“Optimism is Pessimism about the dangers of Pessimism” -Tyler Cowen
I recorded this month’s video on Monday September 30th, the last day of the quarter. Not only do I give a recap of what happened in the 3rd quarter, but I also reference my previous two newsletters about volatility (below average volatile year) and politics not mixing well with investments. The last time we had a constitutional crises was the impeachment of President Clinton, and the unmanaged stock market indexes were up 28%.
And I reference the importance of keeping your emotions in check, and asking yourself “does my optimism or pessimism help or hurt me?”
The reason I am so specific regarding when I recorded the video is because it was the afternoon before a two-day 800 point decline in the unmanaged stock market index Dow Jones Industrial. This made the national news.
No one likes to sound like Baghdad Bob, so I considered re-recording the video. Wisely, I chose to let the video stand.
I was letting myself fall into the “recency bias” in my decision making, which is weighing more recent data heavier than the data as a whole.
The economy and stock markets are very complex, with many variables and inputs. A few reports and days mean very little in the big picture or over the long run and it’s so easy to let yourself be sucked into the pessimism of one data point or another. We can’t extrapolate good days and assume they’ll all be good, and the same for negative ones. But, this is so easy to do, and we must resist it to be long term successful!
I’ve been meeting with clients for over 28 years; this past week was a good reminder that I’m human too. I’m glad my experience allowed me to acknowledge the feelings I had but not be controlled by them.
I stand by my video, and ask “are your emotions helping or hurting you?”.
Hi there. Mike Brady with Generosity Wealth Management; a comprehensive financial services firm headquartered right here in Boulder Colorado and today I am recording this in Boulder Colorado. Last three videos I’ve done from my cabin up in Wyoming and as you can see the quarter is over, the summer is over and I am now back here working in Boulder. I was working up there, of course, but here I am back in Boulder. Boy there’s a lot of people and a lot of traffic in comparison to where I was.
Sometimes it feels boring when I’m doing these quarterly videos I’m sitting here like “okay what exactly should I talk about, what’s the most impact that I can make in the few minutes that we have together?” The reason why is it comes back to the fundamentals time and time again. First let’s do a quick little recap of what happened this past quarter. It was up. It was another positive quarter the third positive quarter in three, you know, the S&P and the Dow Jones, which are unmanaged stock market indexes, we’re up over one percent, the NASDAQ was pretty much break-even it was down .1 percent give or take a day it was positive or negative. There was a lot of volatility in comparison to what we’ve seen recently this past quarter, but nothing that’s way out of the ordinary. Yes on August 5th there was a three percent decline in one day, but there’s an old adage that the market takes the stairs up and the elevator down meaning that it might go up very slowly and have a dramatic downs, but this is a long-term game that investing is. It’s three steps forward one step back, three steps forward one step back and if you obsess over the backward steps and are fearful of the backward steps you’re never going to have the forward ones. That’s my opinion. That’s why I kind of get down to the fundamentals.
One of the things that this year and last year have shown, at least for me, just I‘m an observer of people I talk with people all day long and clients and just other people out in the world are this obsession with the news and with how that might impact particular investments. And all I have to say is I think that you’re going to be better served by not being super on the high side and super on the low side. The last two or three newsletters that I’ve done I’ve shown how there’s a perception that it’s been really volatile and that’s just not true. Go back and watch August’s video where I talk about that and I throw the statistics in saying that’s just not true. The video before I talked about the presidential impact and how that’s not true either. I think that we’ve got to keep our politics and our investments completely separate. So, if you feel very strongly that what the president does is going to affect your investments, sorry I’m just not on board and history going back I think I did studies all the way back to 1920 will prove that. So, if you still feel that great you’re welcome to go and feel that all day long, I’m just not into feeling how they affect my particular investments.
That’s why when we’re dealing with other people who are getting excited about this particular news item or that one or you hear the news pundits really getting you riled up, better is to be you’ll be well served by doing the middle way as it’s called, not getting too excited on the high side, not getting too excited on the downside. We had normal volatility frankly in comparison. More volatile than we’ve had all year, but this has been a relatively below average volatile year. The S&P 500 I’m going to put a chart up there you’ll see that the S&P earnings are as high as ever and continue to be higher profitability so I’m not sure what the hubbub is. We’ve got fixed income this year, which are unmanaged bond indexes in general are positive again in single digits, not quite double digits, you know, ten percent higher, but very nice if you’ve got bonds. So, the unmanaged stock market indexes are up, the bond indexes are up, I mean yeah let’s be excited about this. Unemployment is at an unbelievably low amount that has been decreasing for the last ten years. We have inflation that is unbelievably low. We have a yield curve that everyone was like “oh my God should we jump out of the window from my big skyscraper?” And the answer is no. Do we even hear anything about that? It’s so important that after four days nobody talked about it anymore.
I talked about this briefly last month’s video I think this was actually September’s video and I just said no I don’t believe that it is a harbinger of what’s going to come or negative things. When everybody is watching something it becomes less affective and we can find, I mean this is a behavioral part of the mind where we find patterns where there may not be patterns and it made lots and lots of news it’s so important that nobody talks about it anymore so that’s just kind of my thought.
Talking about politics, let’s not forget that the market in the early ‘70s when we had a constitutional crisis lost 30 percent. When Bill Clinton had another constitutional crisis that impeachment and then his acquittal the market went up 28 percent, the unmanaged stock market indexes went up 28 percent. So here we’ve got one in the early ‘70s and there was a lot going on there, high inflation, oil embargo, it was not just Watergate. And Clinton other things were going on as well they were very positive, but during that time the market rallied and very nicely. Did it decline starting in the beginning of 2000 due to politics? Absolutely not. It had been a bubble in the tech for a long time and that’s what caused it, not anything to do with politics.
You always have to ask yourself are my emotions helping me or are they hurting me? And I recently read a quote that I want to say here that I just absolutely love and I’m going to put it on my newsletter as well: “optimism is pessimism about the dangers of pessimism”. So, if you’re pessimistic I would argue that doesn’t serve you well. Three out of four years historically have been positive in the markets. Even from the worst of the particular years leading up to elections is still positive. So, optimism is pessimism about the dangers of pessimism. And so yeah I have a tendency to be optimistic, I mean I have been doing this for 28 years, I’ve seen it, most of the time when you talk with me I’m pretty middle of the way hey yeah how does this affect things long-term? I’m sorry, why are we getting all bent out of shape? I’ve seen this only a hundred times. It might be the first time you’re seeing it, but I’ve seen it many times and historically, I’m a student of history, it has happened many times before so how has it turned out from all these other situations even if it might be the first time that you’re experiencing it. And it might be very real to you so I take nothing away from the emotions that you might be feeling, I’m just questioning whether or not those emotions are helping you. So, you ask that of yourself how is it helping you your happiness and your particular investments.
That’s it for this quarter. No reason in my opinion that I’m going to be overly pessimistic. I continue to be optimistic. That has served us well, not only this year but in pretty much most of our years as we’re looking towards and as we look towards long-term being optimistic is much better than being pessimistic, it serves you well. Mike Brady; 303-747-6455. Always here if you have any questions any concerns. Have a wonderful week, have a wonderful quarter and I will talk with you next month. Bye bye.
“Your net worth to the world is usually determined by what remains after your bad habits are subtracted from your good ones.” -Benjamin Franklin
Many folks are worried about market volatility and yield curve. Whether it’s an inherent worry or a byproduct of negative news coverage, it’s helpful to know if it is warranted or not. Some people are excessively worried about airplane crashes, when the greater worry is driving to the airport. But, the first one is dramatic and gets media attention, whereas the second doesn’t.
In this month’s video, I discuss:
Have we had unusual volatility, or has it been unusually calm but it
just seems volatile?
What’s all the hubbub about yield curves? Should I be worried?
Hi there. Mike Brady with Generosity Wealth Management; a comprehensive full service financial services firm headquarters right here in Boulder Colorado. Although you can probably tell by the background that I’m actually at Generosity Wealth Management North, which is up in Wyoming where I do spend some time up at the cabin getting away thinking about the business getting my thoughts in order. Now, the last couple videos I’ve done up here, and you probably have this perception that I’ve been up here the entire summer and it’s just not true. I was in Boulder all of August and all of June and part of July. I just got up here three or four days ago and decided to do the video. I’ll be back in Boulder for the rest all the year and all the way till next June in just a couple of weeks after working up here.
Now, you’re probably wondering why I picked this particular spot in order to record the video. Is it the most beautiful spot? Maybe not. Is it the least windy? Yeah it’s kind of windy up here in Wyoming right now. Is it kind of shady and it’s really sunny out? Yeah it’s shady. But what I’m really proud of is that wood pile right over there that I spent an entire day cutting and stacking. I mean isn’t that a good looking wood pile? I can’t wait to burn it. So, that being said let’s move right on.
The first thing I’d like to talk about is volatility. Someone came up to me two or three weeks ago and said oh my God things have been so volatile it’s just so painful. My answer is has it really been volatile? Up on the screen you’re going to see a graph you’re going to see a bar chart and that is 2019. And on the far right hand corner you’re going to see that the ten year average for plus or minus one percent in movement in one day 72 days in a year. Thirty year average is 86 days. So, 72 to 86 days is the average over a ten or 30 year timeframe for there to be a movement in one day, which means some volatility of one percent or more. In 2017 there were only eight days. I mean it was remarkably smooth. That’s what we got lulled into believing was the normal. 2018 it was a tough year we still were below average at 64 days. And then the number that they have there is only as of June 30 so I pulled my records myself for the unmanaged stock market index S&P 500 and so far this year in 2019, as of September 3rd, which is yesterday, I’m doing this on September 4th, we have 32 days out of 171, which is almost 19 percent, that are plus or minus one percent movement in one day. That means 80 percent of the days are less than a one percent movement, one percent or less. Two percent those are big movements, there’s only been seven days out of 171, which is four percent. Four percent of the days have been two percent or more.
So, I’m repeating myself 80 percent of the days have been relatively low in volatility and we definitely are below the average, both the ten and the 30 year for volatility in a year. So, some things that we believe just aren’t true. We might believe very strongly, we might see it on the news and they pump it up and they get you all excited and that’s not helpful to you. One of the things that I talk about with people is let’s be worried about the right things and this isn’t one of the things to be worried about at this point. So many people are afraid of flying, I mean really their fear should be driving to the airport. That’s significantly more risky statistically than actually being in the plane. Being in the plane is just a more dramatic way to have an accident and there’s no walking away from that.
Now, the yield curve we’ve heard a lot about that in the last two/three/four weeks or so. Am I worried about it? The answer is no. The way a yield curve works is you should have a higher return on your yield on your bonds as time goes by, ten years, 30 years, than you should in the short-term. If that gets reversed where you are actually penalized for holding it for a long time then that’s an inverted yield curve. Yes this has given some indication in the past. The averages are long it’s usually a year or two before there is a recession. My argument would be that that’s not the thing that we need to worry about. The fact that it’s become so common the fact of observing an action sometimes changes that action, it really has to depend on what the Fed does. And so, am I worried that this is going to lead to a recession? The answer is no. Recessions are remarkably, particularly in the last 40 years, infrequent. We had one in ‘73/’75, that’s one, 1980 that was almost 40 years ago, ‘81/’82, early ‘90s, early 2000s, 2007 so that’s six. That’s six of them in 50 years. So, people might say yeah but then we’re due for one. Well, maybe, maybe not. Some of the factors that led to those recessions are not here today and just because it’s been a while since we had the great recession of 2008 that doesn’t mean that we should have one now. It doesn’t have a timer an egg timer. The question is how hot is the economy and how does that relate to the market?
We have had a remarkably, not remarkably, an underperforming, a mediocre is probably the better word, a mediocre recovery since the great recession. And that’s not necessarily bad. I mean if we have a really hot market those things that go really high can come down. It’s like a bright shining star that can burst and fizzle out very quickly. We’ve had a slow burning star for the last 10/11 years and this is a good thing from my point of view. It leads me to believe that it does still have some life. We don’t have high valuations, overly crazy high valuations in the stock market, we haven’t had a lot of the other actions that precede a stock market decline in a recession like people throwing all their money into equities and other things like that so I’m not worried about it.
And the yield curve that’s just one indicator. We joke in our world in the financial services world that economists are always predicting recessions. They’ve predicted nine out of the last three recessions. And so, considering that we’ve had 75 percent, three out of four years are positive, I would rather invest looking towards that than worrying about maybe there’s a recession, which might lead to a stock market decline versus hey I would rather be invested keep this long-term and work on my odds that I believe are in my favor of being in the market long-term. Short-term the recession might happen and if you are in a job that might be recession, the opposite of recession proof capable of being hurt by the recession that’s very sensitive, recession sensitive, then yeah you should worry and make sure that you’re saving a lot in order to whether that particular storm. If you’ve got investments now is a great time, in my opinion, to continue with that strategy going forward.
That’s what I’ve got this particular month. Mike Brady; 303-747-6455. While I’m not always in the office I am always available, email, phone. And one of the things I pride myself on is being particular. Every day is a Saturday and no day is a Saturday as far as I’m concerned because this is what I do and this is what I’m going to do for the next 20 years so I’m very excited about it. To end it here I’m going to take a little pic. There we go. We’ve got that picture right there, which is – can you see that? And we’re going to go around there as well all the way towards our truck. So anyway, you guys have a wonderful, wonderful month and I will talk to you in about a month. Bye bye.
“Finance is not merely about making money. It’s about achieving our deep goals and protecting the fruits of our labor. It’s about stewardship and, therefore, about achieving the good society.” – Robert J. Shiller
This has been an incredible year so far. Pretty much every month in the unmanaged stock market indexes has been positive.
If you remember, last year 2018 was negative and some people have a tendency to allow themselves to get real negative, they extrapolate negative news into “it’s going to be negative forever” or “I told you that it was going to be horrible” particularly if you have a negative bias. Going back all the way until the 1920s, three out of four years were actually positive, so historically the strong majority is up. What we have to do is check our first biases; are we a negatively biased person or positively, and is that helping or hurting yourself?
Watch my latest video for a recap of what we’ve seen so far in 2019.
Hi there. Mike Brady with Generosity Wealth Management; a comprehensive full service financial services firm headquartered right here in Boulder Colorado and here today is actually up in Wyoming. This is 4th July. I wanted to record my video. I’m up here at my cabin. Hopefully you’re doing something wonderful for Independence Day. If you were wondering if I’m in front of a green screen and that’s a picture behind me, the answer is no. That is actually the picture out of the front of my cabin. That’s what I get to look at all day long up here in Dubois Wyoming and frankly I’m working all week because I’ve got a lot of stuff I’ve got to get done. But I want to give you the year to date video and the rest of the year preview and going into next year election year.
So, this has been an incredible year so far. Pretty much every month in the unmanaged stock market indexes has been positive except for the month of May. If you remember last year 2018 was negative and people have a tendency to get real negative, they extrapolate negative news into it’s going to be negative forever or I told you that it was going to be horrible, particularly if you have a negative bias. Going back all the way until the 1920s three out of four years are actually positive so there is a strong probability of the markets going up, but sometimes it does go down. And so, what we have to do is kind of check our first biases; are we a negatively biased person or positively.
I’m going to do a video next month actually talking about election years and what are the probabilities of the year before an election, the year of an election, et cetera, and how politics may or may not affect the stock market. Because the economy and the stock market are also two different things, which I’ll do it in a video going forward.
But let’s talk about 2019. It came roaring back the first quarter of this year, wiped away in general in the unmanaged stock market indexes in one quarter what we had lost last year in 2018. We were looking good in April of this past quarter and then May we gave some up. We never went negative in the unmanaged stock market indexes and all of the losses in May were wiped away in June and then some. So now, with the unmanaged stock market indexes we are at all time high so people might say to themselves yeah but aren’t you really worried that the market is at a high? And the answer is if you believe the market is going to go up then it’s always at highs, I mean that’s the point is that you should hope that there’s going to be new highs. Just because it hits a high doesn’t mean that it’s a ceiling and it can’t go any further, as a matter of fact if you truly believe that why do you have investments at all? That means that where you are today it’s not going to be higher in the future, which makes no sense. Why would you have investments if you don’t believe that it’s going to be higher in the future?
So far this year we are in double digit positive returns for those unmanaged stock market indexes. May was a single digit declines with the S&P 500, which is one of those indexes I talk about, about seven percent decline in the month of May, which we made back up in June. It is normal for there to be double digit declines. Most years have double digit declines and we haven’t even seen that. In 2018 last year we did, we had some real sharp declines. But that was only one out of the last four or five years where we had those double digit declines, so we have had an unusually unvolatile timeframe in the last two/three/four years. So, let’s remember that because if you’re investing for the long-term why make any decisions based on short-term trends?
I’m going to put a couple of charts up there. The first one I want to put up is the earnings per share for the S&P 500 continue to look really nice. Bonds are up as well for this year, single digits but between five and ten percent depending on what area of the bond market that you are invested in. So, stocks are up, bonds are up, unemployment is down, earnings per share is up. I mean if you are a negative person you can try to find something to be negative about, but I would argue that doesn’t serve you any good.
There’s an argument that some people say is like hey better too early than too late in most things. Because it’s looking so good I should move out because I’ll avoid negative things in the future. My answer would be no that doesn’t help you because I have seen in my 28 years of doing this since 1991 that getting out might be one thing, but if it continues to go up you never get back in, or if it goes down you have such a propensity to preserve that it’s also when do you get back in? And so, no, if you’re in this for the long-term, five, 10, 20 years then stay invested, have your plan and stick with it. If you’re going to have investments for a short-term, you know, one month, six months, 18 months why should you have any money in the markets? I mean that’s not even a full market cycle. So, if you judge long-term investments based on short-term trends that’s a recipe for disaster.
The economy, as I mentioned earlier, is not the stock market even though the economy is doing great. Now, you wouldn’t know that necessarily by watching the news. If you are getting whipsawed in your emotions by the 24/7 news cycle I would say don’t do that because if you like that, hey great, that’s wonderful, but don’t make any decisions on it and don’t listen to what they have to say about the economy and the stock market because that is going to cause you lots of angst. For the rest of the year continue to be bullish. You’ve heard me for the last my gosh five/ten years be bullish and that has served us well. I see no reason not to be bullish going forward. As a matter of fact, once again, you’ve got to watch my video next month, but 90 percent, going back to the early 30s of the year before an election, 90 percent of them have been positive and strongly positive. And so, that doesn’t mean that we should be invested because of that, but all the ingredients are there.
That’s it for right now. The rest of the year I never answered that thought I never completed that thought. I don’t know what’s going to happen. I don’t know any more than you do. Unlike all those pendants on TV to who say with very little humility that they know what the future is. You don’t know the future and I don’t know the future, but fortunately we’re not investing for the next six months. If you are you shouldn’t have investments. We’re invested for the long-term and I’m going to make the bet that going forward, even if the next six months are down, even if the next two years are down, history has shown that going back to 1950 there’s never been in a diversified portfolio a five year time horizon when you have lost money and so therefore that is a bet that I am willing to take. Even though it’s possible, absolutely, the future is uncertain. However, we can’t live our lives running away from things, we have to live our lives and our investments and the future based on the best data that we have and how we feel we’re going to be best served long-term, not short-term but long-term and so that’s what I think going forward.
Stay tune for that video next month. I have a couple good ones coming forward and I really hope that you watch those and that you have a wonderful – that you had because by the time you get this 4 the July weekend will be over, but anyway hopefully you’re doing well. Mike Brady; Generosity Wealth Management; 303-747-6455. Have a wonderful day. Thanks. Bye bye.
“Being rich is having money; being wealthy is having time.” –Margaret Bonnano
It is important to take a macro versus micro approach to investments, meaning we have to take a very big, long-term view in order to start to make some sense of the stock market. There are many variables in this equation that we call the market and only by looking at it as we would approach a mosaic by looking back months and even multiple years does it start to make sense.
Listen for more on how to keep perspective when looking at the market.
Watch my short video or read the transcript below.
Hi there. Mike Brady with Generosity Wealth Management, a comprehensive, full-service financial services firm headquartered right here in Boulder, Colorado.
Today I want to talk about making sense of things. I was meeting with a client a week or two ago and he said Mike, it doesn’t make any sense in the stock market. It’s something that I don’t understand. It goes up high one day and down the next day for a reason that I can’t understand. And my answer to him was stop trying to understand it. Stop trying to understand it on a daily basis, a weekly basis, even a monthly basis because I don’t know the future, you don’t know the future and for us to try to guess the emotions, the intents, the actions of millions of other people is very difficult.
We have to take a very big, long-term view in order to start to make some sense of the stock market. If we’re looking at it from a daily basis, one day if you listen to the newscasters or read some article they always have some reason why it went up like they know definitively what millions of people are thinking. The next day it might completely reverse and then they give a different answer that might be very similar. No, not that many people change from day to day. There are many variables in this equation that we call the market and only by looking at it as we would approach a mosaic by looking back months and even multiple years does it start to make sense.
So you have to look at yourself and your own emotions and say wow, am I going to allow myself to be whipsawed from day to day, from week to week, or am I going to take the long-term view. And your bias is very important to know. If you’re a naturally optimistic person I would argue that history has shown you to be a winner in this because three out of four years going back to 1929 the market has been positive. One out of four years have been negative. That doesn’t mean the future is going to be that way. All I can really say is that historically that has been the average when we look at many multiple years, many five-year, ten-year and twenty-year time horizons. Those that are pessimistic and are trying to time the market are worse off than those that say hey listen, I’m going to take a long-term view. On average I am going to be the winner. Sort of like going to a casino and you get to be the house. You don’t get to win every single hand but over time you certainly are the winners.
And so the future is never certain. It could be different in the future but this is what I think would be a better approach for most people.
Mike Brady, Generosity Wealth Management, 303-747-6455. I’m always here if you want to talk. 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.
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.