February 2020: Market Decline Updates

Worry does not empty tomorrow of its sorrow, it empties today of its strength.” – Corrie Ten Boom

There’s an old adage that says that the market takes the stairs up and the elevator down. And what that means is that there are sometimes in history spectacular events that have become noticeable that become memorable like this past week or so when we’ve seen some double digit declines. But stay calm, your long-term investment strategy should remain unshakeable.

Check out my full thoughts:

 

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Transcript

Hi there. Mike Brady with Generosity Wealth Management; a comprehensive full service financial services firm headquartered right here in Boulder Colorado. I’m recording this Friday afternoon after a pretty eventful week. A very interesting week hence the reason why I’m doing this video. If you look at the background it’s not my normal one, I happen to be at a conference so this is my hotel room, but it was so important I felt to get to you as quickly as possible that I decided to do it right here in my hotel room. Fortunately, the way I look at it I’m never working and I’m always working. When you love what you do you never work a day so I love what I do.

So, there’s an old adage that says that the market takes the stairs up and the elevator down. And what that means is that there are sometimes in history spectacular events that have become noticeable that become memorable like this past week or so. The market has pretty much every day this week had very memorable, you know, the Dow, which is an unmanaged stock market index, decline of the hundreds if not even over a thousand points. And what that has done is brought us back to where we were eight months ago. I mean let’s remember that this doesn’t mean you lose all your money that you can market has gone down to nothing, this is back to the beginning of June.

I’m going to put a chart up on the screen. One of the reasons why I continually talk, both in these videos and with my one on one client meetings, is that if your time horizon is six months, 18 months you should have nothing in the market. One of the problems with big events like this is it really brings people’s attention to it and they start to question in a one week’s time what a two, five, 20, 30 year goal is, which makes no sense to me. The reasons why you have investments is because you don’t need it in the short-term after a one week, one month, 18 months, two years, et cetera. And even when we look at, I’m going to put a chart up on the screen in just a second, even when we look at the absolute worst time on most of our lives history back to 2008 your breakeven point was depending on whether you were 40 percent stock and 60 percent bond, indexes, that would have been a two-year breakeven or three years if you were 60 percent stock index and 40 percent bond index you would be three years or 100 percent in the stocks your breakeven is five years. Now, that doesn’t mean that the five years is necessarily pleasant or the two years or the three depending on what the mix is, but we can have investments that are short-term. I mean just like when we look back to where we were about eight months ago most of us were feeling great we’re like oh my gosh this is wonderful the market I even heard some people say it must be at a top, it must be at a top, whereas here we are eight months later saying oh my God it’s Armageddon. And neither of them are true, they are both points in time along the path of the multiple year strategy.

If someone is only now paying attention that’s less helpful. There’s another adage that says that worry doesn’t change the future and worries the present and so that’s not very helpful. The reason why we continually talk about in our professional meetings and conversations hopefully if we’re talking to ourselves as investors is hey I’ve got this point in the future that I need to go to and that I want to get to for my financial goals and it’s not next week, it’s not hopefully today. If so you’ve certainly shouldn’t of had any money in the market.

So, the question is how do short-term events impact long-term strategy? And the answer should be not at all. That’s why you do it in advance. That’s why my example of perhaps a fire in a house that’s why you have fire drills in a school, in a house, in a building beforehand because if fire is actually happening it’s too late. And so, we hit certain themes, we being financial advisers, me as your financial advisor, the professionals who was doing this for years and for decades of experiences of seeing this we say this is going to happen.

I’m going to put a chart up on the screen.What you’re going to see is those numbers, double-digit declines, are the normal. The actual unique event is that we haven’t really had many of them in the last two, three, four years. Now, it usually doesn’t happen in one week. That’s interesting. That’s a very newsworthy event, but that’s actually the normal is for there to be double-digit declines intra-year within the year. So, what we’re seeing here I don’t know what next week will bring, but I do know that the strategies that were sound two weeks ago are still ones that are sound today. And so, rest easy knowing that we’re here on this path of two steps forward maybe one step back, but we don’t have the two step forward without periodically having the steps back as well.

Mike Brady; Generosity Wealth Management; 303-747-6455. Have a great weekend. Bye bye.

Knowing Your Bias

““It’s good to have money and the things that money can buy, but it’s good, too, to check up once in a while and make sure that you haven’t lost the things that money can’t buy.” —George Lorimer

Each of us has an emotional and a logical side- in investments the emotional side can present biases in our thinking. As we get into the thick of things in terms of elections and leadership, I hear more and more political biases crop up with clients, investors and friends. No matter what side of the aisle they sit, they believe “my” person needs to win for the market to go up, or if “my” person loses it will go down. However the stats all illustrate there is no correlation between that political bias and reality. Let me show you:

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Transcript

Hi there. Mike Brady with Generosity Wealth Management; a comprehensive financial services firm in Boulder Colorado. Today though I’m recording this video from as I call it Generosity Wealth North, which is in Dubois Wyoming. This is where I like to spend a lot of time over the summer.  It allows me the opportunity to get away from the hustle and bustle, focus on the business, what are my values, what are my beliefs, what are my core tenants of the business, of who I am as a person, how I interact with clients, all of these various things.  And right behind me is the view from the south, so this is actually out of our bedroom, which is our cabin is right behind the camera.  You’re going to see this is a ranch, a guest ranch and there’s a, well you probably can’t see it but there’s a little pond over there and our good friends the Prines have been there for five generations.  We’ve had this cabin here for, my wife has had it for 45 years; her father got it in the early ‘70s, so almost 50 years.

Let’s get down to business. It’s my belief that we have a logical side and an emotional side in our lives and the way that we approach decisions and so, the problem is when one gets out of whack.  So, if we’re all emotion then we’re going to be – I think we all know somebody like that who makes every decision on emotions and they’re just going through life in that regard.  We know some other people who are all logic.  We’ve got to have a combination of the two and I’m going to expand upon this in a future video; I’m not going to really talk too much about it today.  But, it’s important for us to know what our biases are.  That’s the emotional side of our investing.  I would actually say that the logical side, the mathematics is pretty good from an investing point of view.  Not good, it’s the easy part.  The hard part is our emotions.  We’re human beings.

What I’m hearing right now is a lot of political bias from various clients.  And I’ve been doing this for 28 years.  As a matter of fact, I got my licenses in August of 1991 so this is exactly my 28thyear of meeting with clients.  And what I hear from people on both sides of the aisle, whether Democrats, Republicans, et cetera, is your rooting for your guy, which is fine or your party, you know, your political view, but you’re extrapolating that into what the market is going to do. So, if your guy wins or gal, your person wins, then the market is going to go up or the other person wins then the market is going to go way down.  And I’m here to say that historically speaking that has not been the case.  I don’t know the future any more than you do so when I look at some percentages I think it’s important for us to acknowledge that it could be different in the future.  All we’re saying is what has happened historically.

The Election Cycle Year by Year Up on the screen what I’m putting up there is the election cycle years going back 82 years.  Historically speaking the worst has been the year after the election and at 52 percent of those years have been positive going back to 1933 all the way up to 2015. And if we were to include 2017 that was actually a positive year.  That was the year after the most recent election, but this is the graph that I have.  When we go into the pre-election year, which is that second bar graph over the third one over, is 90 percent of the years, I like it, this year have been positive, with an average return of 16 percent, which is pretty remarkable, pretty remarkable when you think about it.  The election year, which would be something like next year, 2016, 2012, 2008, et cetera, 70 percent of them have been positive and, of course, 30 percent negative with an average return of about 4.9 percent.

Pre-Election Years Let’s go over to the next graph that I’ve got on there. What you’ll see is pre-election years, like we are having right now, the worst going back 82 years has been a few percent loss.
Election years like next year we’re going to see, that’s the next graph on there, the vast majority of them, 70 percent of them have been positive, you can see some have been negative, usually single digits, except for 2008; that was the financial crisis.  I would argue that that had very little to do with the political, it just happen to be in an election year cycle.  It could have happened in 2007 or 2009, it just happened to happen in 2008. Election Years So, the fact that it was an election year or any kind of a stamp on the current president at that point I just don’t believe.  I think that the logic, the data is there to say that it was going to happen one way or the other no matter who the president was.

Post-election years is the next graph that I have up there.  You’re going to see the majority of them are positive, 52 percent of them.  Which when we really look at all of the years together I mean it kind of makes sense that most of the years are positive because you’ve heard me on previous videos that say that three out of four years historically have been positive and so we ought to have that mindset, assuming that we believe in the markets, we believe in the United States and in the world and that this is the best place for our money, why else would you have money in the markets if you didn’t think it was going to go up long-term.
Post-Election Years
So, I think that it’s important to remember that you can see that from a correlation point of view, whether or not let’s go back to the post-election year whether or not it was a democrat or a republican you can sit here and cherry pick whether or not you think that your guy or gal was the reason for that or your particular party.
It’s just not it.

One thing that I hear as well is a lot of people saying well in the last two/three years have been incredible for the stock market, which it has. US Stocks Hey, listen, it’s been a real good run.  I have to say that there were people in 2016 that said if Trump was to win the market is just going to plunge. Well you know what, the exact opposite happened; 2017 was a very non-volatile year and very positive for the markets.  2018 more volatility.  2019 so far this year, very little volatility historically speaking and a very nice positive year.  So, we’ve had two of the years so far positive, one year not so good.  But here is a graph that I’m putting up on the screen, which will show the top graphic is how many months after the election for Obama. S&P 500 Returns Trump Vs Obama The bottom one is how many months after the election for President Trump.  Listen, I don’t want to take away from anything that President Trump has done, but I’m just saying that we have to keep these things in perspective that Obama, from a market point of view, really had a tough time at the beginning of 2009.  I would argue not his problem not his fault, that was a continuation of the bad 2008, but then it really kind of rallied through ’09, ’10, ’11, ’12.  I mean remember were you there paying attention?  I know I was.  Nobody wanted to invest in equities.  I mean everyone was so negative so negative that was the time to be positive and those that invested in ’09 heavy were the ones who were the big winners.

For Trump over the last couple of years you can see those years it’s been positive. Great. I want to say that that has proven that those people who said it was going to be negative because of him and a volatile person, individual, et cetera, no that’s not true. You can say maybe it was because it was a continuation of Obama.  Okay.  Whatever.  But the fact is that it is positive but it hasn’t been as great as all of those who give all the credit to Trump or those who say no it should have gone negative it actually went positive.  What you’re seeing here is a lot of not duplicity, a lot of hey, this is what is going to happen, lack of humility and the opposite happened many, many times, or there’s no correlation.  If you’re looking for a pattern, our brains have a tendency to do that, you’ll find a pattern. I’m saying I don’t believe that there’s a pattern and this is how I view the world.

Mike Brady; Generosity Wealth Management; (303) 747-6455. Give me a call anytime or an email. Frankly, you won’t know if I’m there in Boulder or I’m up here in Dubois because I am all electronic up here with no problems.  I’m going to end it with a little pan of the rest of the valley. You have a great day.

2019 Half-Year Report

“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.

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Transcript

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.

May 2019: Making Sense of the Market

“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.

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Transcript

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.

April 2019: First Quarter Review

Wealth is the ability to fully experience life. –Henry David Thoreau

2018 is but a distant memory as 2019 has come in fast and furious! In a very short amount of time we wiped away all of 2018’s losses in the unmanaged stock market indexes. This is a quarter that investors and financial advisors dream of, however now more than ever it is time to keep a level head. You hear me say the same thing over and over, and for good reason. Investing is a commitment and in this commitment you need to stay calm.

In the video I discuss humility and bias. Why? Because none of us can predict the future, we do our best to try by watching the news and this forecast and that one, however these media reports consistently report to stretch either negativity or positivity. Middle of the road, even newscasts don’t make headlines, so it’s our job to take everything with a grain of salt.

Watch my short video or read the transcript below and I give a quick breakdown of what we’ve seen so far in 2019.

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Transcript

Hi there.  Mike Brady with Generosity Wealth Management, a comprehensive financial services firm headquartered right here in Boulder, Colorado.

First quarter is over of 2019 and it was a banner year.  These are the types of quarters that investors and financial advisors, frankly, live for.  In a very short amount of time we wiped away all of 2018’s losses in the unmanaged stock market indexes.

April 2019: First Quarter Review Chart 1 Today I want to talk about humility and bias because I think that they’re very important.  I mean just three, four, five months ago there was so much things are horrible and the stock market has continued to go down.  A lot of pessimism.  And then there was lots of optimism in January and February followed by, just three or four weeks ago I was reading an awful lot of pessimism. And the reason why I bring this up is humility.  I don’t know the future any more than you know the future and definitely not any more than those that you see on TV or writing those newsletters or those magazine articles. I mean just take it with a grain of salt, okay, because I think that it’s important for us to have a long-term plan, stick with it and not get too deviated by their particular biases.

And so now I want to kind of shift into bias.  The bias of those in the media is not to be even-keeled.  It is to be sensational either to pump things on the upside and be overly enthusiastic or to be very negative. Just to say oh my April 2019: First Quarter Review Chart 2 god, the world is about to end.  Because both of them get headlines.  Both of them run the viewership up into record digits.  Saying “oh, everything’s all fine.  Let’s just do the middle way” doesn’t really fly.  And so you’ve got to read or listen to your news that way with that particular filter.  I would actually argue that’s a good way to go through life because what is your personal bias?  Is your personal bias to be optimistic or to be pessimistic?  Right now I’m just telling you that going back to 1929, three out of four years is positive.  One out of four has been negative in the unmanaged stock market indexes.  So that means if you’re pessimistic you’re really only right one out of four times.  Being pessimistic might serve you well if you are in a bad neighborhood, to keep your guard up, to be fearful. But it doesn’t really serve you very well, frankly, in your investments.

So think about it even from a relationship point of view.  If you are afraid of being disappointed in friendships is the answer to have no friends?  No.  The answer is why don’t I look at myself and see if I can moderate my reaction to my disappointments when a friend might disappoint me.  That’s the more logical way I would argue in your relationship or friend relationships but also as it relates to investments.  Is the better way to be overly optimistic, overly pessimistic or to take your news with a filter but look for the even way?  To understand that hey, my bias might be pessimistic but wait a second, is this the real truth?

April 2019: First Quarter Review Chart 3 Recently and before I end today’s newsletter there’s been a lot of talk about the inverted yield curve and I wanted to talk about that for a second. The economy is not the stock market. That’s very important to make that differentiation.  The inverted yield curve and we can talk about the difference between the ten year and the two year (maybe I’ll do that in an instructional video next month), but when you see that yes, that has led eventually or at least predicted most of the time to a recession.  But it’s been a huge differential between seven months and nineteen months.  And during that time as I look back over the last – I’m going to put a graph up there on the screen – there’s been some nice April 2019: First Quarter Review Chart 4 stock markets during that timeframe and some nice times to be invested.

I would argue that since there’s a huge variance there of delay and some false positives that it’s not as good of an indicator as you would be led to believe. But even then it’s an indicator of the economy.  The economy is not the stock market.  It’s very important to remember that.  If you look back at the early 90’s there was an indicator of a recession which did happen.  However, does that mean that you shouldn’t have investments?  No way.  The 90’s were one of the best ten year timeframes ever and I certainly wouldn’t take that as an indicator.  The last ten years has been a relatively moderate recovery from the Great Recession when you look at all the underlying GDP numbers versus the averages.  However, this last ten years I’m certainly proud that many people invested in the markets and kept their investments over the last ten years.  The unmanaged stock market indexes have been very favorable even if the economy was not as ripping and roaring as they have in prior decades.

Anyway, Mike Brady, Generosity Wealth Management, 303-747-6455.  Give me a call at any time.  Have a wonderful day.  Thank you.  Bye bye.