:

#2 US Steel (X) vs. #3 Reliance Steel (RS)

Unless you’ve been living under a rock you’ve heard that President Trump wants to reset the playing field on trade imbalances. Continue reading

Black Monday! 30 Year Anniversary of the 1987 Stock Market Crash

Dear Mr. Market:th-10

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

Marijuana Stocks: Growing like a weed?!

Dear Mr. Market:th

Many of our “letters” to you are with a cautionary approach so that readers of this blog fully understand the risks and rewards of engaging with you. With your erratic personality perhaps the last thing you need is a drug to add to your volatile ways. That said, we also attempt to sprinkle in some humor and puns to get our point across…even if you’re at an all-time high (first pun in case you’re not paying attention!).

Whether you are a proponent of legalizing marijuana or not there is no denying that the cannabis industry is real and here to stay. Would it surprise you to learn that cannabis is the United States’ second largest cash crop? Believe it or not it is the second most valuable industry next to corn and is worth over $40 billion! Several reports earlier this year also estimate that legal cannabis sales could grow by at least 30% in 2018.

The marijuana industry is predicted to grow like a weed (second pun). All kidding aside, the Bureau of Labor Statistics (BLS) projects over 250,000 new jobs in this industry by 2020 which is far more than those expected from manufacturing! By 2024 the BLS actually forecasts manufacturing jobs to decline by 814,000. Ignoring the potential growth in this industry or that it has fast become a major economic driver and job-creation force in the U.S. economy is a mistake.

Public opinion is still divided (not a surprise nowadays…) but it’s rapidly changing. A poll conducted by CBS News in July of 1979 revealed that only 27% of those surveyed thought marijuana should be legal; that number by mid 2017 is now at 61%. Even with this momentum there still remains some obvious hurdles: (1) Marijuana is still illegal at the Federal level and (2) Congress has plenty to focus on right now with healthcare and tax reform so legalization is a lower priority for now.

So…how do you play this opportunity, or should you???th-11

If you’re a true investor as opposed to a speculator we’ll begin by letting you know there are major risks in this budding sector. (please tell us you caught that pun?!) Continue reading

Mr. Market Meets his Match! Introducing the Columbus Adaptive Asset Allocation Strategy

Dear Mr. Market:th-9

Guess what? You win. Yes…Mr. Market, you win! It won’t take another bear market or adding further gains to recent stock market highs for you to prove to us that no matter what the environment is you are going to make fools out of many brilliant people.

The beauty of your victory (at least for you) is that there will always be a market and a debate to engage in. The age old argument of “Active versus Passive” will rage on indefinitely.

Active Money Management (hands on approach with the goal of beating markets and taking advantage of short-term price fluctuations)

In one corner we have the ‘crystal ball crowd’ that thinks they can outsmart you and time the stock market. “Buy low and sell high”, right? If only it were that simple and if only someone could get it done successfully more than once. Mr. Market has us human beings in the palm of his hand because he knows we all have one thing in common; we’re emotional creatures! Some of you will read or hear news and act on it. Worse yet…you’ll rely on your gut instincts or a “hunch” because after all you were right once before. You are Mr. Market’s perfect candidate…Take another sip of false confidence and brace yourself for his eventual knockout punch which you won’t even see coming.

Passive Money Management (hands off approach with a goal of matching markets by using index funds/ETFs and not reacting to every market move)

On the other side of the room is the buy and hold crowd (or sometimes the ‘buy and forget’ group as we like to call them). Sure…on one hand a true investor should indeed be patient and allow an investment to pan out over time. Some clever sayings come to mind such as “It’s about ‘time in the market’ not ‘timing’ the market.” While we lean towards this overall investment philosophy there are times when it can go drastically wrong. If you have a lump sum or healthy chunk of cash right now and we’re at all-time stock market highs, do you just dump it all in right now?

So this leaves us to ask what the ultimate answer is to the question: Which is best…Active or Passive money management?

The foundation for any well performing portfolio is its asset allocation. We’ve written extensively about this before but over 90% of a portfolio’s performance is determined by how it’s allocated. Another way of looking at this is that you could pick poor individual investments (stocks or funds) but be in the right areas (asset classes) and do just fine. Like all things in life there needs to be a balance between discipline and the ability to adapt to changing environments in order to truly be successful. We believe we have found this with an Adaptive Asset Allocation Strategy.

Columbus Adaptive Asset Allocation Strategyth-8

Over the past year My Portfolio Guide has been working with Dimensional Research and its development of the Columbus Adaptive Asset Allocation Strategy. We are proud to announce a formal engagement with them and in doing so will be exclusively offering the Columbus strategy to our clients as part of our investment platform.

The Columbus Adaptive Asset Allocation Strategy is a quantitative methodology that is designed to adapt to the markets as they constantly change. While it’s suited for clients seeking equity like returns, one of the primary goals of this strategy is to minimize drawdowns during rough markets. It’s ideally positioned for portfolios over $100,000.

What’s under the hood of the Columbus Strategy? 

First and foremost, as big fans of ETFs we wanted a strategy that would be able to use widely recognized ETFs that were liquid and also in most cases commission free under our Institutional arrangement with TD Ameritrade. The strategy consists of a universe of 15 ETFs representing major asset classes. It rebalances once per month and can invest in up to eight ETFs depending on what the algorithm is positioning the strategy for relative to the market environment. Click this link  Columbus Strategy Overview to learn about which specific ETFs it uses as well as some unique aspects to how we have set maximum exposure limits on each asset class.

It is possible for the entire portfolio to take an extremely defensive posture and only be in one asset class (cash). The strategy dynamically adjusts and rates each ETF on volatility, momentum, and the overall correlation of returns to the portfolio. We’ve long said that it’s easy to buy investments but very few people are adept at selling them. The proprietary algorithm in this strategy is primarily designed to reduce the risk of huge drawdowns while still trying to capture market upside when appropriate. The main goal is to achieve the most optimal risk-adjusted return.

Behind the Numbers: (Performance and most recent Monthly Rebalance)

Speaking of returns…just how well has the Columbus Strategy performed? Not only is performance where the “rubber meets the road” but the summary below gives you a concise snapshot of how we’re positioned in September. (click link below to view)

Columbus Adaptive Asset Allocation Strategy – September 2017

We plan to report performance each month but in order to be fair to our loyal clients in the strategy…regular readers will see the rebalance on a one month delay. (we can’t give away the “secret sauce”!) If you’re interested in receiving the reports when they’re first published or want us to manage one of your portfolios using the Columbus Strategy contact us via phone at (888) 474-8433 or email your inquiry to info@myportfolioguide.com.

Obviously the Columbus Strategy boasts some impressive returns. Back testing the strategy to May of 1998 you’ll note it returned +10.51% annualized returns versus the S&P 500 at +9.37%. Comparing it to a more diversified benchmark we have chosen to track it relative to the GMO Global Asset Allocation Fund (GMWAX) which over this same time period returned +3.92%. The main reason this strategy has grabbed our attention is not just for beating the markets long-term…but rather on how well it played defense during turbulent times. The Columbus Strategy had drawdowns under -10% relative to the Global benchmark at -31.87% and the S&P 500 at -51.49%!

What about during REALLY bad markets?! (Dot-Com Crash and the Financial Crisis)

Side stepping one or two rough stock market patches usually is at the core of hot marketing strategies. A real strategy is one that can exhibit repeatable characteristics in all sorts of different crises and especially so during ones that were brutal. Perhaps there are no two better examples than the Dot-Com Crash and the Great Recession/Financial Crisis of 2008. Columbus_Historical_Events_Analysis on how the Columbus Strategy did during those historical events. It’s remarkable how the portfolio shifted to less volatile asset classes such as cash/money markets and Fixed Income (bonds/treasuries etc). For a more detailed look and an overlay versus the S&P 500, specifically look at pages 3 and 4 in the above link. Lastly, we’ve also had this strategy back-tested* for other unique events such as the stock market crash of 1987. Contact us for details if you’re curious about a specific time period or market event.

*Keep in mind that for some older back tests the strategy had to use proxies for the ETFs since many did not exist at that time. For your reference click this link to see a list of those proxy funds Columbus Proxy Mutual Funds Universe .

In summation, we’re extremely proud and excited to offer this dynamic investment strategy! Our next report on the Columbus Adaptive Asset Allocation Strategy will be an update at the end of the month. You’ll see a report tracking how a $1 million portfolio is performing using this exact strategy. Again, seeing actual trades and real-time rebalancing will be reserved for our clients but feel free to inquire for more details or get set up to have your account managed professionally. Obviously not every investor is a match for this type of portfolio management but we would bet that it likely beats what you or your current financial advisor are offering you now!

Have a great remainder of the month and see you next time!