“Money is only a tool. It will take you wherever you wish, but it will not
replace you as the driver.” -Ayn Rand
From a horrendous 4th quarter in 2018, to a complete 180 in merely the first month of 2019 it’s still important to keep your sights on the big picture.
It’s easy to be optimistic when the market is going up. It’s harder when the market is going down and all those reporters on TV are giving you all the reasons to be negative. That’s why we have to look at the underlying valuations, the underlying data, the money flow, the money velocity, the corporate earnings to look at what’s the real truth here. What’s the true story?
Watch my video and/or read the transcript. It’s a quick one, under 5 minutes and I continue to illustrate why it’s critical to keep your emotions in check.
Mike Brady with Generosity Wealth Management, a comprehensive, full-service financial services firm headquartered right here in Boulder, Colorado. Recording this on Wednesday, January 30. It was right here a month ago that I recorded my year end video and at that time I was talking about what a horrendous December and fourth quarter of 2018 we had. I talked about how 2017 had very little volatility and was strongly up for the unmanaged stock market indexes. In contrast it was followed by 2018 which had all kinds of volatility and was negative with, well the fourth quarter in December really going downward very sharply with huge volatility.
1 Year DJIA
So far in 2019 the month of January has shown another reversal. What great examples that every year is different. I’m going to show you a graph that shows the last 12 months and what you’ll see is so far this year we’ve made back much of what we lost in December and the fourth quarter of last year.
5 Year DJIA
It is important to have a diversified portfolio. It is important to keep the big picture, the long view in mind. Here is a five year graph and you can start to see how one year is not the entire picture. It’s just one piece of the puzzle. And if you only look at the one piece of the puzzle it doesn’t really make sense. Like a mosaic you have to step back and have some perspective for how the pieces, how the years add up toward reaching your 5, 10, 20 year goals.
If you’re older in life you might say wait a second, I don’t have a long view. No, even if you’re retired you don’t want to outlive your money. So whether you’re in the accumulation phase or whether the withdrawal phase of your life with your portfolio having 5, 10 and 20 year points of view is very important.
I believe that there continue to be reasons to be optimistic. It’s easy to be optimistic when the market is going up. It’s harder when the market is going down and all those reporters on TV are giving you all the reasons to be negative. That’s why we have to look at the underlying valuations, the underlying data, the money flow, the money velocity, the corporate earnings to look at what’s the real truth here. What’s the true story?
Let’s say that I am wrong. Let’s say that we continue in the unmanaged stock market indexes to have downward and maybe more volatility as well. That’s the reason why we have diversified portfolios which doesn’t guarantee against losses in declining markets. That’s why we have though a long term view.
So what I would say is let’s get out of our own way. Let’s keep our emotions in check. The mind has a tendency to have a bias toward making patterns where there might not be a bias. We lay on the grass on a nice summer day, look up at the clouds and we’re finding hey, there’s a dog, there’s a building, there’s this famous person right there in the clouds and we are certain that’s what it looks like when, in fact, our mind is creating patterns where there is no pattern. Let’s not do the same thing in other areas of our lives including our portfolios and in the markets.
Mike Brady, Generosity Wealth Management, 303-747-6455. Call me at any time. I’m here to talk about how this is relevant to what you’re doing in your specific financial goals. Here at any time. Thank you. Bye bye.
Hi there, Mike Brady with Generosity Wealth Management; a comprehensive financial firm right here in Boulder Colorado. So I’m recording this on the morning of December 24, Christmas Eve. I want to talk about what happened last week the week before Christmas and frankly this entire year because this is going to be a trifecta when we look at negative stock market probably for 2018, unless there’s some miracle in the next couple of days with the unmanaged stock market indexes. Same thing with the indexes for the bond markets and for the international markets in general, kind of your developed market international. It’s kind of a trifecta everywhere things were negative for 2018.
I think it’s very natural for people to say why, why did this happen? And just like 2017, which was a very, very good year, people assume that it will continue. Many people thought okay great, 2018 is going to continue just like 2017. That was wrong. 2018 does not mean that 2019 will be negative, it just doesn’t work that way. As a matter of fact going back historically one out of every four years is negative and yes sometimes when the stock market is down the bond market is down as well. That does happen. But the way I like to think of it, and I did this great video, which I might provide a link to, where I say that life is more like poker than it is chess, you’ve got to make sure you get the right lessons from it. Chess is completely strategic, you know, X leads to Y I mean that just is it. At the end of the day the better player will always win at the conclusion of a chess game. Poker is not that way there’s an element of things outside of our control.
The reason why I bring that up is we’ve got to have the right lesson. Just because things are negative doesn’t mean that there was either a mistake or that we should change our particular strategy. If you go through a red light and you’re not hit by another car that doesn’t mean that going through red lights is good. Or if you go through a green light and you are hit doesn’t mean that going through green lights is bad. It just doesn’t work that way. And so when we look at the long-term we have to make sure that we don’t make short-term decisions based on long-term goals. That’s very, very keen. As a matter of fact that’s one of the mistakes that investors have a tendency to make is they let their emotions, I’ve already acknowledged that being scared and disappointed is a very natural thing; we’re emotional human beings. The question is what do we do with it from there? Do we act on those things or do we say I created a plan that allows me to stick with it knowing that there will be highs and that there will be lows. And I believe that there will be more highs than there will be lows and over time historically diversified portfolios. Not those in just one sector like technology, not those just in emerging markets or some place very non-diversified, but in a diversified market historically that has been the case.
When we look back at diversified portfolio going all the way back to 1950 of 50 percent stock market index 50 percent bonds, there’s actually never been a five-year time horizon where we haven’t at least broken even or made just a little bit of money. I’m going to put that chart up there on the screen so that you can see it for yourself. Have there been one, two and three years? Absolutely. As a matter of fact just in the last 15 years we’ve had a couple of those, we’ve had 2000, 2001 and 2002; those years were negative for the stock market followed by a very nice 2004, ‘05, ’06. And then in 2008 it went down again. Very painful. If you had a diversified portfolio your break even was two to three years. These things do happen. These things are things that are hard to see and people who say well I saw it and it was so obvious and maybe even they say I moved to cash because I knew it was going to happen, my experience over the last 27 almost 28 years is those people who say that probably moved out a little too early and they don’t get back in. Yes they might feel all good and all happy with themselves that they moved out, but the better strategy, as I see it, is to stick with the strategy that you have, which was for a long-term. If you need the money next month that’s a problem, you shouldn’t have investments to begin with. However, we look at our life like a business and we have to make decisions, not emotionally, as it relates to things as well.
I’m always here. Mike Brady; Generositywealth.com. Please go and watch some of my other videos. I’m going to provide some links to them as well, but Generositywealth.com; Mike Brady; 303-747-6455. Hope you had a wonderful Christmas. You’re probably receiving this after Christmas to a happy new year. Thank you. Bye bye.
“The big picture doesn’t just come from distance; it also comes from time.” – Simon Sinek
When we look at the news, when we look at the markets we might get all worked up. We might have the same perception that everything is going down the tube, particularly when it might happen to us, but I’m here to remind you to stay calm and remember the big picture.
Hi There. Mike Brady with Generosity Wealth Management; a comprehensive full service financial services firm headquarters right here in Boulder Colorado. So I want to talk a little bit about non-market stuff first, but it is relevant and I think you’ll find it interesting. With all the news about handgun violence in Chicago or mass shootings, if you were to ask most people are we in a more violent America today than we were 25 or 30 years ago? I’m going to make a statement that most people would say yes. But the reality is that’s just not true.
I’m going to put a chart up there and you’re going to see that one of the biggest successes that we’ve had over the last 20 or 30 years is our decrease in violent crime. And, of course, we want it down to zero don’t get me wrong, but that is one of the trends that has been kind of missed when you’re watching news on a daily basis. What about property crime? Are you more susceptible to property crime? Actually no. I’m going to put a chart up there on the screen and you’re going to see that same kind of a trend, we actually are living in a less violent America than we were 25 years ago than we are today, even though you might not feel it. Property crime is the same type of thing, you’re actually safer and your valuables, et cetera, than you were 25 or 30 years ago, even though you might not feel it. And I would say when it happens to you it certainly becomes personal and it certainly doesn’t feel like when I throw a chart up there you’re like wait a second, but I was impacted dramatically by it on a personal basis.
The reason why I bring this up is when we look at the news, when we look at the markets we might get all worked up, we might have the same perception that everything is going down the tube, particularly when it might happen to us, we’re like oh my gosh I used to have X amount and now I have a little bit less from whatever point that you particularly pick. And many times I would say that you pick a point that’s pretty short. You have long-term goals yet you pick a point, a high point, that’s short-term, which in my mind makes no sense.
Remember 2017? It was just a year ago. Market went up pretty much, the unmanaged stock market indexes went up almost every week and pretty much every single month and if you were invested in that most people saw a portfolio that went up that way as well. If you look back at my videos 10/11 months ago I would say that’s real unique. That’s the exception, not the norm. So you might say wow the market has gone down spectacularly in the last couple of weeks. It’s been very volatile this year. My answer would be yes it has. Yes that’s true and if you need the money next month that might be a problem. Of course right now as I’m recording this on a Monday morning we’re right back, at least from a Dow, the unmanaged stock market index, is back to where it was maybe 12 months ago. Definitely up for where it was two years ago, definitely up from where it was five and ten years ago. The future could be different. I think that’s what people are always worried about they’re like wait a second is this a new trend? It’s different this time. I don’t know how many times in the last 27 years I’ve heard that it’s different this time and every reason for why it’s different seems to be different. That’s the only thing that changes, and then it’s not.
So what I would say is when the market goes up, an unmanaged stock market index just for illustrative purposes, 100 points over four days or over two weeks let’s say and then gives up 300 or 400 in one day, only one of them gets the news. So far this year we are negative 2018 and I don’t know where the year is going to end. That’s actually kind of the big mystery for this year, what’s going to happen between today and the end of the year? But the end of the year is just one point, I mean that’s the one interesting point is that if decisions are made based on an arbitrary date on a long-term vision that you have for yourself that makes absolutely no sense to me.
Three out of four years historically have been positive, which means one out of four have been a negative. And being a few percent negative causes someone to change a long-term strategy, you’re going to be worse off for it. That would be my opinion going forward. You don’t know the future and I don’t know the future. The only thing that really changes when the market goes real volatile or goes down is that everybody seems to know on the news exactly what’s going to happen. All of a sudden the confidence level that everything is horrible and crappy just went up by two or maybe three. And of course, the people coming out saying I knew it all along comes out as well, which of course is ridiculous. I’m sorry that’s the reason why I personally don’t watch CNBC or some of the other news programs because when have you ever turned on the news, the local news and said everything is okay, everything is great. Wow, things are going just fine. That just doesn’t work that way. In order to be successful you have to understand that long-term the market has gone up, long-term diversified portfolios have gone up even though the future could be different. If you’re not willing to take some risk in a down year, in this year if it’s going to be down a few percent that’s part of the game. We’ve talked about this if you go back every year I’ve been doing videos for ten years now, almost 200 of them, it’s always the three steps forward two steps back and if you focus on the two steps back then you’re never going to have the three steps forward. That’s just the way investing works.
Am I rattled by all this? No. Should a strategy change the market – I’m going to move this over just a little bit because the sun is hitting my eyes. When the market first hit 24,000 and it went up to 26 and now it’s back down to 24,000 the unmanaged stock market index, did you change your strategy? No. Did you change it when it first hit 24? No. What I have seen over the last couple of years, my goodness why am I saying that, over the last 27 years, when the market hit 20,000 people were like well it’s obviously at a top. And then it went up to 22 and people were like well it’s obviously pretty toppy, pretty much at a high, that’s obvious. That was a year and a half ago. Then it went up to 23, 24, 25, 26, 26 and a half and now it’s back at 24, now it’s in the 23 for the unmanaged stock market indexes.
If you bought at 26, great, that’s not so great. But the reason why you bought it is you assume, and history has shown, that in the long-term it’s higher, the long-term being three, four, five, six years. However, if you bought it at 20, 15, 16, you know what, that’s why you have long-term. And long-term where was it? It was just a few years ago; we’re not talking decades ago. So you’ve got to keep the big picture in mind, particularly when you’re looking. I’m going to throw up on the chart there what it looks like. That’s what its looked like over a one, a two, a five and a ten-year time horizon. If you only focus on the short-term like a mosaic real close to your face, you’re never going to see the big picture. It does become personal. It does become personal when it’s your portfolio, that’s why you have to perhaps be even more cool and listen to maybe someone like me who is saying don’t listen to the guy on the news because he’s going to try to get you excitable. Is it exciting to go to the barbecue and have everyone say yeah everything’s great? No. People are either fearful or they’re greedy. When the market is going up all they want to do is talk about their winners. When it’s going down it’s oh my God everything is horrible. Who can I blame for this horribleness? Don’t fall into that trap. That’s all I have to say.
I’m always here if you need to talk with me. 303–747–6455; Mike Brady; Generosity Wealth Management. Bye bye.
“Never cut a tree down in the wintertime. Never make a negative decision in the low time. Never make your most important decisions when you are in your worst moods. Wait. Be patient. The storm will pass. The spring will come.” – Robert H. Schuller
In response to the recent Dow drop of 1200 points I address recency bias and why it is critical to remain cool as a cucumber in regards to your investment strategy. Piggybacking off my 2018 3rd Quarter Review, I feel it is important to reiterate that it is not a great idea to make short-term changes on a long-term strategy, here’s why:
Hi there. Mike Brady with Generosity Wealth Management; a comprehensive full-service financial services firm at headquartered right here in Boulder Colorado, although I’m recording this video from our cabin in Wyoming. Hopefully you had a wonderful 4th of July, maybe you took the whole week off. I came up here for the whole week it’s kind of an annual tradition and it allows need to get some business projects done, but even more importantly to get away from the hustle and bustle of the daily life, get my emotions in check, which is of course one of my big recommendations for my clients and for investor.
I’m going to cut right to the chase of today’s video because it’s going to be a mid year report, but the fundamentals of investing and being successful in my opinion have stayed the same, which is to stay diversified, be long-term and keep your emotions in check. That’s one of the fundamentals and I just think that that’s absolutely important.
Today I do want to talk about what’s happened so far and talk about the reasons for being optimistic or pessimistic for the rest of this year. Nobody knows the future. I certainly don’t so this is my analysis so this is one of the reasons why those three that I brought to you, be diversified, long-term, keep your emotions in check are so very important because when someone says they know absolutely what’s going to happen, the impact of this policy or that policy they know exactly what’s going to happen they’re lying to themselves, they’re lying to you and so I don’t think that anyone is well served by that particular approach. So here so far this year the market was up pretty dramatically in January, continuation of low volatility and good market in 2017 coming into 2018; February and March very difficult. And then the second quarter recovered as some of that, but really was really more in general in the unmanaged stock market indexes and bond indexes basically a flat year so far. Plus or minus a couple percent in my mind is flat.
I’m going to throw a chart up on the screen where you’re going to see is we’re in a consolidation period. The markets go up, down and sideways and so far this year it’s a sideways. It’s always irritating to have; everybody wants the up with no volatility and that’s just not the world that we live in. What we’re seeing right now is a time where patients makes a lot of sense. Those are the people who are rewarded long-term and so remember that as you look at your particular investments and your particular approach.
Now, I’m going to put a number of charts up on the screen and I’m going to talk about some of the reasons to be optimistic, some of the reasons that things could look very good. So let’s go through them. The first one is strong U.S. economy and that’s shown a really above average pace with tax cuts, higher government spending, ultra low unemployment rate, the biggest increase in business investments in years, we’ve had an earnings per share that’s very high and the Fed is normalizing monetary policy, and the last is equity valuations are not as pricey as they were just a couple of years ago. And so this is a good reason to be optimistic and in my opinion, I’m not going to lie to you, the pros outweigh the cons. Here are some of the cons: The price of the oil is back up high in the last year or two; it’s around $75 for a barrel. However, I will also put it into context that it is where it was three years ago and lower where it was four years ago and I don’t remember the stock market being horrible during that time frame. Always up and down that’s just part of the deal, but it is not a travesty. Excessive fiscal stimulus in a full economy could lead to an overheat. Got it. And then the third is the tariffs, which I want to talk about here today.
Tariffs over the last number of administrations they have talked about how the barrier to entry, some of the costs of doing business with other countries is greater than it is here. It’s easier for people to import it into the United States than it is for us to export to other countries. That’s what the tariff discussion is all about. So the discussion is out there, has been out there for a long time, the question is what do you do with it? So one of the reasons why, and I’ll jump to the conclusion on this too, while it’s an irritation it’s a wrench into all of the pros that I just brought up it’s not necessarily a deal killer and the U.S. could actually win on it. Some people say they know absolutely this is horrible for the U.S. or they say it’s absolutely horrible for other countries. The bet that President Trump is making is that others will blink before the U.S. will or before he will. And so one of the reasons why that might be the case is the reliance that other countries that we have had these discussions with and imposed some tariffs on are much more vulnerable than we are. Their stock markets are not doing as well as ours are and their economies are not doing as well as ours. We are the strongest out of all those that we have imposed these tariffs on. Our exports are 12 percent of our economy, whereas in China it’s 20 percent, in Canada it’s 1/3 and in Germany it’s 50 percent. They’re much more reliant on exports to us and to other countries as we are exporting to others. So we only do 12 percent of our economy is based on exports from the United States because we have such a big country, we have such a vibrant interstate commerce from city to city state to state that we are less vulnerable than many other countries.
And so that’s why when I weigh something negative like the tariff discussion and wars against all of the positive it’s the net still going towards the positives than it is on the negative. If you’re only focused on the negative, sorry you’re going to be very disappointed and of course you’re quite dark about that. I on the other hand want to balance both of them and that’s why I’ve come out net on the positive. So I’m optimistic for the rest of this year. I’m not making any changes wholesale in client portfolios, in my discussions with clients, et cetera. Sticking with those particular fundamentals it’s served us well the first half of the year, I think it’s going to serve us well the second half as well. Be diversified long-term, be cool, cool as a cucumber.
Mike Brady; Generosity Wealth Management; 303-747-6455. Give me a call at anytime. Thanks. Bye bye.
“Our greatest glory is not in never failing, but in rising every time we fall”
The last few days have seen lots of headlines and news about the markets, and you may be wondering what this all means.
History has shown that investors are rewarded for steady nerves and long term vision. If you’;re in your 60s and 70s, hopefully you still have many years in front of you, so your vision should be long term.
Volatility is normal, and the low volatility we’ve seen in the past few years is the exception, not the norm!
Click on the special video for my up to date thoughts.