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This week, the S&P 500 made an all-time high (the Nasdaq Composite and Dow Jones Industrial Average did not make all-time highs, but more on that later).  Since the low on October 3rd, we’re up about 7%, which was expected given the historical context expanded upon in on our last blog post, State of the Union.

When overtaking an important price level, generally there needs to be a catalyst to promote a more confident buying environment (this is the fourth time the Dow Jones has attempted to breakout above it’s trend line dating back to January of 2018).

While we expect the rally to continue into year-end, it’s very possible that we see a pullback prior to a more traditional “Santa Claus rally”. As far as sentiment (future expectations) is concerned, the market is overbought. CNN’s Fear and Greed Index topped out at 76 yesterday (classified by them as “extreme greed”) and the 5-day moving average of the put/call ratio (a measure of how many people are buying protection vs. how many people are betting on further advances) is the lowest it’s been since July 29th when we proceeded to go down 7% in the next five trading days.  The classic non-confirmation (when one index makes a high, but it’s not accompanied by the others) is always a signal to watch as well.

While I don’t think we’re going to see that type of downward selling pressure in November, the overall fundamentals of the economy just aren’t setting any records.  For the half of the S&P 500 companies that have reported, earnings growth is down about 1% from last quarter, while on average, revenue has increased slightly.

It may get a little spooky out there for the next few weeks, but just like always it will be Thanksgiving before you know it.

– Adam

 

It’s been awhile since we’ve done a market update, and since we’ve started to notice a little concern creeping into our client communications, it’s a good sign there is some small, yet growing concern.

First, let’s start with some market data to cut through a little bit of the noise as well as some facts about where we are in historical context.

• • Price
    • Since January of 2018 (18 months ago) to last week, the S&P 500 is up 2% (not including dividends).  We are in a sideways market and have been for the better part of two years.  This makes sense fundamentally, as the overall global outlook for growth is now more uncertain than it was 18 months ago.  Whether or not this slowdown will be a natural lull period of the global business cycle, or will lead to a global recession remains to be seen.
    • Since Jan 2018, the Nasdaq 100 (the top 100 largest technology companies) is up 8.5% (not including dividends).  This outperformance vs. the S&P 500 is typical given the risk/reward of higher growth companies.  Something to watch going forward will be whether or not this outperformance persists or if people start selling their high growth companies in favor of more conservative options given the historic underperformance of value stocks over the last 10 years.

• • Sentiment
    • Near-term sentiment in late August had gotten close to the extreme negative levels of December 2018 (CNN’s Fear and Greed Index) where we made a short-term bottom in the stock market.  The bounce from a “fearful” state to a more neutral environment has occurred and was expected.
    • In addition to the Fear and Greed Index (which is a fairly decent contrarian indicator), the cumulative number of stocks advancing vs. the number of stocks declining is currently at an all-time high, while price remains roughly 2% below all-time highs.  This divergence has been historically bullish for stocks.
    • The AAII Sentiment Survey (a survey of “do-it-yourself” investors) data shows that as of last week, just 26.13% of investors felt positive about the stock market, while 42.21% felt negative.  For context, just before the December 2018 bottom, the bullish percentage was 20.9% and the bearish percentage was 48.87%.
    • Ideally, I would like to see negative sentiment increase further, which means the market would likely move down (about 3%-5% lower should do it).  Once everyone is convinced that the world is going to end and overreacts by deviating from their original plan (this means selling out of fear), the seeds are sown for the next advance.  At some point those “marginal buyers” get back into the stock market, and if history is any guide, it’s not at lower prices.

So, what are you supposed to do?

1. 1. If you’re a younger investor and focused on the long-term…all these short-term gyration mean nothing.  In fact, as a younger investor, it’s actually better if the market continues to go lower at the beginning of your financial journey.  It helps boost overall returns when dollar cost averaging over time (here is a Josh Brown interview from 18 months ago in the LA Times discussing this very situation).  The only real danger here is not continuing to save.  It boggles my mind how people (not within 5 years of retirement) get so afraid of events that have historically taken place every decade or so.
   2. If you’re in the “Retirement Redzone”…As your potential retirement date closes in, additional review becomes more and more important.  At some point, the amount of time until you retire becomes short enough to where “stay the course” starts to blend with a bit of a gamble (although it’s all a bit of gamble isn’t it?).  Most of the time, I ask clients, “Given where you want to go, do you want to continue on the same path?”   Sometimes there is no alternative.  But if your choices are between accepting market risk in the medium-term vs. switching to something more conservative, your goals need to be revisited.  Think of this as a stress test.  Because of the perceived inability to “ride out a storm”, risk tolerance and investment objectives need to be weighed carefully and often.  Communication with your advisor is paramount during this period.  If this analysis yields a possible outcome you won’t be able to stomach, you need to lower your exposure to the market.  But if you’re comfortable taking the market risk in exchange for the opportunity to continue to earn a competitive return, make sure you stick with your decision.  We can’t make this individual decision for you, and it’s not an easy one, but we can sure help you look at it from all angles.
   3. If you’re in retirement and taking income from your portfolio…focus on sectors and individual companies that have and will continue to pay solid cash flow and have a track record of doing so for a very long time (dividend aristocrats).  With the prospect of interest rates continuing to go lower, utility stocks, real estate investment trusts (REITs), and defensive sectors (healthcare and consumer staples) are at or near all-time high prices.  This means you’re probably feeling great about your income-heavy portfolio.  This too shall pass.  Make sure your primary focus is consistent cash flow, and try to disregard overall portfolio value fluctuations.  This is easier said than done, and you should be watching closely for any changes in dividend behavior across your portfolio.

The value of a financial advisor comes in the creation of a plan, effectively allocating capital based on that plan, and constantly reviewing it over time, taking into account life’s inevitable surprises.  Regardless of what we believe will happen in the stock market, you need to know what’s possible and mentally prepare for all outcomes.  Being able to stomach negative scenarios is much more important to achieving an overall plan than guessing which sector leads the charge to the next bull market.

– Adam

Along our continuing journey to become better advisors, Adam and I recently discussed whether or not we should start offering “Financial Planning” services to our clients.

In a world where technology has made asset allocation increasingly commoditized, many financial advisors (FAs) have turned to financial planning as a way to increase both service to their clients and revenue for their firm.  FAs pay thousands of dollars to take classes and tests in order to receive a Certified Financial Planner (CFP) designation.  Clients, after providing a more detailed outline of monthly revenues/expenses, assets/liabilities, etc., receive a binder containing his or her financial plan, and with it, the comforting validation they are “on track.”

Over the last few years, Adam and I have met with many local advisors and planners to discuss our industry.  FAs are a chatty bunch and rarely miss an opportunity to inform competitors of their greatness.  Not long ago, we had lunch with the CEO of a well-known advisory firm here in St. Louis. This firm requires all clients to participate in their financial planning, making it the real service they offer, as opposed to asset management.  Out of honest curiosity, I asked how best to judge the quality of a financial plan or planner (Good article on this).  He said the best financial planners were the ones who got the most referrals from their clients.  This was the point in the conversation where my skepticism began to set in.  So, the best financial planners are the best marketers?  That didn’t sit right with me since most can agree the best salesmen aren’t always selling the best product.  Surely there has to be some metric, or is it only after 25 years of working with a CFP you can look back to determine whether or not you received “good planning”?

(Aside:  This skepticism applies to asset managers as well.  The most Assets Under Management (AUM) certainly doesn’t correlate to the best performance, in fact, there is evidence to suggest the opposite.)

We find that investment management and finanical planning dovetail quite a bit, so let’s just address the most common questions clients ask a financial planner.

Question: How do I get started?

Answer: Step one of financial planning is the same for everyone: Take advantage of employer sponsored retirement plans. If possible, max out your 401k; Certainly utilize the maximum match from your employer.  After that, contribute the maximum allowed to a ROTH or Traditional IRA. If you’re doing this and still have extra money accumulating each month, open a non-qualified account or think about a 529 plan if you have children.  

Question: How much money do I need to retire?

Answer: This is not as scary or as complicated as it seems. Just back into the number.  How many gross dollars per month do you think you’ll need when you retire?  $5k per month? $7k per month?  How long do you want to work?  How much is your portfolio worth today?  Using those three numbers, you can determine how much a month or year you should be putting away. Here’s an easy-to-use spreadsheet.

Question:  If I have some extra cash, should I pay down debt or invest the money?

Answer: This is a common question we get all the time.  People feel differently about debt, so the answer varies.  But in general, if your interest rate is lower than your average portfolio return, invest.  If it’s higher, pay off the debt.  Many people just don’t like having debt, so they’d rather pay it off regardless and that’s totally fine.  Personally, I like Dave Ramsey’s Debt Snowball Method for paying off multiple debts over time.  

Question: Based on our household income, how much house can I afford?

Answer:  A simple Google search gets you pretty far down the road.  General rule of thumb is that about 30% of your take home pay should be used for mortgage, taxes and insurance.

I’m not anti-financial planning, just as I’m not anti-asset management.  I’m pro-transparency.  Without question, occasional complex individual needs arise which require the services of multiple professionals.  I just don’t like making a blanket statement and using financial plans as tool for financial advisors to up-sell an existing client base.  I feel it’s disingenuous (and dangerous) to promote a linear relationship between “if I do X, then Y will happen” when it comes to people’s financial life.  Embedded in every financial plan and every portfolio is a myriad of variables that we only know one thing about…they’re wrong.  Realizing that delaying gratification today for an ultimate payoff years down the road is the real value provided by an advisor or financial planner will shape this conversation more accurately.   Knowing the path is different than walking the path.  Having a walking partner along the way is infinitely more valuable than any binder can be.

-Brad

During the late 1970s and early 1980s, a new genre of children’s book came on the scene. They were called Choose Your Own Adventure books, and they were some of my favorites. I didn’t realize it at the time, but I loved the feeling of being in control (shocking, I know) and the anticipation of what would be next when I flipped to page 127 to see if my literary journey would be extended. A few months ago, Netflix even released it’s first “Choose Your Own Adventure” movie, called Black Mirror: Bandersnatch (it’s not great, but worth it for the nostalgia purposes if you were into the books).

As a kid, I would inevitably choose a wrong turn, get frustrated, skip ahead to the last chapter and work my way back. As I got older, I realized the books weren’t about finding the optimal path on the first try, but more about exploring.  The books never really stop you dead in your tracks, they simply send you back to where you made the wrong decision and allow you to choose a different path. While I wish life worked this way, it rarely gives you the ability to atone for a mistake by simply flipping back a couple of pages. The same is true for investing.

At any given point in time there are a laundry list of issues that can cause behavior in the stock market to change.  And when I say “behavior”, I mean cause large amounts of money to deviate from their current course.  For instance, right now, the risk du jour is the trade talks with China. The United States is the greatest consuming engine in the world, and we buy a great many things that are created, produced, or assembled in China.  President’s Trump consistent view of foreign policy has been relatively clear: “What have you done for me, lately?”. The answer when it comes to China is not that much. China steals as much intellectual property as they can get their hands on and has used it over the last 30+ years to propel themselves into the second largest economy in the world. Placing tariffs on Chinese goods will no doubt put a short-term strain on the Chinese and American economies.  This data should start showing itself in late Q3. Whether or not cooler heads will prevail and allow them to come to a mutually-beneficial agreement before then (or before the election) remains to be seen.

We’ve got a massively dysfunctional European Union, a member of which, who literally doesn’t know whether they are coming or going.

We have a ever-growing national debt, a concerted effort from central banks around the world trying desperately to combat the greatest deflationary force in the history of the world (technology), a bit of domestic spending problem (“mandatory spending was roughly 2.5 trillion dollars in 2017…good luck trying to touch social security, medicare, medicaid, or veterans benefits, etc.), an inverted yield curve, and so on and so forth.

If you’d like to dwell on possible negatives outcomes, some of which will affect your investing life, that’s fine. Flip over to the pessimist chapters of the book and keep believing you’ll be on the mountain top during the next Great Depression.

We’ve been entrusted with people’s financial lives and we will continue to stay the course and bet on American ingenuity regardless of stock market fluctuations (which are likely to come soon). If you’d like to bet against that in the short-term, you certainly have the possibility of being right. But to me, it’s just too big of a risk if you’re wrong.

– Adam

Further Reading

Dispassion

The Unsatisfying Certitude of Uncertainty

Writing original content about prudent investing is difficult.  It’s how I imagine the customer service representative at Weight Watchers feels.  Did you add up your points?  Is it less than you were allotted?  Well then just keep doing it and it will work.  As with nutrition, we all know that a well-balanced diet coupled with exercise is a key to staying healthy.  But it’s not knowing what to do that is the problem, it’s doing it.  The problem with making the right choice everyday is that it’s not sustainable.  Everything is okay in moderation, but that includes moderation.  Sometimes after you’ve had a long day at work (or you drank too much because the Blues won the Stanley Cup), you’re heading home, and wouldn’t you know it, there’s a McDonald’s staring at you every four blocks (full disclosure, with two children under 8, I am a monthly active user of MCD).

Financial journalism (CNBC, Bloomberg, Barron’s) is the McDonald’s of investing.  It’s delivered hot and quickly, it’s easy, it tastes good, and you don’t have to think.  The junk is fed to you through so many mediums that it’s almost impossible to ignore.  But, inevitably when laziness takes over and the noise starts to creep in, I try to go back and read a piece from the Wall Street Journal, first published in 2013 by the great Jason Zweig.  I’ll pick out a couple paragraphs, but I would urge you to read the entire article.  Maybe it will help at least one person turn down the volume and forego the investing flavor of the month (the Blizzard of the Month is Brownie Dough, by the way).

I was once asked, at a journalism conference, how I defined my job. I said: My job is to write the exact same thing between 50 and 100 times a year in such a way that neither my editors nor my readers will ever think I am repeating myself.

That’s because good advice rarely changes, while markets change constantly. The temptation to pander is almost irresistible. And while people need good advice, what they want is advice that sounds good.

The advice that sounds the best in the short run is always the most dangerous in the long run. Everyone wants the secret, the key, the roadmap to the primrose path that leads to El Dorado: the magical low-risk, high-return investment that can double your money in no time. Everyone wants to chase the returns of whatever has been hottest and to shun whatever has gone cold. Most financial journalism, like most of Wall Street itself, is dedicated to a basic principle of marketing: When the ducks quack, feed ‘em.

In practice, for most of the media, that requires telling people to buy Internet stocks in 1999 and early 2000; explaining, in 2005 and 2006, how to “flip” houses; in 2008 and 2009, it meant telling people to dump their stocks and even to buy “leveraged inverse” exchange-traded funds that made explosively risky bets against stocks; and ever since 2008, it has meant touting bonds and the “safety trade” like high-dividend-paying stocks and so-called minimum-volatility stocks.

It’s no wonder that, as brilliant research by the psychologist Paul Andreassen showed many years ago, people who receive frequent news updates on their investments earn lower returns than those who get no news. It’s also no wonder that the media has ignored those findings. Not many people care to admit that they spend their careers being part of the problem instead of trying to be part of the solution.

My job, as I see it, is to learn from other people’s mistakes and from my own. Above all, it means trying to save people from themselves. As the founder of security analysis, Benjamin Graham, wrote in The Intelligent Investor in 1949: “The investor’s chief problem – and even his worst enemy – is likely to be himself.”

Full Article Can Be Read Here

Since we’ve gone out on our own, I’ve been asked several times, “How did you come up with the name, Second Level Capital?”  The defensive and sarcastic devil who lives in my head usually wants to say that Goldman Sachs was already taken, but I acquired a bit of restraint in my old age.  We’ve heard hindsight suggestions ranging from Second Tier Capital to Next Level Capital, been rebuked by several snarky friends who said “someone is just going to name themselves Third Level Capital…”, and while we appreciate the constructive criticism, I think we’re going to stick with it.  Here’s why.

Second-level thinking (or second-order thinking) was a term thrust into the mainstream with Howard Marks’ 2012 book, The Most Important Thing.  To me, the easiest way to think about second-level thinking is to ask yourself, “and then what?”.  Marks does a more eloquent job and writes,

“First-level thinking is simplistic and superficial, and just about everyone can do it (a bad sign for anything involving an attempt at superiority). All the first-level thinker needs is an opinion about the future, as in “The outlook for the company is favorable, meaning the stock will go up.” Second-level thinking is deep, complex and convoluted.”

For example, most people believe that interest rates will rise.  I don’t think most people believe they will go up in a straight line, but if you asked 100 people if they thought interest rates would be higher in five years, most would say yes.  I would also venture a guess that five years ago, people would have said the same thing.  But wouldn’t you know it, the 10-year Treasury yield in May of 2014 was 2.57%…and today, it’s 2.41% (ironically, still some of the highest interest rates in the developed world).  It’s important to remember, especially on days like today, that stocks average approximately 7% per year over any extended period of time.  If we assume that the risk-free rate of interest stays near 2.41% for the next five years, the choice of where to put your money is an easy decision.  Until interest rates start going up (IF they do), I’m going to agree with Warren Buffett, who said just last week that “stocks are ridiculously cheap”…if you believe interest rates will stay lower for longer.

Starting this venture, we envisioned creating something that would be a bit different and shine a light on some of the pitfalls of poor investment management, but as we sit here 4.8% off all-time highs in the S&P 500, I’ve started to realize that it’s not only from an asset-allocation standpoint where we’ve added value, it’s with people.  The second-level thinking comes out quite a bit during the planning process, where we are forced to create a first-level negative (delaying consumption, making IRA contributions, saving for the future) that eventually turns into a second-level positive.  Wait, I give you money now instead of buying a nicer car?!?  And then what?!?  Oh, I get to retire eventually…yeah that actually sounds nice.

Several clients in the fourth quarter of last year asked about trimming their stock holdings as the market fell 20% in three months.  For most people, we said what we always do, “it’s your money and at the end of day if you want to do something it’s your choice…but assuming we do sell some equities, then what?”  Most people never get to the second level in their mind because so many decisions are based in emotion.  And because the arbitraging of fear and greed are the only true ways to invest for the long-run, we’ll be here to make sure you don’t do something for the wrong reasons.  I hope that people recognize what goes into your investment management decisions and how knowing is just half the battle…it’s what you’re really getting from quality trusted advisors.

– Adam

Now is an exciting time at Second Level Capital.  Exciting because we hold our destiny in our own hands.  By exciting, I mean terrifying, but hopefully this feeling will go away in 10 or 15 years.

Over the last few months, we’ve been fortunate to connect with a multitude of professionals from a variety of industries; accounting, banking, real estate. Adam and I encounter the same two questions from most everyone: What’s our minimum to start investing, and what are we doing to get new clients? The former is for a different post, but the latter is on my mind today.

The pressure to grow rests on our shoulders everyday. We know a couple things:

1. We want to grow, which requires meeting people. (Maybe I should look up local networking events or join a chamber or volunteer for something. But I shouldn’t do those things with the ulterior motive of getting new clients.  I must be the first person to think of this idea.)
2. Perhaps real growth happens organically, so I should focus on existing clients and those relationships. (Is this just lazy? Are these two things mutually exclusive?  We are constantly talking about making ourselves better so maybe I should read something to increase my knowledge instead.)
3. Advertising and marketing work.  We need a bigger social media presence.  (Should we be spending our money on this?  Does this even work?  Are people even reading this blog?)

The crazy crank inside my head gets turning pretty quickly and I start to feel like Nick Cage’s character in Adaptation.

I feel like I should be DOING something to speed up the process.  I just can’t figure out the best way to approach it.

This must be the feeling many investors encounter when looking at their own portfolio. With countless ever changing variables, surely something can be done to juice returns, but what? Sell Boeing? Buy Boeing? Buy China? Sell China? Buy Cannabis? Sell Cannabis? Maybe I’ll call Adam and Brad and see what they think.  Then you hear the same thing from us: do nothing, stay the course, blah blah blah.

The pressure to do something stems from the fear of missing out. “If I had just done this, then my portfolio would be worth that.”  Recently, it was the 33rd anniversary of Microsoft’s IPO and CNBC reported a $1,000 investment in 1986 would be worth $1.3M today. This type of information doesn’t help investors invest prudently, it glosses over concentration risk as if it doesn’t exist.

Obviously meeting people, gaining referrals from existing clients, and networking are vital to growing our business.  Rebalancing and consistent contributions are vital to growing your portfolio and reaching your financial goals.  As a firm, we’ve decided to take some of our own advice.  Taking care of our clients will always be our primary objective, and while we won’t be resting on our laurels, perhaps thinking too much isn’t helping our long-term growth.

Do you think it’s a possibility that just being trustworthy, experienced, and focused on long-term goals could be the key to this entire business?  We’ll see…

-Brad

 

I used to catch myself saying this ridiculous phrase all the time. Whenever an opportunity had passed, I’d drop this in conversation like the future was abundantly apparent, or only a fool couldn’t have seen how great an opportunity it was. Yesterday the S&P 500 closed at 2805, and unless something drastic happens tomorrow, it will be a stellar first quarter from an investment return standpoint.  Not to throw a wet blanket on a great quarter (or conversely put lipstick on a pig of a Q4 from 2018), but the closing price on January 17th, 2018 (yes over 14 months ago) was 2807. In the last 14 months, the S&P 500 is down 2 points. If any of you watch CNBC, one of my all-time favorite curmudgeons, Art Cashin, is fond of saying, “today was a waste of a clean shirt and cab fare”.  As I look at long-term price charts, not much has changed.

Coming to the realization that we’re in a sideways market should temper your expectations, but more importantly, you should realize that the lack of meaningful price movement over an extended period of time allows the market to catch its breath and sow the seeds for the next advance.  Of course, no one knows whether we will have a decline first.  Also, being down 10% last December sure felt meaningful, didn’t it?  But it wasn’t.  It was a normal ebb and flow that you are required to tolerate, in exchange for the eventual payoff of higher future returns.

We don’t do victory laps around here by patting ourselves on the back when we’re right about staying the course during this last market spasm. That’s because there is no easy money. It’s never easy, it never has been, and it never will be.

– Adam

Diversification Isn’t Sexy – Blair Duquesnay of Ritholtz Wealth Management writes about what diversification is NOT, and the advancements over the last 20-30 years in the investment management industry.

We All Make Mistakes – “We all make mistakes.  The trick is to make them when they matter the least.”

“If you keep investing simple and make it understandable, you’ll lose half your audience, who assume success lies in their own befuddlement” – Jonathan Clements.

“The trouble with the world is that the stupid are cocksure and the intelligent are full of doubt.” – Bertrand Russell (I’m positive this one is right…)

On Wednesday, the 10-year anniversary of the March 2009 low in the stock market and the unofficial turning point of the global financial crisis will be upon us.  Ten years later the ramifications continue to be felt.  The US Government has (supposedly) put in place additional economic safeguards so “too big to fail” institutions never again threaten the global financial system.  It’s my opinion that you can’t legislate greed from any system, but that’s for a different post…

For those investors who were lucky enough to finally start making some real money during the economic expansion of the 1990s, the stock market only compounded those gains.  But by the end of the decade, fundamental analysis gave way to “potential earnings”, “buzz”, and “eyeballs” (note this is not dissimilar from the notion of MAUs, or monthly active users paraded by Twitter, Snapchat, and Facebook).  Novice investors felt the toxic blend of irrational exuberance and fear of missing out (FOMO).  With no end in sight, the technology market finally crashed in 2000, which eventually took down the entire equity markets almost 50%.  From 1998 to now, it is historically one of the worst 20 year periods in US history.  To make things worse, just as investors were starting to believe the next wave of expansion was upon us, another economic decline came to decimate their portfolios (and in some cases, their lives) in 2008.  Some of these investors never made it back to the stock market.

As I look back on my own experience during March of 2009, I have come to think of it as typical. I was part of a large generation that still couldn’t figure out what to be called (Gen Y was too easy, I guess).  I had been in the financial business for a couple years but this time period certainly had an effect on me personally and as a future advisor.  Those feelings of helplessness, fear, and anxiety became the future optimistic foundation for Second Level Capital, although I didn’t know it at the time.  The stock market had made a low three days prior, but upon waking up March 9th, it should didn’t feel like that was going to be THE low.   Pre-market futures were “limit down”.  Sellers had overwhelmed the system to the point where it was no longer allowing selling until US trading hours began.  Credit markets had been effectively frozen for months.  100+ year old institutions vanished into the history books.  Caterpillar was having trouble making payroll and the banks were on their way to being nationalized.  The average investor looking for help (even from a relative rookie) was down between 40%-60%, while the Oracle of Omaha’s holding company, Berkshire Hathaway, had fallen from 100 to 45 (so much for all those great investing quotes).  I remember thinking that maybe it really WAS the end of the world as I had known it.  After all, the Japanese stock market (a favorite example for doomsday soothsayers) had fallen 80% since 1989.

But without warning, the skies started to clear.  By the end of the month, the S&P 500 would be up 25% from the bottom.  By the end of 2009, the market had almost doubled from its low.  When looking back, it’s not how high we’ve gone that surprises me (after all I think the Dow Jones will be over 100K in the next 25 years), but the lack of volatility.  Sure, there were 15%+ declines in 2010, 2011, 2015, and 2018 (which all felt like the next BIG one was about to come), but only one of these years even finished down more than 1%.  This has undoubtedly been one of the greatest 10-year periods for stock market investors.  On a total return basis (including dividends), the S&P 500 is up over 400% since that fateful day in early March.

With the dichotomy between last two decades, what do we think the next 10 years will bring?  To be honest, we have no clue.  But we’ve seen some major extremes over these last two decades, so whatever it brings, we’ll be here to guide you through.

– Adam

• The Easiest Retirement Choice – The importance of staying fully invested in stocks with a long-term time horizon, assuming you don’t want to run out of money when you retire.
• Where Big Leaps Happen – A healthy life requires diet and exercise, but when combined they become greater than the sum of their parts.  Same as investing.

“Any man who claims to know what the market is going to do any more than to say that he thinks this or that will occur as a result of certain specified conditions is unworthy of trust as a broker.” – Charles Dow

After the worst December since 1932, the US equity markets turned in the best January since 1987 (isn’t that the year the market crashed 22% in one day?!?).  The market was massively oversold (only 6 stocks in the S&P 500 were above their 50 day moving average).  Per our previous blog posts, this condition was both emblematic of an increasingly volatile trading environment, as well as a short-term opportunity.  I’m reminded of a twist on a Mark Twain quote that states, “a pound of facts is worth an ounce of emotion”.

Since mid-December, the Federal Reserve has increased their subdued and patient language, while the stock market has continued to applaud the myriad of tweets coming out of the Trump administration about how great things are going with China trade talks.  While our opinion remains the same and we see no reason at the moment to deviate from our current asset allocation models, the speed of the decline in Q4 2018 as well as the speed of the advance in Q1 2019 are a bit disconcerting.  As always, we will let price be our guide (not pundits or tweets or conjecture), but remain cautiously optimistic for the medium and long-term.  Currently the S&P 500 is up 9% which would be a fantastic return for an entire year.  The deciding factor for the next leg of the market will be dependent on skepticism of the rally remaining (bullish for the market), or overconfidence creeping into our minds (bearish for the market).

The beginning of each quarter is always especially busy for us in terms of reporting and connecting with each client, so we’ve been a bit behind on our reading recommendations.  For those of you who enjoy diving further down the rabbit hole (both of you), see below.

• The Biggest Returns
• In or Out?
• Diversification is (almost) Undefeated
• Beware The Gatekeeper

– Adam