Wealth is the ability to fully experience life. –Henry David Thoreau
2018 is but a distant memory as 2019 has come in fast and furious! In a very short amount of time we wiped away all of 2018’s losses in the unmanaged stock market indexes. This is a quarter that investors and financial advisors dream of, however now more than ever it is time to keep a level head. You hear me say the same thing over and over, and for good reason. Investing is a commitment and in this commitment you need to stay calm.
In the video I discuss humility and bias. Why? Because none of us can predict the future, we do our best to try by watching the news and this forecast and that one, however these media reports consistently report to stretch either negativity or positivity. Middle of the road, even newscasts don’t make headlines, so it’s our job to take everything with a grain of salt.
Watch my short video or read the transcript below and I give a quick breakdown of what we’ve seen so far in 2019.
Hi there. Mike Brady with Generosity Wealth Management, a comprehensive financial services firm headquartered right here in Boulder, Colorado.
First quarter is over of 2019 and it was a banner year. These are the types of quarters that investors and financial advisors, frankly, live for. In a very short amount of time we wiped away all of 2018’s losses in the unmanaged stock market indexes.
Today I want to talk about humility and bias because I think that they’re very important. I mean just three, four, five months ago there was so much things are horrible and the stock market has continued to go down. A lot of pessimism. And then there was lots of optimism in January and February followed by, just three or four weeks ago I was reading an awful lot of pessimism. And the reason why I bring this up is humility. I don’t know the future any more than you know the future and definitely not any more than those that you see on TV or writing those newsletters or those magazine articles. I mean just take it with a grain of salt, okay, because I think that it’s important for us to have a long-term plan, stick with it and not get too deviated by their particular biases.
And so now I want to kind of shift into bias. The bias of those in the media is not to be even-keeled. It is to be sensational either to pump things on the upside and be overly enthusiastic or to be very negative. Just to say oh my god, the world is about to end. Because both of them get headlines. Both of them run the viewership up into record digits. Saying “oh, everything’s all fine. Let’s just do the middle way” doesn’t really fly. And so you’ve got to read or listen to your news that way with that particular filter. I would actually argue that’s a good way to go through life because what is your personal bias? Is your personal bias to be optimistic or to be pessimistic? Right now I’m just telling you that going back to 1929, three out of four years is positive. One out of four has been negative in the unmanaged stock market indexes. So that means if you’re pessimistic you’re really only right one out of four times. Being pessimistic might serve you well if you are in a bad neighborhood, to keep your guard up, to be fearful. But it doesn’t really serve you very well, frankly, in your investments.
So think about it even from a relationship point of view. If you are afraid of being disappointed in friendships is the answer to have no friends? No. The answer is why don’t I look at myself and see if I can moderate my reaction to my disappointments when a friend might disappoint me. That’s the more logical way I would argue in your relationship or friend relationships but also as it relates to investments. Is the better way to be overly optimistic, overly pessimistic or to take your news with a filter but look for the even way? To understand that hey, my bias might be pessimistic but wait a second, is this the real truth?
Recently and before I end today’s newsletter there’s been a lot of talk about the inverted yield curve and I wanted to talk about that for a second. The economy is not the stock market. That’s very important to make that differentiation. The inverted yield curve and we can talk about the difference between the ten year and the two year (maybe I’ll do that in an instructional video next month), but when you see that yes, that has led eventually or at least predicted most of the time to a recession. But it’s been a huge differential between seven months and nineteen months. And during that time as I look back over the last – I’m going to put a graph up there on the screen – there’s been some nice stock markets during that timeframe and some nice times to be invested.
I would argue that since there’s a huge variance there of delay and some false positives that it’s not as good of an indicator as you would be led to believe. But even then it’s an indicator of the economy. The economy is not the stock market. It’s very important to remember that. If you look back at the early 90’s there was an indicator of a recession which did happen. However, does that mean that you shouldn’t have investments? No way. The 90’s were one of the best ten year timeframes ever and I certainly wouldn’t take that as an indicator. The last ten years has been a relatively moderate recovery from the Great Recession when you look at all the underlying GDP numbers versus the averages. However, this last ten years I’m certainly proud that many people invested in the markets and kept their investments over the last ten years. The unmanaged stock market indexes have been very favorable even if the economy was not as ripping and roaring as they have in prior decades.
Anyway, Mike Brady, Generosity Wealth Management, 303-747-6455. Give me a call at any time. Have a wonderful day. Thank you. Bye bye.
“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.
“It’s the steady, quiet, plodding ones who win in the lifelong race.” – Robert W. Service
The year 2018 is over, and what is most interesting is how different it was from the previous year 2017. This is a good reminder that every year is different, and 2019 will not necessarily follow the negative and volatile 2018.
When I write or say something like that, I inevitably hear from someone who says “yeah, but it’s different this time. Everything has changed because of X, Y, and Z”. In my almost 28 years working with clients, the fundamentals of diversification,time horizon, and complementary financial decisions around your portfolio have remained the same. And no, it’s not different this time. I’ve been hearing that for 28 years.
Watch my video and/or read the transcript. It’s less than 10 minutes, and will give you a good big picture perspective on how I see things.
Hi There. Mike Brady with Generosity Wealth Management; a comprehensive financial services firm headquartered right here in Boulder Colorado. 2018 is behind us. Thank goodness. Forget about it. 2019 let’s hope for a very happy and profitable one. I’m going to put up on the screen the unmanaged stock market index the Dow Jones industrial average, the one that you hear about the most on TV. What you’re going to see is the first quarter was negative, the second and third quarters were positive and that’s where we wished that the year has ended. But then we had the fourth quarter and it took it all away. In particular December very volatile and very negative month right there month of December.
Depending on what stock market index you want to look at you’re looking at the negative five, negative six percent for the year. When you get a little bit more non-common ones like the SMP mid cap, the small cap and you’re looking at the Russell 2000’s you’re looking at the negative double digits, the negative teens, the negative 12, negative14, 15, 16. And when you look at the international markets, whether it’s Europe, whether it’s pacific they were negative double digits as well, the negative teens depending on what particular country and what particular index. Very few places to hide in 2018. When we look over at the bonds the unmanaged bond indexes you’re looking at negative as well, negative single digit, negative one and negative six depending the percent that you’re looking at for that particular area and that’s kind of a unique situation, but with rising interest rates that’s just what happened for 2018.
Let’s think about it though for 2017, 2017 I sat here 12 months ago and talked with you about 2017. At that point what I said is wow this was an incredibly nonvolatile year, I mean pretty much every week every month was positive and it was a banner year, yay 2017, but it’s not real. Go back 12 months ago and watch that video and that’s what I said I’m like this isn’t reality guys, this is a unique situation that very low volatile no volatile year practically was then followed by an extremely volatile year, which is 2018. So we have these two contrasts two extremes right next to each other, which should remind us that every year is different. Every year is different and in 2019 it could be someplace in between. So let’s not extrapolate out and say wow 2018 was negative and really volatile so therefore 2019 is going to be negative and really volatile. It just doesn’t work that way.
There are many variables in the equation that go towards an economy, currency markets, stock markets, bond markets, et cetera, and anyone on TV or who is filling a headline in the newspaper or magazine that says this is the reason why the number one reason or this is the sole reason is fooling themselves and they’re fooling you and don’t listen to it. There are a number of factors in a multiple trillion-dollar economy and world market and it’s simply not as simple as this is the reason. When we are creating a portfolio, when you as an investor are trying to reach your financial goals it is important that we stack the odds in our favor to the degree that we can. Absolutely nothing is guaranteed in this world. I just want to say that. But what we can do is look at history and say how can we stack things in our favor knowing that the future might be different? And I’m going to say that there’s three things that we can do: number one, stay diversified, have the right timeframe and then look at all the things that are around it surrounding all those decisions. Let me break each one of them apart.
Number one, stack in our favor with the timeframes. Talk about that first. On a daily basis the market is going to be up or it’s going to be down. That’s it. That’s a very short timeframe and I don’t know on a day-to-day basis anymore than you do whether the market is going to be up or it’s going to be down. When we look out to a year we zoom out like a mosaic we kind of get a little bit more perspective, we step back from the wall and we look at a year we say okay going back to 60, 70, 80 years of market data three out of four were positive, one out of four were negative and sometimes those negative years were strung together. I mean I remember in my career 2000, 2001 and 2002 were three negative years right next to each other. Now I will tell you that 2004 and 2005 were good years. I know because I was there. But 2000, 2001, 2002 were negative years, but three out of four are positives. So when we look at on a yearly basis we’re starting to stack things in our favor if what has happened historically was to continue in the future.
When we look at five years has there ever been a time horizon were a diversified portfolio, 50 percent of an unmanaged bond index, 50 percent of an unmanaged stock index together has lost money? The answer is no. I’m going to put that chart up on the screen. When we look out five years, ten years, 20 years now historically the odds have been in our favor when we can hit our particular mark. So it’s important for us to remember that the future could be different, I just want to let you know that. Having a diversified portfolio does not guarantee market losses in a declining market. I just want to say that. But we’re looking at the right time horizon for what you’re looking at from a client point of view.
Diversification, I said that that was very important. That is important. When you see on TV people who have lost everything that makes great news; oh my gosh little older lady lost all her money in this particular stock or this particular shopping mall or scheme, et cetera. That’s why it’s important to not invest in one individual stock or just a few stocks or a shopping mall or whatever it might be, they make great spectacular horrible stories that’s why you avoided them. A diversified market, diversified portfolio, even when we look back at 2008 the recovery period was two to three years. That was the absolute worst that we keep talking about the great recession was two to three years. And when I explained just a minute or two ago about the five-year and the ten-year time horizons that’s important to remember. Even in the worst situation when we kept our eye on the big picture reaching our financial goals that’s how we were successful.
The third thing is what are all the decisions around it? It doesn’t matter if the market is up if you haven’t save enough money. It’s that simple. It doesn’t matter if the market is up if you’re withdrawing too much money. It’s that simple. So you’ve got to know what your withdrawal rate is and what your deposits rate is depending on which cycle of life you are in. If you are older 60, 70, 80, listen I’m hoping you still have a long time horizon. Hopefully you have a time horizon of five, ten, 20 years, maybe longer depending on what your age is. Perhaps you’re investing the money for not just yourself but for your heirs, that’s important to remember that the time horizon then becomes a longer time.
So every year is different. I’m not going to sit here and tell you that 2019 is going to be positive or it’s going to be negative, I don’t know. But what I do know is that I’m a believer in the economy, I’m a believer in the United States for one thing, and I’m also a believer in a diversified portfolio for the long-term is going to be a wonderful thing for the vast majority of people, but only you can really decide whether the time horizon that you have and a portfolio that we’ve crafted together or that you’ve crafted with your financial advisor, if you’re not a client of mine you should give me a call, is appropriate because volatility and risk in my mind are two different things. The risk of you not having enough money, you not saving enough or you withdrawing money or not reaching your goals those are risks. A subset of that risk is volatility and volatility is always going to be there, particularly when we’re looking at things from a short-term. Short-term means days, weeks, even months, but when we start to look at longer multiple year strings together, string the years together, the volatility starts to tamper down because then we can get some perspective of how it fits towards the end goal.
Mike Brady; Generosity Wealth Management; 303-747-6455. Give me a call at anytime. 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.
“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: