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


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.

Investments are a Journey

“Every journey in life has a destination.” — Ken Poirot

In today’s video, I share a conversation I had with a friend of mine, who is a surgeon.  How does he handle things when the surgery outcome is unknown, and in the middle of the operation if things go awry?  How do you stay calm?

What he deals with on a daily basis is the same as investments and your financial plan.  How do we keep our eyes on the big picture?  What is normal, and how do we stay calm?

One of the benefits I bring to my relationship with clients are the 24 years of experience, and in that time I’ve seen just about everything.  The behavior and attitude we bring as investors is probably the most important variable in reaching our financial goals.  At least, that’s been my experience.

Click on the video for my thoughts on the Journey

Oil Impact

“Life is Really Simple–but We Insist on Making it Complicated” – Confucius

Over the next couple of weeks I’m going to talk about the reasons given for the market correction
1.  Plunging Oil
2.  China
3.  Disappointing Profits
4.  Trading Milestone (200 Day Moving Average)
5.  Rate Jitters

Today I focus on Oil, as it’s declined from approximately $60 in June to $40 today.  What is that indicative of, and is that a long term benefit or detriment for the economy?

I say it’s a long term benefit, and make such an argument in my video.

Click below

Hi there.  Mike Brady with Generosity Wealth Management, a comprehensive full-service firm right here in Boulder Colorado.  I’m recording this on Thursday, August 27.  Last video I recorded was last Friday.  And Monday and Tuesday of this week very exciting; huge plunge in the unmanaged stock market indexes.  Wednesday, yesterday from my point of view and so far today we’ve had a nice rebound.  So it’s important to remember that even when there’s big ups in the market taking four steps forward, sometimes we take steps back.  Well, the opposite is true.  When a market is going down sometimes we have nice rebounds.  And so I would anticipate, and it is normal for there to be a seesaw, some downs, some ups, et cetera, and so I wouldn’t read too much into a huge decline or too much into a huge advance at this point.  I go back to my first video where I talk about, the video from last week, where I talk about what’s your time horizon, what’s your plan and what’s your conviction.  I highly recommend you go back and watch that video.

Today I want to talk about some of the reasons being given for the decline in the market.  There are five things, I have written them down here that you’ll read about.  The first one is plunging oil and that’s what really today’s video is going to be about.  Second one is fears about China.  We’ve been talking for months and for years about China and so this should not, if you’ve been watching the videos and reading my newsletter, this should not be a surprise to you.  Third thing is disappointing profits.  The fourth is trading milestones like the 200 day moving average, there’s certain technical indicators.  The fourth thing is rate jitters, which is concern about what the Fed might do in September.

Let’s focus just on plunging oil.  What the heck does that mean?  Back at the end of June oil a barrel was over $60, today is closer to $40.  That’s a pretty huge move in just a couple of months.  Now it’s good for us to remember that oil is an input into the equation of expenses for a company and for you as an individual.  So would we want – so there’s lots of different variables: employee cost, oil, the cost of manufacturing, all your cost of goods sold.  And those costs are passed on to the consumer.  So it’s good for us to remember that.  I mean if there’s an increase in one of those variables, in order for a company to be viable they have to pass on their expenses to the consumer so ultimately you pay for that consumer.  Or, when you go to the gas station would you rather pay $30 for a fill up or $40 for a fill up?  Of course $30.  Now that allows more income to be diverted towards other things.  So if I’m now spending $30 where I used to spend $40 for my gas tank, then that gives me $10 to go into the grocery store, to the movie theater or whatever it might be and help my economy in that way or enrich myself or reinvest that extra $10.  From a company point of view, the vast majority of companies are helped by a lower cost of that input than are hurt.  There are some that are hurt.  I’m not going to lie to you.  Some of the oil and energy companies are hurt by it, but let’s just look at the unmanaged stock market index, the S&P 500.

The top five sectors are technology, with about 18 percent of that unmanaged stock market index; healthcare of about 16 percent; financial services 15.5; consumer cyclical about 11; and industrials about 11 percent.  You add all those things up and 70 percent of the S&P 500 unmanaged stock market index sector wise is non energy related.  And it’s not that the other 30 percent is energy related, it’s these are ones that are going to be helped out, the vast majority, the greater good is with oil being at a lower price.

I’m going to throw up on the screen there real quick just oil production.  You can see that the U.S. oil production, I put a red arrow next to it, has significantly increased in the last two and a half years.  And so what we have with the price of oil is, and one of the reasons why people have concerns about it, is it can be an indicator of the health of the economy.  So when the manufacturing is slowing down you demand less oil.  And so therefore when you see less oil then that means that the economy is slowing down.  That makes sense.  However, that’s not the entire equation on the price of oil, it’s price and demand.  So if demand is decreased – in this case we’ve had some demand decrease, which is true, but we’ve also had incredible production.  So it’s not just the demand, it’s also the galots [ph], the quantity that’s available is significantly greater and increased and so therefore even with the same demand the price would have gone down.  The fact that we’ve got some lesser demand just kind of exacerbates the particular problem.

I’m going to throw another chart up there real quick.  You’re going to see the economic drag as JP Morgan has done it.  You can see that lower price provides less of a headwind against the particular GDP for our particular country.  This is a good thing.  And so my whole summary of the video is yes some are hurt by lower oil prices and some of the stocks that are tied to that, energy in the S&P 500 unmanaged stock market index and some of the other unmanaged stock market indexes are hurt, or if it’s a part of a diversified portfolio and things of that nature.  However, the greater good over the long-term, the one-year and the five-year of having more money that you can reinvest or to repurchase and put into the community is a good thing overall.  So I see this as a good thing, not as a bad thing even, though there might be some short-term impacts and that might be one of the five reasons that have been given.

I’ll talk about China, I’ll talk about rate fear] in subsequent videos, I’ll talk about the trading milestones, some of these other things so that you’re well formed over the next couple of weeks.  Mike Brady Generosity Wealth Management.  303-747-6455.  You have a great day.  See you.  Bye bye.

Time Horizon, Plan, Conviction

“I never said it’d be easy-I only said it’d be worth it”–Mae West.

That’s what I think about when I think about investments.

Yes, the unmanaged stock market indexes are making the news, but the whole reason we have a plan, discuss the time horizon, and determine our conviction is because these events happen. Always have, and always will.

History has shown us that those who ignore and then over-react are the ones most hurt. I don’t do that, and I wouldn’t want any of my readers to do that either.

For my full thoughts, click below for the video.

Hi there.  Mike Brady with Generosity Well Management, a comprehensive full service financial firm headquartered right here in Boulder Colorado.  And I am recording this on Sunday after a pretty interesting week in the unmanaged stock market index; it’s like the Dow Jones and the S&P 500.  Perhaps you read something about it or saw it on the news.  And so the question is should we freak out or how freaked out should we be?  And I’m here to tell you step away from the ledge and why I say that.  I was recently at a conference.  This was a big conference in Washington DC, I just got back last night with probably 1500/1700 people there, big key note speakers, the whole deal.  And I know that not everything went according to plan.  I noticed that there were a couple problems with the speakers and some other logistical things that happened.  And I know the organizer and she was cool as a cucumber.  And so I went up and I talked with her.  I’m like, “Wow how can you stay so calm when a couple of things really didn’t go the way it was supposed to?”  And she said to me I thought very wisely she’s like, “Mike, that’s why I do all the planning in advance.  I’m here to execute the plan.  That’s why it’s called a plan.  Conference organizers who are running around like a chicken with their head cut off are those that haven’t done planning in advance because when a problem happens it’s too late.  You already have to have a plan that you can stick to and you just work through it.  You just know that nothing is going to go perfectly; there’s going to be some speed bumps and it’s just part of the deal.”

So with that as a lead in, the people who should be concerned are those with a short time horizon.  If your short time horizon is six months, 12 months, maybe even 18 months to two years and you’re undiversified and you don’t have a plan and you’re going to need that amount of money, you shouldn’t be investing in the stock market in my opinion.  I’ve said this time and time again in all these videos that if you have a short time horizon, and in my mind I think of that as one year, two year or even less, it’s inappropriate because the unmanaged stock market indexes go through ups and downs and sideways and that is too short of a time horizon for there to be a cycle.  If you are undiversified, that’s not very smart because individual stocks can take a very long time in order to bounce back, if they bounce back at all.  And you should be concerned if you don’t have a plan that includes stocks and bonds of some diversified nature, even though having a diversified portfolio does not guarantee against loss in a generally declining market, if you do not have a plan like that that’s the reason why you have it.  Bonds have a tendency to pull things up when stocks go down and the other way around and you’ve got to find a plan that works for you because investor behavior is what hurts most people.  That has been my experience in 24 years is that people ignore and then over react.  And I certainly don’t do that and I’m here to tell you if you want to be, in my mind, the smart money, you’re not going to do that either.

People have a tendency to wait too long to get into the market.  Let’s think about ’98, ’99, 2000, my gosh you were a fool if you didn’t get into the Internet stocks because everybody made money there and you can’t lose and how could you be so foolish to be diversified, you need to go all into this.  Well, that of course was the wrong time to buy.  The market goes down and then people say well this obviously isn’t for me right before the market rebounded back all through the 2000’s.  I remember in March of 2009 you couldn’t find somebody who wanted to, it felt like, I couldn’t find somebody someone who wanted to invest in equities and in stocks, when really that was the time that made the most sense.  So our emotions cause us to do the wrong thing at the wrong time.

So let’s talk for just a little bit about just 100 percent stock market index.  I’m going to put up on the chart there, on the screen, something that I do on almost every single video it seems like.  And what you’re going to see the bottom number are the red numbers there, it is normal for there to be declines of even double digits throughout the year.  And if you go back and watch everyone of my videos for the last three years I’ve been saying that every time it happens people get all concerned, when in fact that is the norm.  The thing that has been unusual is that the last two/three years it has been unusually not on the downside.  So what we have seen the last week or two that been so alarming because it happened very quickly over a week or so.

In a future video I’m going to talk about some of the reasons and I’m going to dissect them, but if you’ve got a diversified portfolio, which is what you should have, I’m going to throw another chart up there on the screen.  You’re going to see at the far left-hand corner one year and then the second grouping of bars is five years, ten years and 20.  The big green bar there is over the last 64 years the high for 100 percent stock market index S&P and the low.  And so you can see there’s huge highs and huge lows.  But then when you look at the second bar in that grouping is bonds.  Bonds have a tendency to not have the high highs and not have the low lows.  And when you group them together it has a tendency to bring down the highs and bring up the lows.

When we look to the second grouping, which is a five year time horizon, not one year, not two year, historically a combination of 50-50 stocks and bonds has never had a losing five year time horizon going back 64 years, when in fact, of course, it could in the future.  I can’t guarantee what’s going to happen in the next five years, but I do know that historically the odds are in our favor, I believe, that if we have a diversified portfolio that is the way to go.

I’m going to put up on the screen talking a little bit about investor behavior.  At the top of the screen you’re going to see, starting in October of 2007 all the way through 2008 and all the way to the decline of 2009, and you’re going to see the top two lines did decline, but they very quickly came back because they were diversified.  The bonds have a tendency, and the bottom one by the way was 100 percent stock market index, which you shouldn’t be in anyway for most people.  I mean if you can have your investments for a long time multiple and you can handle, you just put it in a shelf and say no matter what I’m not going to lose a minute of sleep, then that might be the answer for you.  I don’t know.  I’m giving very general thoughts here, but that might be the answer.  Most people though get concerned.  So that’s why we have to know what our investor behavior is.  We want to be the smart money and so therefore we usually include some bonds in there, which has a tendency to buffer some of the downs and unfortunately also buffer some of the up as well.  When we look at those lines, I’m going to throw it back up on the screen there, you’re going to see that within pretty quick order, and this is even after that horrible 2008, it came back.

So one thing we have to ask ourselves is what is our conviction?  If you don’t believe that two, five, ten, 20 years from now the United States, and that’s where the majority of most investor’s money is, if you don’t believe that the United States is the bet that you want to make, why do you have any money in it?  But if on the other hand your time horizon is five years, ten years, 20, and if you say wow I believe that in comparison to the rest of the world we’ve got the best ingredients, we’ve got the best workforce, we’ve got the best in comparison to others or the theory of relativity, I’m throwing in some Einstein for you, then this is part of the deal.  We’ve got to stay invested and we stay calm and this is a buying – the world can be really scary if you let it be scary or it can be a world of opportunity if you let it be a world of opportunity.  Warren Buffett, and I’ve said this many times, Warren Buffett has said that be greedy when others are fearful, fearful when others are greedy.  And people are fearful right now.  This is a wonderful opportunity if you believe five and ten years down the road and you’ve got a time horizon that is long.  And most people have a long time horizon.  If you’re within two or three years of retirement, I have to tell you unless you plan on dying the day after you retire, you got another 20/30 years probably to live even after retirement.  If you’re in retirement, you know, you’re in your 70’s your probability of you and your spouse one of the two of you is going to live into your 90’s.  That’s just the actuarial reality of it.  And so what works for us is our time horizon.  We have a plan of stocks and bonds, we have a positive conviction, which I personally do, and we don’t ignore and then overreact.  Because frankly your unsophisticated investor has a tendency to wait too long to get in and then get out right at the wrong time and that’s why we have a plan.  We think about it in advance so that frankly we’re cool as cucumbers when this happens, we’re not scared by Cramer on CNBC and all of the TV.  The best thing for this are the news channels and all the newspapers because people, if you want to see negative you’re going to see negative.  If you want to see positive you can see positive.  Frankly I try to take both of them.  I try to be agnostic, although I have to say my conviction is that I see the positive in there and there’s a buying opportunity from my point of view.  I have no idea if one or six months from now the market is going to be higher or lower than it is right now.  I believe that it’s going to be equal or greater.  I’m not going to lie to you.  Not one month perhaps but six months from now, but I could be wrong.  I could absolutely be wrong.  I could be wrong a year from now.

But you know what, if your time horizon is a year you shouldn’t be in it anyway.  So it’s an academic discussion that we’re having right now.  That’s why you have stocks and bonds meshed together in a diversified portfolio with a time horizon and with a plan that works for you.  There is – I said something about a scary place, just in the last couple of years, I just want to throw out some topics here, remember how scary the Flash Crash, this is just what we saw in the last couple of years, the debt ceiling, the S&P downgrade of the U.S. government, Europe almost collapsed, Greece almost collapsed just last month.  The emerging markets is not going to take down the world.  That’s my opening.  That’s my stake in the sand and I’m going to throw out there.  But emerging markets should be a minority of your portfolio anyway.  Is it going to affect the U.S. portion of your portfolio?  Yeah it could.  But even Greece, Greece is incredibly small compared to – I mean they’re a $185 billion GDP, we’re 14, 15 trillion.  They’re one percent, less than one percent of us.  So there’s always things out there that are scary.  That’s why we have the plan in advance.

I’m going to continue with videos throughout, you know, assuming that some headlines happen.  I’m going to try to explain; I’m not going to do them super long.  This one now as I look at my clock looks like a really long one.  I’m going to try to keep them shorter so that they are piffy but that you know that I’m on the job over here watching things on your behalf.  (303) 747-6455. Mike Brady Generosity Well Management, give me a call if there’s anything I could do for you.  Talk to you later.  Bye bye.

Mid-Year Check-In

While there have been some exciting one day swings in the unmanaged stock market indexes so far this year, it’s actually been relatively calm, without big 5% and 10% weekly and monthly swings that we see periodically in the markets.

As of the end of the 2nd quarter, most major unmanaged indexes were about break even.

In my video, I talk about the impact Greece and China may have on the markets going forward, and how the potential interest rate hike in September may affect things.  I’m not gloom and doom, so if you’re looking for that, than you better  watch something else!

Hi there.  Mike Brady with Generosity Wealth Management, a comprehensive full service wealth management firm headquartered right here in Boulder Colorado.  And I’m actually not in Boulder right now that’s why I’m a little bit more casual than usual.  I usually have a library behind me, a blazer on, but for 4th of July weekend I thought I’d come up to our family cabin in Wyoming and with high speed satellite Internet, cell phones and computers and scanners, my entire office is right here as if I was right there in Boulder.  Technology is wonderful.  I hope you’re enjoying the summer.  I’m enjoying, when I’m not working, the mornings and the evenings, the sunrise and sunsets are absolutely beautiful.  I hope you’re having a wonderful summer as well.

 So this is our second quarter review, sort of a year to date review and a rest of the year preview, kind of a mid year mid report, kind of a halftime check in here.  We’re going to talk about Greece, we’re going to talk about China and interest-rate, but first let’s talk about what’s going on so far right now with the big picture.  Big picture is so far this year the unmanaged indexes are about break even.  They haven’t been really that volatile, although there have been some volatile days.  But in general it’s actually in comparison to historical terms a relatively low volatility.  I’m going to put up on the screen there the last 18 years of the unmanaged stock market index S&P 500.  Why it started in ’97 I have no idea, but the chart starts there.  And you’re going to see some big swings up and down and up and down.  And since March 2009 you’re going to see that we’ve been on a very nice upward mobility on that particular index.

 The stuff that’s happened in the last six months and the last 12 months, and although it’s taking a little bit of a breather, it’s a little bit of a consolidation period.   I mean there’s times where the market goes up, it goes down and times when it goes sideways.  And right now we’ve been going a little bit on the sideways.  I’m going to put another chart up there and you’re going to see this is one of my favorite charts and frankly every video that I seem to do anymore I put this chart up because I like it so much.  But this is since 1980, so that’s a good 35 years of the unmanaged stock market index S&P 500.  The numbers on the top of that X axis are the end of the year returns.  So 27 out of 35 years have actually been positive, some of them are negative, of course, but 27 out of 35 have been positive.  But during the year that’s the number at the bottom that kind of that bar chart underneath the X axis and that’s the entry year decline.  That means that just hypothetically if the market went up ten percent and then it lost four percent down to six percent and then went up and ended the year at eight percent, rebounded back, that would have and enter year decline of four percent because from the top to the bottom throughout that year there was the maximum four percent decline.

 Well, that’s actually what we have so far this year.  The S&P 500 is about to break even as of June 30th and it’s really kind of have been going up a couple percent, lose a couple percent, up a couple percent, lose a couple percent.  And so that entry year decline is relatively minor and mild when you look at it in comparison to previous years of double digit highs to lows.  So that’s been kind of the first six months of this year.  One of the more difficult things to do as an investor is sometimes to do nothing.  And so my video here today will sound an awful lot like some of my videos in the past over the last three/six/12 months because we’ve actually been on a little bit of a holding period now and it’s my analysis that that holding period is not leading till a big crevice that we’re going to fall into and Armageddon before us, but one that will actually creep higher that it is lower.  Our earnings per-share for the market in general are coming in positive and I continue to think this is a good market to invest in, particularly in a well diversified portfolio.

 I’m going to throw a chart up there and what you’re going to see here is this is another one of my charts that I used time and time again, but it’s rolling returns.  That first grouping is one year, the second grouping is five, the third grouping is ten and the last one is 20.  That’s a rolling return going all the way back to 1950.  And that third bar in each one of those groupings is a mixture of 50 percent unmanaged stock market index with 50 percent of an unmanaged bond index kind of shoved together.  And what you can see is that time is our friend.  I mean historically going back 65 years, if you had those two indexes mixed together held like that there’s actually never been a five-year timeframe when you haven’t at least made a little bit on average each year.  Some years it might be negative, negative, negative and then you made up for in the fourth year and the fifth year, et cetera, but when you average it out if you hold it for that timeframe there’s actually never been a timeframe, a rolling five-year holding period where you’ve lost money, and the same thing with ten year and 20 year.  So we’ve got to be in this for the long-term I think as investors and so volatility in the market is a part of the game, even though we hated every time that it happens.  And I think that this is one of those times when the headline is a little bit bigger than what we’re saying right now.

 One thing that you’re going to hear an awful lot about in the next three months is interest rates.  In September the Federal Reserve is going to get together and it is highly expected that they will start to increase the interest rate.  And you’re going to hear all kinds of Armageddon stories about it.  And all I can say is that we’ve been anticipating this for a very long time and I believe that it’s priced into the market.  When we look at the last three interest rate increases, which was ’94 and ’95, ’99 and 2000 and then 2004 – 2006, initially there might have been a decline, I put that graph up on the screen, there might have been a decline but while the interest rates were increasing the unmanaged stock market index has continued to rise.  And so it wasn’t this huge horrible thing that you might have been led to believe in the last two/three years while we’re looking at historical.  Now of course, future this time it could be different.  Maybe the interest rates increase and the market goes on the downside.  I don’t think so.  Possible.  But the last three rate increases that hasn’t happened, I mean the market has continued to increase over a two-year timeframe even while the interest rates were increasing.  So there’s not a perfect correlation that when interest rates increase then the stock market decreases.  That’s just not true, even though you might have been led to believe that by some kind of watching something on TV.

 Something that’s really big in the news right now is Greece.  If I had to explain Greece I feel for all of the Greek people.  They’re in a world of hurt and I’m not exactly sure where this is going, but it’s relatively small.  They have an economy about the size of Detroit.  They have an area, physically geographically the size of Louisiana.  They’re really, really small but they are part of the European Monetary Union.  And so therefore the question is how is that exit, you know, what’s the moral hazard if they get bailed out?  Now I’m recording this on a Tuesday, they’ve already had their vote on Sunday and they’ve rejected by a pretty substantial amount, 61 percent, of negotiating and taking the first deal, well not really the first but the most recent deal that the European Union was giving them.  So I feel for the Greek people.  I have to tell you that it’s a little bit like having that family member who always has a big story about why they need money but no matter what they do, whether it’s a sibling or a child or a cousin, but they always spend more than what they bring in for whatever reason and their habits don’t change, their behavior doesn’t change so after a certain point you stop loaning them money.  You stop giving them money.  Everyone everybody in the family knows don’t give uncle Joe this money or don’t give Susie that.  And so it’s a little bit like kind of that ugly sibling in the European Union right now, which is Grace.  And there’s a few others that are looking to see what happens, Spain and Portugal, et cetera.

 And I don’t want to minimize this in anyway because it could be a bigger deal than it is, although I don’t believe it is at this point, but it could.  But when we look at history sometimes there are small events that turn out to be big events.  I mean when Ferdinand was assassinated in 1914 it led to World War I.  Well it wasn’t that small event of the assassination, it was all the alliances.  There was a bigger picture than just that one small event.  And so this could turn out to be the same thing, although I don’t believe that’s going to be the case at this point right now.

 I think a bigger deal is China.  I mean you’ve been hearing me for years now talk about China and how I don’t necessarily trust all of their numbers.  Well, their stock market, which has just been on an absolute tear this year, just lost 30 percent of its value in the last three weeks.  And so I think that those who were invested, that bubble there are also realizing that what is reported is not always the full information and so therefore it might have been priced in inappropriately before and now it’s being corrected.  And so if that’s showing a slow down in the Chinese economy, that’s a huge economy, that’s something that could affect all of us.  So I think that that’s something that we ought to watch as closely, if not more closely than Greece, even though Greece is a spectacular problem at this point right now.

 That’s what I’ve got.  I’m still optimistic going forward for the rest of the year and so I’m not making any major changes.  We’re kind of in this holding period right now.  There’s nothing that I’m seeing that leads me to change my beliefs from the last quarter or frankly the last year/year and a half that having a well balanced portfolio makes sense and that we’re not going to have, I don’t believe that we’re going to have this huge decline.  And so I think we ought to just stay with where we are right now without any major panic.  So anyway, like Brady Generosity Well Management, 303–747–6455.  You have a great day.  Give me a call.  Give me an email.  I’m always here.  Thanks.  Bye bye.

First Quarter Review / Current Thoughts

The first quarter was a great reaffirmation that diversification can be your friend. US Large company indexes lagged, but middle and small companies did better. US Bonds did well (in general), as did international stocks.

While diversification does not guarantee a positive return in a generally declining market, my experience is that it does tend to “buffer” some of the returns so you can stay with the plan that works for you.

In my video, I review the past quarter and continue my theme about what I’m watching to come to a “health” conclusion on the markets. Okay, I’m still bullish, but why you may ask? Click on the video for my thoughts and analysis.