Should You Get Out of the Equity Markets? Continued..

I essentially wrote this exact article over three years ago. The message bears repeating now.

During conversations with investors I continue to hear apprehension when the subject of stocks is discussed. This apprehension or fear is completely understandable.

We hear nothing but bad news from the media, the continuing battle in Washington, the International crisis, terrorism at our front door, the Federal Reserve may raise interest rates, the liberal tone of the current administration like it or not, our own budget deficit and ballooning debt, the list goes on and on.

Will there be down markets in the future? Absolutely, there is no doubt. We are experiencing a bad market right now.  However, no one can tell you when and which countries and/or sectors will be involved. And no one can tell you when the markets will recover.

The equity markets around the world are random and unpredictable.

This is undeniable. However, the equity markets remain the greatest wealth creator in the world, if properly used. This does NOT mean picking the right stocks or market timing, getting in and out of the market at the right time. Neither of these activities promoted by the Wall Street bullies are in your best interest. These activities benefit the Wall Street bullies and will not improve your returns.

The market returns are there for the taking, they are waiting for you to take advantage.

Listening and taking the advice of the Wall Street bullies is not in your best interest.  These bullies include shows like Hannity or Limbaugh or OReilly who tell you how horrible everything is and try to instill fear.

Even worse taking stock picking advice from the likes of Jim Cramer.

Your time can be much better spent than worrying about the direction of the equity markets. If you have developed a prudent portfolio and remain disciplined you will succeed long term. This will require the help of an investor coach who will keep you from letting your emotions take control.

Remember the Equity Markets are forward looking:

  • Expectations about the future are in today’s price.
  • Market returns are not strongly correlated with macroeconomic variables such as GDP
  • Markets can provide positive returns even during periods of poor economic performance.
  • Timing markets is difficult.

A study was done looking a past recessions and stock returns. The conclusion there is no correlation between recessions and stock returns.

To succeed in reaching your long term financial goals you need to own equities, as scary as this may seem, globally diversify, no one can tell you which countries and/or sectors will outperform and rebalance, buy low sell high.

If you these simple rules you will stop gambling and speculating with your investments and improve your results with less anxiety about the future. If you are younger growth must be your goal, a retiree your goal is to keep pace with inflation. Owning equities in your portfolio is a great solution to accomplish both.

Not A Time To Panic…..

The recent downturn has brought a renewed sense of pessimism to our country and the world. With the lack of leadership from Washington as well as corporate America.  Many would say we need some adult leadership.


I do know this is not a time for panic.

Federal Reserve Bank of NY, 33 Liberty Street
Federal Reserve Bank of NY, 33 Liberty Street (Photo credit: Wikipedia)


There have been some who told me that ‘buy and hold’ is dead. My response is that ‘buy and hold’ should never have existed.  Rather we must ‘buy and rebalance’. By rebalancing we are in effect buying low and selling high. Automatically, because it’s part of the process.


As long term investors we must ignore the media and remain diligent to our process and strategy.  We must ignore short term volatility and focus on our long term goals.


In the coming weeks we will hear from the ‘gurus’ that ‘I told you so’…’you should have sold equities and bought gold (or whatever)’. They will say it’s not too late because the market will continue down. Each ‘expert’ will offer a solution to what is going on ‘right now’.  Invariably they will all say ‘this time is different’.


There will always be predictions that come true, unfortunately we do not know which predictors are right going forward. If you have enough predictors someone is bound to be right. This ‘correct’ forecast is a matter of luck and not skill. And unfortunately the success is seldom repeated.


Successful investing involves finding a prudent process. A process backed by academic and scientific evidence. Because we are emotional beings during market extremes both down and up. We need the help of a coach to keep us disciplined to our process. (OK that could be called self-serving).


Keep in mind the financial media will continue to fuel our fear as well as feed the hype. The result is continual trading. Which in turn allows Wall Street to continue to collect high fees.


They will continue to entice us to market time, stock pick or hire the money manager with a high return over the short term.  Because these activities facilitate excessive trading.


Instead of focusing on the daily stock market quotes. We need to focus on what made our country great. Our country is going through some tough times right now however I continue to believe in America and I always will.


The jobs report just came out and we added less jobs than expected. This confuses me because regardless of where I go there are help wanted signs. Some even appear to be permanent signs.


We must stop pointing fingers and get back to work. The free markets will work if we let them.


Continue on with our long term goals own equities…globally diversify…rebalance.

OMG What Should I Do With My Investments?

OMG what should I do with my investments? This is the typical reaction to a short term down swing in the market. Many of us forget to keep ourselves focused on the long term. We forget that the stock market does go down. It is the price we must pay for the great returns we realize, long term.

Federal Reserve Bank of NY, 33 Liberty Street
Federal Reserve Bank of NY, 33 Liberty Street (Photo credit: Wikipedia)

Please remember a fact from Frederick C Taylor.  From 1926 thru 2012 the Standard & Poors 500 has earned a 9.75% average annual return. There have been 22,040 trading days during this time. Only 52% of those days were up days or 11,461 days. That means there were 10,579 down days. The down days are admittedly more painful, but necessary to earn the great market return.

It is also important to remember that

There ain’t no such thing as a free lunch

 (alternatively, “There’s no such thing as a free lunch” or other variants) is a popular adage communicating the idea that it is impossible to get something for nothing.

We read or listen to the financial media telling us why our recent downturn is occurring. Could it be because the Federal Reserve has suggested it will slow down its bond buying? Or could it be that China has shown signs of an economic slowdown?  I’m not sure what the answer really is. Perhaps, it’s just the market looking for a reason to correct.  Again I do not know the answer.

I do know that downturns are inevitable. They happen.

Dealing with these downturns is part of the reason the long term returns are so attractive.

For long term investors these downturns mean nothing. Anyone who tells you they can predict the market turns are gambling and speculating with your money not investing. In fact you are gambling and speculating with your money if you:

  • Pick stocks
  • Market time
  • Track record invest.

During a downturn in the markets if you become overwhelming uncomfortable. You should talk with your investor coach about reducing the level of risk in your portfolio. If the both of you decide a reduction in risk would be right for you then do it. However, do not expect to increase the risk level when market conditions improve. This would be market timing and therefore imprudent.

Those of you that are already clients know that you are globally diversified with the right amount of risk for YOU. Each of you know the three simple rules of investing:

  • Own equities and fixed income.
  • Globally diversify
  • Rebalance

Keep in mind no one can predict the future with any degree of consistency.

My suggestion to all of you is to relax and enjoy the summer weather. Stop watching all the ‘bad’ news. Do not allow the Wall Street bullies to make you do something you will regret long term.

As I have said in the past “Short term gain ….Long term pain’. Stay focused on the long term and with the help of an investor coach your financial goals are attainable.

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Mutual Funds Trailing Stock Market By Most Since 1998

CHICAGO, IL - MARCH 17:  Pedestrians walk past...
Image by Getty Images via @daylife
Picking fund managers based on past performance will invariably result in poor performance. There is no evidence of any correlation between past performance and future results. To reach your long term goals you should own a globally diversified portfolio with low cost funds.

(Bloomberg News) Stock mutual fundsare having their worst year since 1998 relative to their benchmarks, as higher volatility makes it harder to pick stocks, according to JPMorgan Chase & Co.Among 2,806 funds tracked by the brokerage, 47 percent underperformed their benchmarks by more than 2.5 percentage points this year, the most since the 55 percent recorded in 1998. Only 13 percent of the funds beat the market by the same margin. The underperformance accelerated last month, with the proportion of trailing funds almost doubling from July, according to JPMorgan data.U.S. stock price swings widened at the fastest rate since the 1987 crash in the month through Aug. 23 as investors weighed stalling economic growth against the prospect of additional stimulus from the Federal Reserve. The volatility helped drive August options volume to a record 550.1 million contracts on demand for a hedge against equity losses, according to the Chicago-based Options Industry Council.

“The turbulence of markets in August caused a rapid deterioration of active manager performance,” Thomas J. Lee, JPMorgan’s chief U.S. equity strategist, wrote in the report dated Sept. 1.

This is further evidence that trying to find superior performance or managers is futile and will result in disappointing performance. When you consider the additional costs of active management and the under performance this is a waste of time.

Please comment or call to discuss how this affects you and your long term goals.

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