Downturn or Crash?

We are experiencing some very turbulent times AGAIN in the global economic environment. And we also are experiencing a sharp downturn  Although this downturn, as of today, is less than 6%. So far, this downturn does not qualify a correction. Corrections are technically 10% to 20%. While bear markets are considered downturns of 20% or more.

Wall Street prognosticators are trying to do is strike fear into the investing public. These Wall Street bullies are looking for an increase in trading. These bullies want you to move your money from one asset class to another.

Remember they make money on every transaction, whether you make money or not.

Wall Street has a product for every situation. And they know the investing public is constantly searching for the next big ‘thing’.  

Investors’ real goal is stock market returns with Treasury bill risk.

This is unattainable. Remember, where there is no risk there is no reward. This is true in all other areas of our lives, not just the stock market.

What we must remember is that stock market or equity risk is only part of the problem. Inflation risk is the most destructive to your savings over the long term. It is constant and unrelentingly eating away at your purchasing power.

Owning equities or stocks may be the best way to combat inflation risk.

The most successful investors of all time have one strategy, a strategy that does not always look great, but over time leads to success. These successful investors are not always looking for the next great strategy. At times they will look like they do not know what they are doing.  These successful investors know risk is unavoidable.

It has been proven time and again that market timing DOES NOT work. Not only must you be right getting out of the market, you must also be right about getting back in. Research has proven that this is NOT done consistently.

I find it curious that investors see past ‘crashes’ as buying opportunities while current or future ‘crashes’ are seen as risk.

A fun fact is that since 1925 the S&P 500 has averaged approximately 9.75%. During this time there have downturns of 10% or more 89 times. That’s approximately one per year.

So if you want to keep control of your money and earn good market returns you must live with downturns. Because with downside volatility there is the upside volatility.

There are ways to control your risk while earning good market returns, long term.

Investing for a long term goal such as retirement requires patience, a prudent strategy and discipline. This, in most cases, requires the assistance of a good coach. A good coach will guide you in following these three simple investing rules.

Own equities….globally diversify…..rebalance.

If ou panic and sell you are locking in any losses you have. This is a huge mistake.

To succeed in reaching your long term financial goals you don’t need to know everything about investing, but you do need to know the right things.

Discipline Wins!!

While I do not agree with Warren Buffet’s approach to investing for most investors. He is a stock picker. However, what I do believe in is his discipline. He has a process and he sticks to it regardless of short term market noise.

Most investors would not be able to endure the volatility of a Warren Buffet portfolio.

This quote will help many investors realize extraordinary results.

It’s not necessary to do extraordinary things to get extraordinary results. Warren Buffet

Everyday there are new financial products generated by the Wall Street bullies. These products are designed to take advantage of the current situation on Wall Street. The short-term market noise should be ignored by successful investors.

Wall Street needs investors to continue moving money. From one product to another. Without regard to what is in the clients’ best interest.

Every day I read about the next great manager or next great strategy. These ‘greats’ are all the result of taking advantage of the current short-term noise in the equity markets.

As an example, during the mid to late 1990s the equity markets were realizing great returns, averaging nearly 39%. In fact, in 1999 they earned nearly 35% and at the same time Mr. Buffet’s fund lost 15%. Mr. Buffet believed in his philosophy and remained disciplined. Many said his time was over he had become irrelevant.

Unfortunately for investors their great returns were followed by the bursting of the ‘tech bubble’. Many lost 80% because they were concentrated in tech stocks. At the same time Mr. Buffet’s had a solid positive return. The reason? Mr. Buffet remained disciplined to his philosophy and flourished.

Most investors need a process to follow, a game plan so to speak. Something to follow during both ups and downs in the markets.

But most importantly they need discipline. The discipline to follow their plan regardless. Many times, it will not look like the thing. However, over the long-term it will serve them well.

This is where a fiduciary adviser/investor coach adds value, or earns their fees if you will. During market extremes, both up and down, provides discipline to help avoid any major mistakes.

To succeed long-term own equities…globally diversify…rebalance.

What Do You Expect From Your Portfolio?

Many investors believe that there is someone, some advisor, some investment manager, or some brokerage firm that will have the ‘answer’ to beat the market. Finding the ‘answer’ will allow them to save less and earn more to achieve their long term financial goals.

The sad truth is there is no substitute for a sound savings strategy combined with building a prudent portfolio which is aligned with you goals and tolerances. There is no substitute for designing this prudent portfolio and remaining disciplined to that strategy.

Do not expect to predict or forecast stock prices and movements.

Do not expect to pick winning stocks and beat the market.

Do expect to achieve close-to-market returns over time and to see daily, weekly and yearly volatility. Reduce your costs, use diversification, and sit tight.  If you expect the impossible you will be frustrated, unhappy and fearful.

Remember there will be another ‘crash’ or ‘bear market’ but no one can tell you when and how much.

Also, when building a prudent portfolio. There will be times when your portfolio underperforms and perhaps for extensive periods of time. In 1999 the stock market was averaged over 25% return for the 4 previous years. But then came 2000 and 2001, the market crashed, and investors lost big time.

The reason? Investors were overloaded with the hot asset class or the hot stocks.

Investors with prudent portfolios fared quite well. And over the long term out performed.

Remember the Wall Street bullies want you to continue to search for the ‘answer’. These bullies make money on every trade whether you do or not.

The stock market is the greatest wealth creating tool ever created, IF properly used. The main ingredient is that it does require discipline.

To reach your long term goals you must own equities….globally diversify….rebalance.

Celebrate Uncertainty!!!

Many investors lament the downs of the market.  They feel that the randomness is cause for complaint and pain.

Everyone wants to know now what the future holds. What will happen? What is the best investment when the predictions come true? How can I avoid any losses?

After all, Warren Buffet’s number one rule is ‘never lose money’ and rule number two is ‘see rule number one’. To expand on this Mr. Buffet would not sell during downturns because that would mean losing money.

How can I do this if I don’t know the future?  The Wall Street bullies are counting on investors desire to ‘beat the market’ and avoid all losses.

Many of these experts try to convince investors that they can ‘beat the market’. That they will guide them to success without the risk of loss.

In reality, the unpredictable ups and downs of the market are part and parcel of its superior long-term rate of return.  Volatility is the only reason the market offers a risk premium. 

Celebrate the uncertainty.  It contains the seeds of growth and wealth creation.

To reach your long term goals you must own equities….globally diversify….rebalance.

What Is A Crash? Part II

In discussions with clients and prospects I hear talk of another eminent crash. This is typically the result of listening to an insurance salesperson selling their product of the day. Their pitch goes something like this. Quoting some Wall Street prognosticator, the market is at an all time high and it is ready for a crash. These Wall Street bullies will tell you to move your money to an annuity so it will be safe from the inevitable crash. They will tell you that you need to act now…before midnight. 

Another approach by these bullies might be to exit the market and wait for the crash then buy at the low or on the way up. This is another example of playing on your emotions. These bullies know that investors are fearful that another crash like the 2008 crisis is right around the corner. This is market timing and been proven to be unsuccessful in nearly all cases. Past performance or track records have zero correlation with future results.

In other words, no analyst(s) is (are) able to consistently predict the future market direction.

One suggestion is to ask this advisor for an audited performance record using the Global Investment Performance Standard (GIPS).

This of course does not stop the Wall Street bullies from marketing their past successes.

Remember there are two groups of people predicting equity market directions,

those who don’t know where the market is going and those who don’t know they don’t know where the market is going.

This brings back the original question …What is a crash or a down market or a bear market? Investors continue to fear the unknown. With the 2008 crash fresh on our minds, is another crash around the corner? No one can answer this question with any certainty. But this does not prevent the bullies from making predictions. At some point another crash will occur.

Unfortunately, no one can predict when it will occur.

The definition of a crash depends on you the individual it might be 10% down or 20% down or 40% down like 2008.  Remember the first quarter 2009 the S&P 500 was down an additional 24% yet the year end performance was a positive 23%.

The 2008 crisis has been seen as the worst market performance since the 1929 crash although some might say that the 1973-74 crash was just as bad.

The point is there have been bad markets in the past and there will be bad markets in the future. If you are properly diversified at YOUR level of risk your recovery could be quicker than most might think.

There is a trait of human beings that says when times are good they will always be good and when times are bad they will always be bad.

Of course, past performance is no indication of future results. But I believe if you follow the three simple rules of investing:

  • Own equities and fixed income
  • Globally diversify
  • Rebalance

You can be confident that your portfolio will perform well in all market conditions. This will require the assistance of an investor coach to not only develop the proper portfolio for you but keep you disciplined in both up AND down markets.

Diversification Is Your Buddy!!!

The new financial media has convinced investors that there is someone out there that can predict the future.

They have convinced investors that there is someone who can get out of the market at the right time. And then get back in at the right time. There are occasions when someone gets it right. But there is no one to predict who that someone will be in advance.

They also have convinced investors that there is someone who can consistently pick the right stocks for gains. What investors don’t realize is that this is a matter of luck and not skill.

They want to avoid the stock market losses at all costs.

Since no one can predict the future, this is a huge mistake.

You must decide if you are a gambler/speculator or an investor. Gamblers believe they can out guess the market and avoid all losses. The gamblers have proven numerous times to be wrong in the long run. One may get ‘lucky’ but no one can consistently market time.

In markets like these, diversification is your buddy.

Proper diversification spreads risk across various asset classes with varying return characteristics or dissimilar price movement. Simply said: they don’t do the same thing at the same time.

Most investors are narrowly diversified into top performing funds or classes of the last five to ten years. They often feel diversified but aren’t.

To be diversified means including classes or types of funds in your portfolio that did poorly over the last five to ten years. If you do this, your portfolio will look and perform very differently from your neighbors’ or friends’.

Those of you which are my clients, own portfolios which are professionally diversified and rebalanced much like the large pension funds.

Over time these portfolios will help you successfully accomplish your investment goals.

To succeed in investing you must own equities….globally diversify…..rebalance.

Proper Expectations!!

There is never a shortage of predictions on where the markets will go next. These predictions are typically based on current events.

Who will win in Washington DC?

What will happen tomorrow….next week….next month…..next year……?

Will the stock market crash? When should I get out to avoid losses?

Should I buy gold and when?

Will inflation take hold? Or is deflation around the corner?

And the list goes on and on…

The talking heads on television need these predictions to keep viewers watching, which in turn increases advertising revenues.

Everyone wants to know what will happen next. In many cases, we make emotional decisions based on the latest short term predictions.  These decisions will in most cases result in very disappointing performance.

If you wish to succeed long term in reaching your financial goals, you need to develop a prudent strategy and remain disciplined to that strategy. Most important you must have realistic expectations.

Proper expectations are the key to investing with Peace of Mind.

Do not expect to predict or forecast stock prices and movements.

Do not expect to pick winning stocks and beat the market. In the long-term stock picking will lose.

Do expect to achieve close-to-market returns over time and to see daily, weekly and yearly volatility. Reduce your costs, use diversification, and sit tight. If you expect the impossible you will be frustrated, unhappy and fearful.

All of us would like to get rich quick. However, if this is your strategy, odds are you will be very disappointed. As I mentioned earlier, develop a lifelong game plan and stick to it. The only adjustment you should make is to gradually become more conservative as you get older.

To succeed in reaching your long term financial goals you should:

Own equities….globally diversify….rebalance.

Leave the predicting to the talking heads and if you do watch see it as entertainment, not strategy.

Should Your Investment Decisions Be Based On Academia or Wall Street Predictions?

As we approach the 2020 presidential elections. There are predictions popping up as to who will win. And how will it affect the equity markets? .

No one really knows.  Let’s pray that the American public makes the right choice. And the right choice is available.

More than at any time in our history….we need strong leadership.

That said, we must stop listening to Wall Street regarding what to do with our portfolio. Should we sell? Should we buy? What should we buy? What should we sell? Wall Street doesn’t really care. All they care about is that you trade. Most investors don’t know what to do.

All that you know is what the brokerage community or financial press wants you to know. They have trained you to accept their version of reality – over the span of your entire life.

There is a complete body of investing knowledge developed in the halls of academia.

Most people do not even know that it exists. This is the real wisdom you need to learn in order to create wealth and abundance.

Rather than looking for the next great trade or asset class, invest in a portfolio based on Nobel Prize winning research. Instead of researching investments, your time will be much more efficiently spent on improving your job skills, or learn a new skill set leading to a new career, or even better, spending time with the important people in your life.

Perhaps you should look at your investments with a goal in mind rather than short term performance results.

Taking a long term view of your portfolio will reduce and perhaps even eliminate your anxiety.  Remember a disciplined investing strategy will outperform all trading strategies, long term.  Stop looking at your investments through the short term eye of a gambler.

Take control of your investments…don’t empower Wall Street.

Successful investing requires discipline along with following three simple rules, own equities…..globally diversify…..rebalance. Although simple these rules have proven very difficult for investors to follow. In most cases it requires the help of an investor coach/fiduciary adviser.

Time To Buy Or Sell??

The stock markets around the world have been extremely volatile.

Huge moves down (which we are currently experiencing), followed by moves up followed by moves down again and then up again. This volatility has investors on edge and looking for safety. And who can blame them. In most cases we are talking about their life savings.

The media has reasons for each move up or down. Many of these reasons fit an agenda for the media outlet. The media understands that many investors are focused on the short-term.

These ‘investors’ are focused on short-term results without regard to the long-term potential.  All investors need to keep in mind that they will hopefully be retired for a long time. Therefore, the short-term volatility is really meaningless to them. Or at least it should be.

This is where the guidance of an investor coach/fiduciary brings the most benefit to investors.

By coaching their clients about how the equity markets actually work. For example, there is solid evidence that over the long-term equity markets are one of the greatest wealth creation tools on the planet.

With this knowledge and the discipline to stay the course investors can realize these great returns.

“DISCIPLINE is the soul of an army. It makes small numbers formidable; procures SUCCESS to the weak, and esteem to all.” -George Washington

You don’t have to know everything about the equity markets but you do need to know the right things.

Although I don’t agree with most of Warren Buffet’s methods. That is, he believes in picking stocks.

What I do agree with is that he has a process and discipline.

Most if not all investors do not have the emotional strength to remain disciplined during equity market extremes. Both up and down.

There is also a quote by the same Warren Buffet that might help some here. When everyone is crying, I’m buying and when everyone is yelling, I’m selling. Apparently, this only hold true for his buy side. Because he also says his holding period is ‘forever’.

This sounds like market timing, which I do not believe works. That is getting in and out of the market at the right time.

I believe Mr. Buffet’s real point is do not listen to short-term volatility. Stay focused on the long-term.

If you can find an investor coach/fiduciary adviser to help you. You can stop fearing the markets. You can realize the great long-term results. The results that can lead to your successful retirement. Both up to and after your leaving the workforce.

Your coach will among other things teach you the three simple rules of successful investing.

  • Own equities and high-quality short duration fixed income
  • Globally diversify
  • Rebalance

These three rules may seem simple, but they are very difficult to follow without an investor coach/fiduciary adviser. Especially when the media is ‘scaring’ the hell out of you.

Memorial Day 2019

As we celebrate Memorial Day 2019 let us not forget those who fought and died for us and those who continue to fight for us. To protect our freedom.

You will never know how much it cost the present generation to preserve your freedom! I hope you will make good use of it!! – John Adams

This week will be a short message. Please remember and honor those who fought and continue the fight for our ability to seek the American dream. Everyone of us has the ability to seek the American dream, however it involves sacrifice. There are no short cuts to prosperity.

The free markets are part of the reason our veterans fought. It does not involve speculation but rather prudent investing. The American dream is not a get rich scheme. It requires sacrifice, hard work and planning.

A John Adams said above “I hope you make good use of it!!”

Honor our veterans, past and present, by making good use of it.