“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.
“Success is nothing more than a few simple disciplines, practiced every day.” – Jim Rohn
Investing and life are more like poker than chess. I recently listened to an interview with Annie Duke. Ms. Duke’s book, Thinking in Bets along with the interview really resonate with me because her thinking is quite similar to mine.
In this quick video, I detail the parallels of investing and poker and why it is critical to keep a “poker face,” keeping your emotional composure during bad….and even good investment periods!
About Thinking in Bets: Making Smarter Decisions When You Don’t Have All the Facts
Annie Duke, a former World Series of Poker champion turned business consultant, draws on examples from business, sports, politics, and (of course) poker to share tools anyone can use to embrace uncertainty and make better decisions.
I like this book for many reasons, the greatest one being the statement, “Even the best decision doesn’t yield the best outcome every time.” In poker, like in investing, you can make the best decisions but there are still unknown elements at play.
Hi there. Mike Brady with Generosity Wealth Management, a comprehensive, full service financial firm headquartered right here in Boulder, Colorado.
Today I want to talk about how investing and life is more like poker than it is chess. I got a lot of these ideas I’m going to share with you today from an interview and a book that I read by Annie Duke. I’m going to put a link in the newsletter and in the transcript of this. (http://a.co/aw2KM5f) Annie Duke, Thinking in Bets.
And when I heard her interview on this podcast it was like she was speaking right to me because that’s the way I think. And so of course I thought she was brilliant. If you watch my videos going back seven, eight, nine years you’ll hear that I talk in well let’s increase our probability of success. And I think the odds are because that’s really the way life and investing is. Let’s think about chess for a second. Chess there’s these pieces on the board and all of them are visible. You see it and so does your opponent. With all that visibility it’s a completely logical game. The person who is the more experienced, the person who is the better player should always win. And if that person doesn’t win then they can go back piece by piece or play by play and say oh, this is where I made a mistake.
That’s not the case with poker. Let’s talk about poker for a bit. You don’t get to see all the cards so there’s a hidden element there. It’s all a bunch of odds. You might have an 85 percent probability, 90 percent. But there’s still 10 percent that you could be wrong. And it doesn’t mean that you were wrong because the outcome went against you. But there were things that you didn’t know. There were unforeseen things and there is luck. I’m not going to ask you to raise your hand but if I was to say who has run a red light, most of us would raise our hand. Even if it’s only once in our life or if it’s once a day. Just because you run a red light doesn’t mean you automatically get hit although it dramatically increases your odds of getting hit. Just like if you’re following the rules and you go through a green light it doesn’t guarantee that you won’t get hit, T-boned by somebody else. So there are factors outside of our control that we have to understand.
When we’re looking at a poker game, a typical poker hand a professional might take two minutes. Therefore, you might have 30 hands in an hour. And a professional poker player is going to know the odds. They have to work really hard to know the odds, play the game, to be cool. Maybe there’s a string of bad luck that you have but you stick to your particular core knowing that you’re a really good player. You know the odds better than the people that you’re playing against and you just can’t get too emotional one way or the other. If you’ve ever seen a poker game nobody’s jumping up and down when they win or at two, three or four hands they’re getting super depressed. Maybe amateurs are but definitely not the professionals.
So investing is very similar. We can do the best that we can with all the different variables that are known to us we can come up with a strategy. We can say wow, I think the market is going to do this, I think the market is going to do that. And we could be wrong because there are going to be things that are unforeseen that are going to be in the future. Nobody knows the future. So that by definition is going to be a variable that we’re not able to account for fully. Therefore, what do we do? What we do is we, of course, look at a diversified portfolio. We say well how can I not stick my neck out so much that if that 10 percent or that 20 percent or whatever the number is that I’m wrong, I’m really stuck that I’ve lost so much. How much are you willing to risk? So a diversified portfolio is very, very important. Staying in it for the long term. If you find your strategy that works with your risk level, your tolerance, that allows you to stay emotionally cool it’s got to be a long term. If you were a poker player it might be many hours. If you are an investor it should be many years. And so you’ve got to keep that in mind as well.
Life is full of unknown variables so we try to increase our knowledge. We try to increase it so we can make the best decisions. We try to learn from those decisions as well. It is not a chess game. It’s not a guarantee. So if you’re looking for a guarantee then investing in life, you know, you’ve come to the wrong place so you’re never going to get that and you’re going to be continually disappointed.
Mike Brady, Generosity Wealth Management, 303-747-6455. You have a great day. Thanks. Bye bye.
“Twenty years from now you will be more disappointed by the things that you didn’t do than by the ones you did do, so throw off the bowlines, sail away from safe harbor, catch the trade winds in your sails. Explore, dream, discover.” – Mark Twain
The 1st quarter of 2018 is already over and it was an interesting 3 months to say the least. If we look at 2017, the fact that we had only a little bit of volatility is the exception. Most years there’s over ten percent declines at some point during the year. Which is something we’ve about hit already this year. That’s the normal and not anything to be freaked out about – listen to find out why.
Transcript of the video:
Hi there. Mike Brady with Generosity Wealth Management, a comprehensive, full service financial firm headquartered right here in Boulder, Colorado.
I’m here to talk about the first quarter review and the rest of the year preview. Charles Dickens in a Tale of Two Cities started off by saying it was the best of times and it was the worst of times. I suppose maybe we could start off that way with the first quarter as well. January for the unmanaged stock market indexes was a continuation of a strong upward movement that we saw in 2017 with very little volatility. That’s really one of the big stories as far as I’m concerned is that 2017 was so low volatile and that was the unique situation. All the way up to about January 26 of this year when volatility decided to come back. And so we definitely saw that in February. March looked like it was starting to come back up again and then we gave it away in the third week of March. And so the quarter ended a nine out of the eleven major S&P sectors, 9 of them were negative and two of them were positive. And those two that were positive was actually information technology and consumer discretionary. And so that’s kind of interesting.
Of the indexes, pretty much all of them were negative except for emerging markets and actually the NASDAQ. The NASDAQ unmanaged stock market index was positive. But even those that were negative in the U.S. here, not counting – I mean when you look at Japan and you look at some of the others abroad they were actually down quite a lot at negative seven percent or so. We were down one-and-a-half to two-and-a-half percent. That’s really breakeven in my mind, particularly when you can make a one percent move in a day which we definitely had some more one percent moves this past quarter than we had in quite some time in the last couple of years.
So it’s good to put this in perspective. The way I look at investments is that it’s three steps forward, one step back and maybe sometimes it’s two steps back. And if you focus so much on the negatives, on the steps back, then you’re never going to have the steps forward as well. And so when all this volatility is happening and let’s look at that chart that I have up on the screen. So you’re back to where you were three-and-a-half months ago. This is not that you’re back to where you were ten years ago.
Let’s put everything in perspective. As a matter of fact, it is normal for there to be volatility. It is normal for there to be declines. And with the number, the DOW being 25,000 and 26,000, 500 and 1,000 point movements are less significant as a percentage. So we have to look at things in percentages. I remember back in 1987, you know, I’m 49 years old right now and at that time I was a freshman in college when the October 1987 crash happened and that was 500 points. Well that was 20 to 25 percent of the whole market. Well, 500 points on 25,000 is not that statistically significant like it was 20 to 30 years ago. So the numbers get magnified just like our portfolios. The larger the numbers, of course, a percentage change one way or the other can be thousands, tens of thousands, maybe hundreds of thousands of dollars. And so we have to keep it in perspective from a percentage point of view.
I continue to be optimistic and that means not that I guarantee it, absolutely not. There’s no guarantees in this world. Life is not a guarantee. Investments are not a guarantee. I’m actually going to do a follow up video to this about how investing is like poker, not chess.
Just to give you a little preview of that. There are unforeseen things in poker and there is a certain amount of luck involved in poker whereas chess is all strategy. The better person should always win whereas that’s not the case in poker and that’s not the case in investments and that’s not the case in life. There are things that are unforeseen, things that we can do the best that we can. We can increase our probabilities of success. And so as I look towards the rest of the year I see lots of profitability with companies, I see lots of technical change continued. I believe that the tax change that just happened was a very favorable thing, at least in the short run and the short run being the next one to three to four years or so as cash comes back I’m sure, and we reinvest some of that cash as well. Other people might have a different point of view and that’s absolutely fine. That’s what’s great about America is that we can have different points of view.
You have to remember though that from a long term point of view which is the way we have to look at it, things are complicated. There’s many different variables that determine this. And so you might place a higher value on the variability of chaos as you might see it. You might place a higher value on tariffs and say wow, this is a bad thing. I don’t place that as high of a concern but maybe I’m wrong. Maybe you’re right, maybe you’re wrong. Maybe you get it. I just read this morning how Elizabeth Warren is in favor of the tariffs in China just like President Trump. I never thought the two of them would agree but there we go.
So it’s very interesting that there’s all these different variables. We have to remain long term investors because I can go back 25 years, I’ve been doing this 27 years, and go back my entire career and there’s always been a reason to be pessimistic. There’s always reasons to be optimistic and so the question is over a longer term – three years, five years, ten years, et cetera, what’s in your best favor because it’s very hard to read the tea leaves on a shorter term basis.
I’m optimistic. I continue to be so. I believe that there’s a greater than 50 percent probability that things are going to continue to work out fine. Maybe there’s going to be some increased volatility which is normal. The fact that we had only a little bit of volatility last year is the exception. Most years there’s over ten percent declines at some point during the year. And so we about hit that this year. So that’s the normal and not anything to be freaked out about.
Mike Brady, Generosity Wealth Management, 303-747-6455. Give me a call at any time. 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.