Author: Adam Weingartner

If you’re watching the stock market everyday like Brad and me, you should first have your head examined, and if you weren’t lucky enough to catch the back and forth market action, let me give you the play-by-play.  

Monday – Coming off last week’s “snapback” rally, we continued to move higher on reports of the “trade truce” agreed to by President Trump and President Xi Jinping of China.  The second of the two major problems hanging over the market was moving in the right direction.  President Trump backed off the most stringent of tariff increases and agreed to accelerate talks for the next 90 days in the hopes of getting a deal done.  Perhaps there would be a Santa Claus rally this year, and with any luck, new all time highs might be around the corner.  The Dow Jones opened up 450 points higher, but closed the day up around 300 points.  The rally didn’t hold, but still a good day up over 1%…

Tuesday – The optimism quickly turned to outright hatred as the market had yet to hear China’s side of the negotiations.  They had not yet arrived back from the G-20 summit to speak to Chinese media, and regardless of where you fall on the political spectrum, sometimes President Trump says things that aren’t entirely accurate.   The reality set in that a 90-day ceasefire is not even close to being enough to change the long-term behavior of CEOs looking to make capital allocations or wealth managers looking to change asset allocations.  Perhaps this was simply a stall tactic from the political administration?!?  The Dow Jones ended up dropping almost 3%, its worst day since October 10th.  But we were up almost 1700 points last week, we only gave back about half…

Wednesday – Markets were closed Wednesday, but with the algorithms detecting the negative sentiment in Tuesday’s market (possibly from the lack of trading that day, and not being programmed to recognize an unscheduled off day in the markets), on Wednesday night, the futures market reopened, and the S&P 500 fell 65 S&P points in 10 minutes (equivalent to approximately 600 Dow Jones points).  Oh boy,  Thursday is gonna be a doozie.

Thursday – While the computers managed to rallied the S&P back to only down 25 before the market opened, the sour mood continued and the Dow Jones fell another 800 points, intraday, before magically changing course mid-morning to close down only 79 points on the day.  Phew…could an intermediate bottom be in?  The television was asking people if this was an “all clear”.

Friday –  The rally from Thursday continued at the open with Dow Jones climbing 100 points, only to again reach a technical level and start giving back some of its gain.  As the day continued, the markets continued to lose steam, only to close down another 558 points.  This market is untradeable and uninvestable!  I’m so glad the week is over.

If any of these events affect the viability of your current retirement/income/growth strategy, you’re doing it wrong.  If you’ve been sitting on cash and have been hesitant in recent months (years?) about adding to a market that was too expensive, now is your chance (but what if it keeps going lower?).   If you’re starting to think it’s a possibility you are NOT the next Warren Buffett, and would like another perspective, now is the time to start that search, not 10% lower on the stock market.  

I’m always looking for simple ways to relate the stock market to everyday examples, but the best one I’ve read in a long time was last week.  It was a blog post (The Reformed Broker) from Josh Brown at Ritholz Wealth Management, and the metaphor goes on to talk about how the economy is like someone walking their Jack Russell terrier.  The dog walker is the economy, strolling along relatively consistently, stopping infrequently, with most passerbys paying little attention.  What most people notice is the twitchy, spastic animal on the end of the leash (the stock market).  The dog is distracted by everything, stopping to stiff every tree and flower in its path.  Let’s keep our eyes toward the future and let that dictate our investment strategies, not the Jack Russell terrier nipping at our heels.

– Adam

 

Hi everyone,

Well…it’s been an interesting last few months. Leaving the Alvery Bartlett Group after almost 12 years was one of the most anxiety riddled decisions of my life. But, like those other like changing moments (marriage, children), my anxiety didn’t come from a place of fear, but more from the uncertainty of moving into uncharted waters. One of the things that has become clear is that Brad and I have some of the best and most supportive clients on the planet. So before I go further….THANK YOU.

For those of you that don’t know, we started the Loose Change blog almost a year ago as a way to communicate a bit more with clients, give everyone an opportunity to learn more about the investing world, establish an online presence, and have a written record of all the times we are wrong (this was Brad’s idea…just kidding). If you want ever want to look back at previous articles and viewpoints on the market, you can see everything at www.theloosechange.com.

I’m sorry to report that I still can’t predict the future, but we can prepare for multiple possible futures. In our updates of June and April, we mentioned the sideways action in the equity markets and that no conclusions should be drawn until the S&P rises above 2800 or below 2553. I’m happy to report that the S&P made an intra-day all-time high today above 2873. While we don’t take victory laps, we do take solace in the fact that the uptrend remains intact. That means until the markets tell us otherwise, US stocks will remain a large portion of a diversified portfolio. Emerging and Developed foreign markets have taken the brunt of the trade war/tariff rhetoric along with commodities, but like all sector rotations, low prices offer an opportunity for rebalancing at better entry points. Forgoing some upside capture with US stocks, while maintaining a well-diversified, broadly balanced portfolio, is a cost we are gladly willing to pay to protect the wealth you’ve taken your entire life to build. While underperforming the hottest index of the day/month/quarter/year (US TECHNOLOGY) seems like a good enough reason to reposition a portfolio, it’s not. Systematic rebalancing helps take that emotional piece out of your hands to make the trades we as humans struggle with.

As always, if you ever need anything, Brad and I are around.

– Adam

Hitting the Links

Here’s How It Works – Josh Brown of Ritholz Wealth Management talks about the traditional relationship between client and advisor and how that’s changing (for the better).

What Is Your Value Proposition -Given that we are starting some new together, I thought I would send out my favorite piece on what you should expect to receive from a trusted advisor.

Getting Rich vs. Staying Rich – “For decades people used Coke, Gillette, and American Express as examples of companies whose success was so solidified – whose moats were so deep and protected – that you could foresee their dominance indefinitely. But now all three are under attack.” This article talks about why I am cautious of companies which were loved 30 years ago and are now being disrupted by technology.

A Picture is Worth a Thousand Words

How Old is this Bull Market? – Reminder we are in a three year-old bull market, not a 9-year old one.

Global Consumption – Chart of Global Consumption over the past three decades. A big fundamental reason why global companies may be a growth driver for your portfolios in the future (with some bumps along the way).

Potent Quotables

“Amateurs have a goal, professionals have a process.” – Shane Parrish, Farnam Street

“Imagine you could play poker with no ante or blinds allowing you as much time as needed to wait for aces or kings; how could you lose over time? That’s precisely what you are offered in the stock market. The only potential flaw in that proposition is your own lack of discipline.” – Mark Minervini

All,

The markets appear to have decided which direction they intend to go in the very near term (NASDAQ has just made an all-time high), but while the technology sector appears quite strong, the Dow Jones Industrial Average is barely positive for 2018. Will this be a trend that continues? Who knows. My opinion still remains that until the S&P 500 goes above 2800 or below 2553, no conclusions should be drawn. Until then, I’m reminded of Jesse Livermore, a famous (infamous?) stock speculator in the early 20th century. His biography, “Reminiscences of Stock Operator”, remains one of the most pertinent and useful tools as it relates to the human emotions of fear and greed. One of my favorite quotes continues to play back in my mind; “It was never my thinking that made the big money for me, it always was sitting”.

Happy learning everyone,
Adam

Hitting the Links

The Free Choice Paradigm – A fantastic study about how our perception changes once we’ve made the choice to buy something.

50 Ways the World is Getting Better – Not to let the current narratives about the state of our world get in the way of a good fear-based story…

5 Levels of Being an Investor – They say that the best way to learn a subject is to teach it to someone else. This article goes a bit further.

A Picture is Worth a Thousand Words

How Often Do Major Declines Occur

Presidential Stock Market Cycles – Mid Term Election Years

Potent Quotables

“Never confuse brilliance with a bull market” – Humphrey B. Neill

“Freedom and Equality are sworn and everlasting enemies” – Will Durant

Hi Everyone,

The quarter has gotten off to an auspicious start (after a terrible end to Q1) as earnings season came just in time to bring some welcomed good news to the markets.  Just when things were going smoothly and most investor’s portfolios had gotten back into the green for the year…more volatility.  To save yourselves some of the mental anguish, until the S&P 500 makes a new high above the March top of 2800, or makes a new low below February’s selloff of 2553, you shouldn’t even give this market another ounce of your attention.  There will be fear mongering, followed by excitement, followed by confounding just like previous sideways markets.  Instead of listening to people try and predict the future, let’s get a bit more knowledgeable about the past…

Happy Reading,
Adam

 

ARTICLES

The Drawbacks of Behavioral Finance  – This is from the day before the February low (not a coincidence).  Good stuff, from a brilliant writer, Ben Carlson.

Sometimes This Sucks – This is three trading days before the April low (again, not a coincidence).

The Freakishly Strong Base – This is a longer one about the power of compounding, but goes into the net worth of Warren Buffett and how it can be an illustration of why we should all have gotten started investing much earlier.

 

CHARTS AND GRAPHS

US Equities Still Expensive to the Rest of the World

Earnings vs. S&P 500 Price Chart

 

QUOTES OF THE WEEK

“The amount of energy necessary to refute bullshit is an order of magnitude bigger than to produce it.” – Alberto Brandolini

I hope you enjoyed the previous post and it gave a glimpse into the structured thinking which goes into your personalized financial advice.  In total return terms (this means including dividends) this is the first down quarter since Q3 of 2015, and only the 5^th down quarter in the last 9 years.  That doesn’t mean anything other than we’ve had it really easy during this bull market, and that “this too shall pass”.  Hope you enjoy reading (and listening) as much as I did.

– Adam

Hitting the Links

The Big Picture  – The moral here is to have a plan.  If you can’t answer the question of what we are going to do if the market falls another 5%, 10%, 20% from here, you need to call us to get on the same page, and make sure you’re comfortable.

Dividend Aristocrats Have Less Volatility and Greater Return

Investment Management vs. Financial Advice (and which one you’re really paying for)

Podcast with Josh Brown – Josh Brown, The Reformation – if you’re into podcasts, this is one is worth an hour of your time.  Josh and the team at Ritholz Wealth Management are one of the main reasons that I started the blog, and in future posts, you’ll most likely be reading a lot of the research put out by his team (most notably Michael Batnick and Ben Carlson).  Josh started on Twitter before Finance Twitter became popular and he’s as close to a thought leader as the Millennials will tolerate (Josh just turned 40, so he’s a wannabe millennial anyway).

“I’ve been in this business for 67 years now, and I’ve been well served by my unwillingness to say anything about short-term market behavior with confidence.” John Bogle, Founder, Vanguard Group.

“Traders, when they make profits, have short communications; when they lose they drown you in details, theories, and charts.” – Taleb, author of The Black Swan.

 

I’ll try and do a couple of these per month.  Hope you enjoy learning as much as I do. – Adam

• Short Term Outperformance vs. Long Term Outperformance – Being in the middle of the pack consistently is where we strive to be every year.
• Active Funds Shone in Selloff, Just Like They Said They Would – I’m not saying that people should abandon a low-cost ETF strategy, but more to point out that there is a time and place for everything, which is why we prefer multi-strategy portfolio construction.
• The Power of Narrative  – “There are three important attributes required to be successful in the investment industry: (1) you need the analytical chops; (2) you need to understand human psychology; and (3) you need to be able to explain what you’re doing and why to colleagues and clients alike.”
• The 5 Elements of Effective Thinking – So simple, yet so difficult.
• The graphic below amazes me more than anything I’ve seen in the past 5 years.  It’s no wonder that 9 out of 10 day traders don’t make it…

“If we can’t tolerate a possible consequence, remote though it may be, we steer clear of planting its seed.” – Warren Buffett — Berkshire Letter, 1996

“Financial advisors (and financial services in general) struggle with consumer trust not due to a perceived lack of competence, but a lack of warmth (consumer expectations of good intentions).” – Herman Brodie

It’s been a couple of weeks since the last installment, and like a lot of people, I made a New Year’s resolution. I decided to read 52 books this year. My first book selected was “A Man for All Markets”, a memoir by Ed Thorp, an American mathematics professor most famous for his counting cards method of Blackjack entitled “Beat the Dealer” (1962). I know, I probably need to get out more.

It also happens that he was one of the first “hedge-fund” managers, and while Myron Scholes and Fischer Black won the Nobel Prize in Economics for their options pricing model, Ed Thorp had come up with the equation on his own several years before and used it to his advantage in his hedge fund, rather than telling anyone.

Let this be a lesson for those of you who want to speculate on the stock market, or any future event. If I knew, I wouldn’t tell…

As for the articles of note, please see below. As always, THANK YOU.

Loose Change

• http://thereformedbroker.com/2018/01/07/the-fatal-mistake-crypto-investors-are-making-now/ – This is exactly how I feel about Cryptocurrencies in general. Love blockchain, but it’s free and there isn’t a way to capitalize (yet…)

• http://awealthofcommonsense.com/2018/01/10-things-investors-can-expect-in-2018/ – this is great because you can just change the year and send it out every Jan 1…history does not repeat, but it rhymes.

• https://www.cfapubs.org/doi/pdf/10.2469/faj.v70.n1.2 – Clifford Asness is one of my favorite curmudgeons and his list of pet peeves from 2014 is a good reminder at the beginning of the year.

“At one point in the 1989 Japanese real estate bubble, the Imperial Palace in Japan was said to be worth more than the entire state of California. Things that don’t make sense don’t last….be careful out there” – Michael Novogratz

“You get paid for the seven and a half hours a day you put in here, but you get your raises and promotions on what you do in the other sixteen and a half hours.” -Mervin Kelly, director of Bell Labs

Still working out the kinks here, but let’s give it a try.  These are the best of the last week or so.

1. The Single Stock Mishegas
2. 22 Timeless Lessons
3. Educational Rock Star
4. The Need For Advice Never Goes Away

Hope you enjoy them as much I did.

It’s ironic that I have nothing profound to say for my first post, but that I’ve just spent an hour setting up a website to showcase future posts.