Is the Death Cross accurate?

Dear Mr. Market:Death-cross-2

In all of our letters to you it’s been well documented how volatile and irrational you can be. You clearly have a temper and even when there is an abundance of good economic news you can still make us squirm and sweat with how you may react. What compounds your behavior is how traders and investors label certain charts and patterns. Most recently we’ve been alerted that you have signaled another mess on the horizon with an ominous reading of the “Death Cross”.

Could you (and that description) be any more dramatic?!? Continue reading

What to do if the Stock Market Correction turns into a Bear Market?

Dear Mr. Market:

We typically write you letters about your volatile actions and the erratic behavior you bestow upon us as investors. Many of our letters also try to put certain economic events into perspective so that people don’t let your wild stock market swings force them into making bad decisions. All that said, it’s come to our attention that we can finally roll out the answer to a question that is not always obvious:

What should an investor do if a standard stock market correction turns into a bear market? shutterstock_262478570

First off, let’s revisit the basic definition of a correction versus an official bear market. Click here for an article we wrote during the last correction in February, which incidentally at the time felt like the end of the bull market had finally come. Although the market sold off almost -10% in a short span, it clearly came back to reach record highs until October came around.

So…can we now apply the four most dangerous words in investing? 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

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

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