Finally. It’s here….a bonafide stock market correction. What’s also almost here is Groundhog Day…but more on that in a minute. For those of us with short memories we’ll have to do the necessary preamble and small talk refresher on what this is. For those of you who remember what you did (or were supposed to do/not do) during the last correction, here we go again. Do you remember the fantastic Bill Murray movie “Ground Hog Day”? Click here for the last time we wrote about it but again….people seem to forget what they ate for breakfast so you may not remember what happened in 2018.
Oh… but “it’s different this time“, right? Those are indeed the four most dangerous words in investing. Are there problems to worry about? YES!!!! (but there always has been and always will be)
The “fat lady is singing”, the alarm bells are ringing, and you are literally the last dunce in the room who decided to get into the market at the all-time high. Now Mr. Market shows you what real pain looks like and sells off like nobody has ever imagined.
Let us preface this article by stating it’s worth bookmarking and revisiting for those times when you may be rethinking your investment time horizon or just how much risk you truly are able to take on.
Last week was a microcosm of how stock market headlines can really lead you to hear one thing yet see another. For a while now we’ve been barking about how the FAANG stocks have artificially propped the market as there are some serious underlying health concerns. As a reminder for our newer readers, FAANG refers to the five major U.S. technology companies – Facebook (FB), Amazon (AMZN), Apple (AAPL), Netflix (NFLX), and Google (GOOGL). These household names have driven the markets and camouflaged some warning signs of risk on the horizon for quite some time. If you want a peek under the hood or a refresher on just what their impact, valuation, and market caps are relative to the broad market, please click here. (pay close attention to figure 18 which shows market cap with and without FAANG as well as Figures 13 & 14 for some relative earnings/revenue performance)
So…what happened last week? Why did the markets get hit so hard? It was indeed a rough week but then again not too many weeks feel all that bad when we take a quick look in the rear view mirror. (last year there were some mornings when the stock market was down literally -9% before you had your first sip of coffee) Albeit not a pleasant memory, don’t ever forget that (we’ll touch on why later in this article).
We write letters to you during good times and bad. That’s the beauty of the stock market and all the drama you bring with it! Without a doubt there will always be something to worry or cheer about! Perhaps no asset class personifies this struggle better than Emerging Markets.
We’ve written before about the appeal (and risk) that Emerging Markets brings to investors. Right now, in our opinion, there is a potential “changing of the guard” and a shift in asset class leadership. Although our friend Warren Buffett often gets credit for the following famous quote, it was actually originally from the 18th century British Nobleman, Baron Rothschild:
“The time to buy is when there’s blood in the streets.”
Emerging markets have been absolutely hammered the past few years. As you know, the big headlines that drove markets in 2015 was the plunge in oil prices, an incredibly strong U.S. dollar, and massive concerns about China (the world’s second largest economy, albeit an Emerging Market). It’s easy for investors to get scared out of their minds with an asset class that is historically more volatile than most; that’s probably why most investors are underexposed to Emerging Markets. Continue reading →
Happy New Year and welcome to 2016! With a new calendar comes hope and optimism! 2015 was a challenging year for the equity markets, it was actually the worst year since 2008 and if you had exposure to the energy sector (as almost everyone does) it was one of the worst on record. Investors were waiting for a new trading year with great anticipation, much like children looking at gifts waiting under the Christmas tree. Well… take a deep breath, the market is getting spanked on the first trading day of the year opening down over 2% thanks in part largely due to China. What does this mean for the rest of 2016? Continue reading →
How time flies! Our first letter to you was on March 20, 2013. This marks our 100th article. Over the last two years we have covered a variety of topics and events that our clients and readers have been confronted with. Over 15,000 individuals have visited the website and our top rated articles have been viewed over 12,500 times!
As we look through the library of topics we have assembled, there are several articles that stand out for various reasons. It’s challenging to pick favorites so we’ve decided to share the most popular “letters” we’ve written: Click here to read more…
For a guy who is usually full of surprises you’re scripting 2015 like a boring rerun of last year. As you’ll recall we had a rough start to the year with the S&P 500 dipping -3.1% in January but then February came around and erased all the negative returns for the year with a very strong month. As a matter of fact the S&P 500 had its best month in almost five years with a gain of +5.5%. The Nasdaq bubbled up (pun intended) even higher at +7%.
Everything is fine and dandy, right? The media is as giddy as they’ve been in ages. They’re showing us charts and comparisons of Nasdaq 5,000. Nothing could go wrong from here, could it? Is this another perfect backdrop for the four most dangerous words in investing?
Everyone wants to be associated with a winner. We are all familiar with the famous quote, “the thrill of victory and the agony of defeat” from ABC’s Wide World of Sports. Imagine that you are at a sporting event, you glance at the scoreboard but it shows nothing … at the end of the game you have no clue if your team won or loss. Some people claim your team won while others are not so sure. Mr. Market does exactly this to investors with their investment portfolios on a consistent basis. As an investor how do you effectively gauge how your investment portfolio has performed and if you are victorious or humiliated in defeat?
The media would have us all believe that investors should use the S&P 500 or the Dow Jones Industrial (DJIA) as a benchmark against their portfolios. Turn on the nightly news or open a newspaper and you will quickly spot what each index closed at and what percentage they are up or down for the year. While everyone would agree that it’s important to have a sense of how the market is performing, is this the proper measuring stick investors should use to gauge how their own investments are performing?
A quick summary of the indices the media force-feed us on a daily basis: Continue reading →
Just a few short months ago we experienced the seasonal sensation known as Black Friday where consumers lose grasp of reality all in the search for a great deal. People camp overnight on sidewalks in an effort to be one of the first shoppers inside a big box store and take advantage of a bargain they can brag about to all their friends. Buying a large screen television at 50% of retail is certainly exciting but do the same individuals get excited when the equity markets present similar opportunities?
Investors display behavior that is nearly a complete opposite when the markets or an individual stock drop in price when compared to a retail store sale. Rather than racing to get in a store at the crack of dawn they dash for the exit, submitting sell orders as quickly as they can with no rhyme or reason. Throughout various market cycles and economic environments Mr. Market presents investors with buying opportunities yet few actually take advantage of them. You don’t have to look far to find a sector that has experienced a price reduction of 50% in the last six months (the majority of that correction taking place in just the last three months!). You would have to be living ‘off the grid’ or under a rock to not realize that what we are talking about is oil. Continue reading →
We’re already two weeks into the New Year and want to make sure we wrapped up any loose ends with how you finished up 2014.
We finished up last month’s edition of the MPG Core Tactical Portfolio series by saying that oil prices could continue dropping to even under $50 per barrel. We’re not in the business of peering into a crystal ball and prognosticating, however this “prediction” was mentioned simply due to all the noise surrounding oil and its dramatic plunge. A multitude of experts began making statements that oil prices “are very near if not already at a bottom”. Mind you, this was just last month when oil finally dipped under $65 per barrel. The problem with these “experts” predicting bottoms (or anything for that matter)…is that not a single one knew that oil was near a top back in June or that it would fall as fast as it has. As of this writing oil has dipped again and now sits just under $45 per barrel!
What does about a 60% haircut in oil prices mean to the stock market? Simply put, the bulls believe that it is a positive for economic growth and is basically like a huge tax cut for consumers and therefore acts much like fiscal stimulus. The bears will opine that falling oil prices mean that the risks of global deflation are real and that the “kick the can down the road” mentality of a market that has been propped up for over five years is about to come to an ugly end. Continue reading →