Has the Stock Market reached Capitulation?

Dear Mr. Market:Worst Days Ever for S&P 500

We are living in scary times, as investors and as human beings in general. With stock markets cratering and the uncertainty surrounding Coronavirus, it’s hard to remember when things were this bad or uncertain. How and when will things get better?

Regarding the market, there are no absolute rules, but it’s generally agreed investors have to fully capitulate before a bear market downturn can find its low point and eventually turn back the other way. The idea is that all the bad news, expectations and fear have to hit their worst point, so there is finally nothing else to drive the market lower. After that, anything remotely positive or even just “not bad” starts the base for the ensuing bull, and the market can begin climbing again.

The dilemma is that no one sounds an “all-clear” signal to let you know when that point has been reached. Think about the low point of the last bear, March of 2009. President Obama was freshly inaugurated (cause for optimism or pessimism, depending on your political leaning). Chrysler, GM, and Ford were near bankruptcy. Unemployment was climbing. A massive stimulus package had just been signed, but no on knew how effective it might be. Investors wondered if their portfolios would ever recover to where they had been. Those were troubling times, but we all know the market turned sharply upward that month and the bull continued for 11 years. It’s all much more clear looking back in the rearview mirror but at the time it was certainly not so.

Returns 1,3,5,& 10 years after Worst Days

Stock Market returns 1,3,5, and 10 years after Worst 1 Days Ever

There is no saying what will bring about capitulation with the current market. In our last column we noted how drawn out the 2000-2002 bear was. Things could get worse before they hit their inflection point. But it will come…if it hasn’t already. Yesterday was the third worst day in the history of the stock market and many threw in the towel. We’ve also advised that panic is never a strategy, and keeping your head as an investor right now is absolutely the right thing to do. One cannot change the past or the fact that this event took on disastrous proportions that nobody could have imagined. This is different than a standard bear market in that it’s more like an unforeseen natural disaster but in this case one that is not specific to some other part of the world; it’s truly global and caught the entire globe flat footed.

Human instinct is to seek shelter when danger is imminent, and that gives us the urge to abandon our better instincts. Sell all your stocks! Go to cash! End the pain! This might provide short-term comfort or relief, but assuming you need some amount of growth to reach your goals, you now have the dilemma of when and how to get back in.

We would advise staying the course, while being prudent. Strategic rebalancing can make sense, but not drastic changes to your allocation. If you have a plan in place that you felt good about during the market highs a month ago, stick to it, and revisit it if needed. Heavyweight boxing champ Mike Tyson famously said, “Everyone has a plan until they get punched in the face.” The market is definitely throwing some serious punches right now. How will you answer the bell?

Lastly, we’re seeing two sets of behaviors right now; one group of people is scrambling to buy toilet paper while another is doing whatever they can to buy stocks. Mark our words in that this will be an inflection point and one where your decisions/behavior today will truly impact where you sit 10 years from now.

Panic is never a strategy…

Dear Mr. Market:5 years

Today marks the anniversary of the stock market bottom 11 years ago. How ironic is it that on March 9th 2009, when the market and everyone in finance was curled up in a fetal position, we now are witnessing a market drubbing like we haven’t seen in years on that same anniversary date? For those with short-term memory lapses, 11 years ago the Dow Jones went from 14,164 in October of 2007 down to 6,547 on March 9, 2009. The “Financial Crisis” of that period effectively saw a -53.77% decline in the stock market.  What has ensued since then happens to be the longest bull market run in history. Continue reading

Coronavirus and the Stock Market sell-off

Dear Mr. Market:https___blogs-images.forbes.com_joeljohnson_files_2018_04_market-correction-used-for-forbes-1200x720

It’s without question that the recent headlines surrounding the coronavirus have escalated and are rattling everyone’s nerves. The markets have already given back all the early gains of this young year. With natural concern certain questions arise: (1) will this get worse? (2) will it lead to a bear market? , and (3) what should one do right now?

With some of these questions we want to share the viewpoint from our favorite economist, Mr. Brian Wesbury from First Trust.

Monday, fear over the Coronavirus finally gripped investors, as both the Dow Jones Industrial Average and the S&P 500 index fell over 3% – the largest daily declines in two years.  These drops wiped out all the gains for the year.

Frankly, it’s amazing to us that the market had been so resilient!  Maybe it’s because recent history with stocks and viruses is that markets overreact leading to significant buying opportunities along the way.  Over a 38-day trading period during the height of the SARS virus back in 2003, the S&P 500 index fell by 12.8%.  During the Zika virus, which occurred at the end of 2015 and into 2016 the market fell by 12.9%. There are other examples, but they all passed, and the market recovered and hit new highs. Continue reading

Where is the Recession?

Dear Mr. Market:Recession

Chalk it up to the “dog days of summer” but we haven’t written a letter to you in a while. Perhaps this is in part to the wild ride you’ve sent investors on since the whipsaw action and insane volatility we saw this past December. For those of us with short-term memory issues, the year ended in brutal fashion with the worst December in 80 years. If you sold out of your investments, threw in the towel and fell prey to your emotions, you then missed the best January the stock market has seen in 80 years. 

If you still haven’t paid much attention then perhaps the opening of this past week also hasn’t phased you…or should it?! Continue reading

March Madness: Final Four Investing Bracket 2019

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Dear Mr. Market:

Has your alma mater or favorite team already been bounced from the NCAA basketball tournament? My Portfolio Guide can’t change that fact but we can offer you a fresh chance with our annual spin on March Madness. For the ninth year in a row we are rolling out our unique way to share investment themes and overall thoughts on the stock market.

We’re proud to say that My Portfolio Guide was the first financial advisory 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.

Click here to see Final Four Investing Bracket Picks 2019

 

Large Cap

The most boilerplate of portfolios has won out by riding the safe bet over the past few years. This is akin to the March Madness office pool where your coworker, who knows nothing about sports and couldn’t differentiate between a basketball and a football, wins the whole pool of money by simply picking the highest seed in each bracket. What we mean by this with regards to investment asset classes is that since 2013 the Large Cap asset class has been the easy money pick. If you had a decently diversified portfolio (which by design should include exposure to International and Emerging Markets), you lost to the boilerplate and simpleton portfolio that is mainly weighted towards Large Cap. Continue reading

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

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.