U.S. Stocks were positive 73% of the time

U.S. Stocks were positive 73% of the time

pozWith an unmanaged stock market index going back to 1926, 73% of the time U.S. Stocks were positive. When you add in the “slightly negative” column of declines from 0 to 10%, that adds up to about 87% positive or slightly negative.

The future could absolutely be different, and you have to ensure it fits with your individual goals.

Do You Have an Investor or Trader Mindset

Do You Have an Investor or Trader Mindset

The last month has been interesting to say the least.  This is a wonderful time to ask yourself

Are you an Investor or a Trader?

The mindsets are completely different, leading to different behaviors, and different outcomes.

I ask this question in my video this month, talk about the differences, and let you decide by the end which of the two you are.

So, what do you think?  Are you an Investor or a Trader?

Click on the video

Transcript:

Hi there.  Mike Brady with Generosity Wealth Management, a comprehensive, full service financial firm here in Boulder, Colorado. Today I’m going to ask the question and by the end of the video hopefully you’ll answer it for yourself.  Do you have the mindset of an investor or as a trader?  Because they are two different mindsets.  An investor is long term, a trader is short term.

Let me talk about a few things in order to help you answer that question.  When I talk with people – when the market goes down and I talk with people and perhaps I hear some trepidation, some concern, some worry, I think unconsciously they’re worried about losing everything.  Their hard earned savings all gone.  They go from having money to nothing.  Unconsciously even if they don’t even know it themselves that’s what’s going through their heads.

Let’s talk about some situations on TV or in the newspaper that you’ve heard about where that has happened because that does happen periodically.  First off it’s usually a sweet lady or a sweet couple, okay.  And they’ve invested everything into maybe a single stock.  They’re completely undiversified.  And many times that might be something that is exotic.  They invested everything in some gold that maybe their brother-in-law or their son-in-law convinced them to buy.  Or maybe it went all into one sector like technology or Internet.  Or maybe they bought something like coins and then they lost it all and they found out that it was a scam.  Many times included in this story is non-liquid.  Maybe they bought into a shopping mall and that shopping mall, you know, come to find out is filled with asbestos or something bad and they lost everything.  Or it was some kind of a private investment that went belly up.  And so I think that these are some of the most common themes when you see people lose it all on TV or when you hear about that.

So therefore let’s talk about that.  What are the lessons from it?  One, hey if you’re a sweet lady and couple you can stay that.  That’s cool okay.  But all the others we can avoid, okay.  Let’s not go into individual stocks.  I am a firm believer in diversification and while we’re in a general decline market diversification does not guarantee against losses, okay.  That’s one of the disclaimers we have and it’s true.  I’m going to talk about why diversification does make sense.

You shouldn’t go into things that are exotic, okay, in my opinion.  Gold and tech and coins and things of that nature.  Instead invest in those things that are the market.  I talk about the general stock market and the general bond market whatever that mix might be for you specifically in your situation.  And I believe that liquidity is very important.  And understanding that when you are illiquid if it turns against you you can’t get out of it.  And so knowing what your liquidity is and how quickly you can convert to cash if you feel that you’ve erred in our choice of those things.

So one of the other things that I think people do is they feel that the market is linear, okay.  And when I mean linear that’s, of course, means a straight line.  And it just doesn’t work that way.  When a market has gone down five percent it does not mean it’s going to continue to go down another five percent.  You can’t annualize.  You can’t take a short time and make it a big time.  And, of course, the reverse is the same thing.  You can’t take well the market went up five percent so therefore it’s going to end in a year at 10 percent of 15.  You just can’t do that.  Just because it went up doesn’t mean it will continue.  Just because it went down doesn’t mean it will continue.  As a matter of fact, the market has a tendency and I’m going to show a graph later on to go up and go down.  And so therefore if you believe that Point A is here and Point B is here, okay, further out then it’s going to be wavy along the way.  And so the higher it goes the sooner it is to a downturn.  And the sooner it is when it’s going down the sooner it is to an upswing.  So that mentality I think is very, very important.

But let’s pretend like what we’re seeing right now is 2008 again.  Let’s pretend like that’s the situation, okay.  I’m going to put up on the screen there a graph and I’m going to try to highlight it, make it really big.  But if you had invested in the S&P the highest point.  You had three different portfolios there, a 60 percent stock and bond or a 40 percent bond and stock or a 100 percent stock market index the S&P 500.  You invested spectacularly in October of 2007 at the worst time.  And you went through the decline of 2008 which was the worst decline in the S&P 500 going back except for the early 1930s, okay.  So it was the absolute worst and definitely in our lifetime, for most of our lifetimes.

And so two year breakeven on a 40-60 split.  You know you had absolutely horrible timing or you invested and then you gave some of that up, some of those gains.  Two years later you broke even, okay.  Okay.  I mean if your time horizon is two years you shouldn’t have any investments in my opinion except for cash or extremely short term instruments of some type – CDs, whatever it might be.  But even if you’re retiring today or you just retired hopefully your time horizon is many decades.  I’m hoping you’re not dying in two years or three years or four years.  None of us know of course the future but hopefully we are going to have many many years, okay.  And so that is very important.

If you had a 60 percent S&P 500 and a 40 percent bond index your breakeven was three years.  I mean that’s on the worst in our time, okay.  I’m going to put up on a chart there the time, diversification and volatility of returns.  You’ve seen this before if you’ve paid attention to my videos which I certainly hope you have.  And so at the first band of bars is one year, second is five years, third is 10 years and then 20, okay.  And so the first bar is 100 percent stock market index.  The second one is 100 percent bond index and that kind of ugly brown is a split of 50-50 stock and bonds.

So what you’re going to see is going back to 1950 – 1950, okay.  That’s 50, 60, 64 years, 65 years, okay.  We just finished a year.  Sixty-five years of returns a diversified portfolio of stocks and bonds squished together like that.  The worst that you’ve done – the worst – not the best, the worst is one percent on average per year.  And you can see from that previous chart that sometimes there are years where you’re negative, okay.  I mean you are not entitled to positive returns every year when you are invested hoping to get good positive returns over a long time horizon.  That is part of the deal.  If your time horizon is very short well that might be different.  You’ve got to consider why the heck am I in some stocks and bonds if I need this money in a very short amount of time.

As you go out 10 years and 20 years the same, you know, has it normalizing.  It continues to go – the absolute worst is making a couple percent a year on average, okay.  That’s the worst.  And the best is of course much better.  This includes that 2008 timeframe.  This includes the tech bubble.  This includes 1987.  This includes the 1970s which were pretty horrible.  I was alive in the 70s but I was a young kid.  I’m 47 so – almost 47, okay.  This week.  Send me a birthday card.

So I want to show a graph right there.  You see it up on your screen.  This is going back to 1926 and this includes the Great Depression.  This includes the great recession, okay, of 2008.  And what you’re going to see is 73 percent of the time we had positive years.  Three out of four, okay.  And then when we add in that one bar there of zero to 10 percent this is how the year ended by the way.  Almost nine out of ten years are positive.  Not 100 percent.  You can see on the left hand side one and two years, you know, out of 89 years were the really bad ones that we really, really hate – negative 30 and 40 and 50 and 60.  Oh, those are horrible.  We hate those.  But they’re very infrequent.  That’s the point, okay.  And even when they do happen, even when they did happen if you had a diversified portfolio then the recovery period was very short.  And so these are one of the things that we as investors have to understand.

Going forward it could absolutely be different.  Anyone who tells you that they know the future is lying to you and trying to sell you I don’t know – a sack of potatoes or something.  And I’m not trying to do that to you.  I’m trying to be as realistic as I can understanding that we live in uncharted territory.  And by definition the future is uncharted territory.  Which is one of the things that I want to talk about.  I mean every once in a while someone will say to me yeah, but it’s different.  I mean you can’t really say that the 1950s and 60s are the same thing as 2015 or 2016.  Yeah, absolutely.  I totally get it.  And 2008 is not the same as here, okay.  Every year is different and every year there is always something whether it’s the downgrade of the government by the S&P, you know.  The trip way down.  Whether or not it’s a war.  Whether nor not it’s the concerns about a war.  Whether or not it’s quantitative easing or it’s not or it’s tightening.  Every year I could sit here and point out a year and I’ve been doing this for 25 years.

I like to think of it like the presidential election.  You know how every four years you hear well this is the most important election of our lifetime.  I don’t know.  After a while it starts to lose its impact on me because if every four years is the most important of my life, darn, you know, they’re all important.  I get it, okay.  To say that they’re all the most important and it’s the same thing with an investment, right.  You looking at it from a long term point of view and do you believe that Point B, that future, is better than it is today.  If the answer is no then that’s your own choice to do then why do you have any investments whatsoever?  I mean really why do you have any?

So I believe that every year is different, okay.  However, history does have a tendency to repeat itself and that’s what we are working on.  And I believe that I’m still very bullish on the markets and I do believe in diversification.  Gold, silver, commodities.  I don’t like them, never have.  Essentially they are very, you know, let me just tell you a little insight.  They have a tendency to go up with inflation except when they go opposite, okay.  And they really go up when the stock market goes down except when they go down with the stock market too.  I mean I hate the correlation.  They have a tendency to have a mind of their own and I’m just not – and I don’t think that true investors are going into something that you have no control over like a commodity of gold and silver and things of that nature.

Let’s not forget that the pundits that you see on TV, that you see on any of the cable news or at the end of the day, their job is to get you excited.  They’re sort of like when they cover – like a politician.  A politician who’s trying to win election is there for hey look at me – bright, shiny light right on me. Their job is to be entertaining and to tell you maybe what you want to hear.  Maybe get into your fears and also feed your hopes, okay.

I’m like a policy wonk, okay.  I’m sometimes boring.  You’re like gosh Mike, you know, why do you have to say that when it’s exciting to get maybe ignore and then overreact.  And that’s just not me.  I’m here to try to be as upfront and try to be as non-emotional as I can.  Still being passionate – hopefully you get that as you listen to me.  I have passion for what I do but I want to be non-emotional.  And so getting back to my original question an investor is someone who looks at things from a long term point of view, understands that the decisions that you make, your behavior, is probably going to – your behavior and how you react to it or not emotional as you look towards to the long term.  You know what?  Ups and downs are a part of it.  A trader on the other hand is always looking for well what about this and what about that.  Always looking for maybe a short cut, maybe a get rich quick scheme.  And also worried about these fluctuations that are going to happen.  They will always happen and they always have, okay.

And so I want you hopefully to be an investor versus a trader.  But if you want to talk about it some more you give me a call.  (303) 747-6455.  Generositywealth.com.  Great to talk with you today.  One month, one six months, one year.  You know what?  When your time horizon is multiple years and hopefully multiple decades it really doesn’t matter.  In the whole scheme of things it doesn’t matter.  Find something that allows you to stay with your plan.  That’s what’s important I think.  Anyway, have a great day.  We’ll talk to you later.  Bye bye.

Why the Stock Market is Obsessed with Oil

Why the Stock Market is Obsessed with Oil

Oil

The S&P 500 is now almost perfectly correlated to the price of oil, which is interesting because over the past decade they’ve had virtually no correlation.

Energy only makes up 3% of the economy.

So why the focus?

  • Falling prices often signal softness in demand, which precedes an economic slowdown.  But, most believe this is a supply glut, not weakened demand
  • Cheap oil is causing US Oil production to cool off, hurting energy companies and states heavily dependent on oil
  • The threat of Oil Loans imploding (raises the risk in the banking sector
  • Russia, Venezuela, Brazil, and others that rely on oil exports could lead to an emerging debt crisis
  • Fresh doubt about whether the Federal Reserve will be able to raise interest debt

Click here for the full article

Why the Stock Market is Obsessed with Oil

U.S. Stocks Were Positive 73% of the Time

U.S. Stocks Were Positive 73% of the Time

poz

With an unmanaged stock market index going back to 1926, 73% of the time U.S. Stocks were positive. When you add in the “slightly negative” column of declines from 0 to 10%, that adds up to about 87% positive or slightly negative.

The future could absolutely be different, and you have to ensure it fits with your individual goals.

5 Questions at the end of 2015

“I want you to be everything that’s you, deep at the center of your being” — Confucius

This is my year end video, and it is one of the most important I’ve done in some time.  It is a reminder of some of the basics and foundations of investing!

I answer 5 questions that investors are probably asking themselves right about now

  1. What happened in 2015?
  2. Is this normal?
  3. Do I have the right investments?
  4. Will next year (2016) be different?
  5. What should I do?

Especially if you’re my client, you need to watch the video to get my answers.

Click on the video

Transcript:

Hi there clients and friends.  Mike Brady here with Generosity Wealth Management, a comprehensive full service financial firm here in Boulder Colorado.  2015 is now behind us.  Let’s look forward to a very happy 2016.

So, before I get into answering some of the technical questions and a review of 2015 I just want to say that personally this has been one of my best years ever in my life.  Just about to turn 47 and I feel ten years younger.  I lost over 40 pounds, became very involved in a lot of martial arts this year.  And so from a health and fitness point of view I feel really good about that.  Many of you know I’m a voracious reader and so I read 94 books this year and professionally I was quoted as an expert in almost 40 different articles from Washington Post to Forbes, Fortune, Wall Street Journal, ABC News, Portfolio Advisor Magazine.  I mean I was really honored that so many different journalists and publications thought that I could help others out in that particular way.

Let’s talk about 2015–blah.  That is not a technical term, that’s my kind of analysis of 2015.  What I want to do is I want to answer five different questions here today as efficiently as I can.

  1. What happened in 2015?
  2. Is this normal?
  3. Do I have the right investments?
  4. Will next year be different, 2016 be different?
  5. And what should I do?

And I think that those are all very common questions that people ask themselves about this time of the year and so if I want to address each one of them.

So what happened in 2015?  I’m going to put up on the chart there the Dow Jones Industrial Average an unmanaged stock index.  What you’re going to see is that the first five or six months were pretty much break even, pretty much sideways and then the third quarter hit.  The third quarter, July, August and September, was the worst quarter in about four years since 2011 when we had that S&P downgrade of U.S. government, just a horrible quarter.  Then what is interesting is October started to really dig us out of the hole, I mean really was one of the best months in many years, but we have November and December and they were pretty much sideways.  So what does that really mean for an entire year?  It really means that it was a year that was not horrible, negative ten percent greater.  I wasn’t a good year, it was just sort of like in between.  And depending on when an investor might of invested from a time horizon into an index, they could be negative for the year, particularly if they came in halfway through the year.  I mean that’s a very frustrating place to be if a time horizon is very short, which is, of course, one of the big things that we always have to keep in mind is that let’s have that long-term time horizon.

Markets do three things: they go up, down and sideways.  I’m putting up on the screen there the S&P 500, another unmanaged stock market index since 1997.  So what is that?–that’s 18 years.  So what you’re going to see is an up, down and I just circled there in red the last year.  When you look at a longer time horizon it really was just sort of a blip, an irritating blip when it happens but a blip nonetheless

I mean I think of investing sometimes as a mosaic in that when it’s so close in front of your face it’s hard to have any kind of a prospective, so therefore it is absolutely essential to look back on it and have some prospective to see how all those dots come together.  That’s why I think that the people who do the best are those that really keep that long-term perspective in mind.  Is this normal is my second question for you?  Up on the screen is a chart, a graph going back to 1980.  So we’re looking at a good 34 years or 35 years, you’re going to see 27 out of those 35 were positive.  The red numbers on the bottom are the Intra-year declines.  This is one of the graphs that I use repeatedly in my videos because it is normal for there to be declines throughout the year.  That does not mean that the year is going to turn out negative.  This year, at one point, we had a pretty sharp decline of about 12 percent.  That didn’t mean that the year has ended negative 12 percent.  But every year is not going to be a positive and that’s part of investing is understanding that.

Up on the screen is another chart going all the way back to 1926.  That includes, of course, the great depression, that includes the tough 1970’s, 1987, the tech bubble in the early 2000’s, 2008 in recent history.  And what we have seen is that 73 percent of the time the U.S. stocks have been positive.  That’s almost three out of four years are positive.  That means one out of four is not.  When we look at that zero to ten percent, when we add in that bar graph that’s slightly negative, that means that 87 percent of the year, since 1926, have been positive or just slightly negative.  That’s about nine out of ten years.  That’s a pretty good average I think, pretty good odds.  What is difficult is when you’re so afraid of investing as an investor that you’re running away from the really bad, which do happen.  When we look at those numbers there 13 percent of the years have been a ten percent decline or greater.  That happens maybe one out of ten years on average.  But you know what, that also means that you give up the nine out of the ten that are only slightly negative or very positive.  So I think that it’s important to remember that they do happen but we can’t live our investing life by only avoiding negative things because then you’ll never get out of bed in the morning if you’re always worried about what’s bad going to happen that day, you don’t look at all the wonderful things that can happen in your life.

The next chart is going back to 1915.  They’re in groupings there.  The first one is one year, five years, ten years and then 20 years.  The first kind of green bar is 100 percent stock market index, unmanaged stock market index.  The next one is 100 percent bond index unmanaged.  And then the third bar in that kind of an ugly brown off-color something is 50 percent of those two things together.  The most important thing here is that the time horizon is very important.  On a one year track going back to 1950 there have absolutely been years where the 100 percent stock market has been negative, 100 percent bonds and even a mismatch of the two have been negative.  But when we go out longer, five years, there actually historically has never been a five year time horizon where a 50 percent stock and bond has not at least broken even or made a little bit of money.  Same thing when it goes out to ten years and 20 years.  So time is in our favor and so we always have to keep that time horizon, that big picture in mind.

I’m going to throw another graph up there and this is the stock market since 1900, so that’s a good 114 years.  And you’re saying well my time horizon is not 114 years.  Yeah.  I get it.  Mine’s not either.  However, why don’t I circle that little bit.  You can see that we actually have broken out of a sideways market.  And so I personally believe that that’s going to continue up.  If you’re invested you have to believe that as well otherwise why do you have investments?  If you don’t believe that five or ten years from now investments are going to be greater than they are today then why do you have them?  You should have your money in the mattress or in a CD.

So, I’ve answered the first question, which is what happen in 2015?  Is this normal?  The answer is yes.  Do I have the right investments?  This is absolutely a normal question to ask yourself.  And I think that if you are well diversified I think that’s the right approach, well diversified and have the right time horizon.

For clients, of course, I’ am continually looking at their investments throughout the year.  And so if there’s something that I need to change or I believe should be changed as I look to the future then I let them know and I’ll, of course, do that as I’m doing my year end statements as well.  One thing that we really want to watch out for is not moving and trying to chase returns one after another because I think that’s an amateur mistake and that’s something that we should watch out for.

Will next year be different?  Listen, anyone who’s going to tell you that they know what the future holds is lying to you.  I’m just upfront that nobody knows and I don’t know as well, so therefore we deal with probabilities.  I believe that 2016 will be positive but I don’t know that.  So therefore if I’m wrong then I only want to be a little bit wrong and I want to fall back on that diversification and I want to fall back on how does this fit with what my goals are, my individual goals and what my time horizon is.

Historically election years are good.  I just had to look at my notes here.  And I believe because of the profitability and the cash supply, the money supply that’s out there that I think that we’re going to continue with, even with rising interest-rate in 2016 we’re going to end out of the year 2016 in a positive, but I could be wrong.  I’m human.  Nobody knows the future.  I just admit that I don’t know the future.  And so therefore we fall back on let’s have the best investments that we can and be well diversified in them.

What should I do?  That fifth question is very common to ask.  I will be reaching out to a few clients to some of you this year because there are a few things that I want to change in 2016, a couple of investments in particular, a couple tweaks here and there and it’s normal to do that.  Otherwise chill out.  I mean pay attention to the rest of this video.  I mean if you’ve gotten this far in the video hopefully you’ve gotten the message that it’s normal.  It wasn’t this horrible year, it was a slightly disappointing because we didn’t make money, potentially, if you’re in an unmanaged stock market index or an unmanaged bond index.  But you know, one thing that history has shown us is that these things happen periodically and they are definitely not something to overreact.

I mean unfortunately many people ignore and then overreact.  And so I hope that you’re not ignoring and I certainly hope that you’re not overreacting.  If you knew how much your house fluctuated in value on a daily and on a monthly basis would that freak you out?  Maybe.  Good thing you don’t know.  I mean if you’ve got a house that you’re very pleased with over a 10/20/30 your time horizon what does it matter?  And so we’ve got to keep that in mind along the way.

The average investor, I’m going to throw a chart us there, the average investor is that orange on the right-hand side.  And you can see all these other categories, the blue one is a mix between an unmanaged S&P 500 and unmanaged bonds.  And so the average investor usually underperforms because when we look at the inflows and outflows of the stock market really you’re supposed to buy low and sell high right?  Well, when we look at the inflows into mutual funds real people do the wrong thing.  The late 1990’s, I know this for a fact, people were jumping into Internet stocks because you couldn’t lose in that and so they jumped into the bubble at the high, not at the bottom.  Same thing.  As we look at 2008 and 2009, 2009 was absolutely the right time to buy but people were so freaked out from the year before that they sold everything at the bottom.  And so what we want to do is not be the person who has a negative year or even a sideways year and says okay, well now I want to move it all over into cash.  I just don’t think that’s the right way to do things.  And so therefore, as we have the right time horizon, as we have the right diversification, patience and that vision is what I think is going to best serve investors long-term.

Anyway, Mike Brady, Generosity Wealth Management (303)-747-6455.  Give me a call if you have any questions, otherwise it is great to talk with you versus this medium.  If you’re my client, of course, I’ll be talking with you within the month.  So anyway, I hope you have a great day.