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.

Stock Market : Points, Percentages, and Perceptions

 

Dear Mr. Market:

What do you think about the “largest point decline in history” ?!?pl9401-1-_custom-99c12255409cbb9e488da1fb6ce0900b683cda9d-s6-c30

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.

Click here to read the Columbus Strategy -2018 Stock Market Volatility Report

Maintaining-Discipline-in-the-Face-of-Market-Volatility-1What 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….1607859

“Stay disciplined to stay positive”.

-My Portfolio Guide

 

 

No More Groundhog Day for the Stock Market

Dear Mr. Market:b67ec80ba6cb4509b60ab9f52cb984e8

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.

Screen Shot 2018-01-22 at 7.42.35 AM

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

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