Are you a “lane changer”? In traffic, he’s the guy who’s constantly changing lanes, expending a lot of energy but doesn’t really get ahead.
We all know we’re supposed to “buy low and sell high”, but unfortunately your average investor doesn’t do that. When we look at the flows into and out of equity funds we find that people are pouring tons of money in when the markets are high and withdrawing at market bottoms.
Why? By the time people feel comfortable with the direction of the market (investor confidence is increasing), they’re looking at recent past data and many times the “upward movement” has already occurred. A little late. Same deal on market declines.
I happen to believe in active management, but you’ve got to be disciplined and unemotional, and that’s tough to do!
In this week’s video, I expand upon these thoughts and even have some pretty graphs imbedded for you. Watch it please, and don’t be a investment lane changer!!
TRANSCRIPT:
Hi there, Mike Brady with Generosity Wealth Management. And I this week I want to talk about staying the course, OK? About six months ago I did a video about conviction, in which really I asked the question “what do you really believe in?” “What do you really stand for?” What is that line in the stand? And that could be in your own life; that could be in your financial life. It’s really a question that I think could have lots of areas where it’s applicable but right now it’s really about investing.
I’m going to throw a chart up in just a few seconds here, but most people do the wrong thing at the wrong time. And I don’t want you to be that dumb money, I want you to be the smart money. And people always say, “Oh I buy low and sell high.” But frankly most people throw lots of money into funds when it’s at a high, when they feel comfortable, like, “oh, yeah man, the market did so well the last year or two, and I’m going to throw lots of money in…” because they expect it’s going to continue to go up. And they think that the market is actually linear; meaning if it’s gone up, it’s going to continue to go up, or if it’s gone down, it’s going to continue to go down- and that’s just not the case! It goes up, it goes down, it goes sideways! And real people also withdraw money, you know, usually at the bottom. And so this is a good indicator, frankly, when people are taking money out, the contrarian in me, I say, maybe I want to invest in that. That’s a good buying opportunity. Warren Buffet has a famous phrase, “be greedy when others are fearful and fearful when others are greedy.”
And the chart, I’m going to throw it up there right now. You’ll notice, at certain times, I’ve circled them, the market has gone up, that’s the line, and then the bars are the money flows, in and out. And you’ll notice that the bars are the highest when the market is at the highest, which is what you don’t want. And then the, (sorry about that, I just hit my microphone) and then when the market is at a low is when people are taking all their money out- which of course is the exact opposite.
So, have discipline, please. Be the smart money.
I’m happy to help you with that. I talk with my clients all the time and I do these videos and these newsletters to really have good communication, good education, so we can go through this with as little emotion as we can, but of course we’re human. We’re not a bunch of Vulcans running around! But, let’s have our course, we’re at Point A, where are we going to Point B? Let’s go there.
My wife said something the other day at breakfast that I just thought was wonderful, which is, “you know if you’re going down the road, and you’re in traffic, and have you ever noticed that person who’s jumping from one lane to the other, trying to get ahead of everybody else? Well, a lot of time’s they are expending an awful lot of effort and not getting any further.” And it’s so satisfying, frankly, when you’re just sitting there, staying the course, and you just keep passing this guy. Well, I want you to be that person.
So, anyway, 303-747-6455, Mike Brady is my name, I’m the President of Generosity Wealth Management. I serve the Boulder, Denver, Longmont area here in Colorado, but I’m in many different states. Perhaps I’m already registered in your state and have clients in your state, if not, let’s have that conversation. I’m looking to grow my business and I hope to do the best job that I can for you, I really care, I’ll treat you like my family. 303-747-6455. You have a wonderful, wonderful week, thank you, bye bye.
It is common for there to be declines in the markets throughout the year, sometimes even double digits declines.
This is to be expected.
As an investor, one of the reasons we diversify and modify our allocations throughout the year is to try to minimize these fluctuations.
What should you do when there is one of these expected declines? It depends on the situation at that time.
Please click on the video below for a 4 minute discussion I give on this topic……
TRANSCRIPT:
Hi there, Mike Brady with Generosity Wealth Management, here in Boulder, Colorado. And I this week I want to talk about intra-year declines, and frankly, the correlation they have with the end of the year returns. Because, I talked about this just a little bit when I did my end of the year video (kind of beginning of the year video) where I said that on balance, I’m optimistic for 2012. And at that time I said, “listen, it’s common for there to be volatility,” but volatility has increased in the last couple of years and I believe that volatility will continue going forward.
It is common for there to be, within the year (intra-year), declines that we seem to forget after the year is over. Negative, kind of from the high to the bottom, within a year of you know, eight, nine, even double digits, but that doesn’t mean the year is going to be horrible. So as 2012 unfolds, we’re going to find some times where it’s not as high as it used to be, OK? That the market has declined, and that is part of the process, part of the journey and the travel. Now that being said, the reason why we diversify, and we adjust our allocations throughout the year is to try to minimize the impact that we have. But we know that it’s going to happen.
So the question that we ask ourselves at that time is, “why is this going down, you know, why is the market going down like that?” Is it event driven, where there’s a lot of emotion around it? Is it value driven? What’s the cause of it and at that time, do we believe it will continue to go down, or do we think that this is just going to be one of those normal, you know, fluctuations, and staying invested is the right thing to do? I don’t know what we’re going to do at that time, but I’m preparing you right now for that, you know, almost inevitability. OK?
I’m going to throw up on [screen] here… here are some intra-year returns and then declines and then the annual return. And you’ll notice even in the last two or three years, a twenty-eight percent decline in ’09, sixteen in 2010, and even last year there’s a nine-teen percent decline and it ended up the year, and that’s on the S & P 500, which is an unmanaged index, that doesn’t necessarily mean that the year ended on a decline.
So, you know, one thing I want to talk about is as well, that when I say that I’m more optimistic because I look at the value of the market and I believe that the prices are…, I believe it’s an underpriced market right now, that does not mean that I discount all of the negatives out there. The way I like to think of it is, there’s a scale, there’s all these things on the negative side, and all these things on the positive side, and which way is it going to tilt? And it is still acknowledging that there are negative things. And someone else, another analyst, might take the same data and say, “no, I’m going to weigh all the negatives a little bit more than the positives.” And so there are always positives, there’re always negatives out there and the question is- how do you weigh them? And which one is a little bit more than the other? And of course, you might adjust your opinion as the year unfolds.
So anyway, that’s one thing I wanted to talk about this week. I hope that you’re doing well. The Super Bowl was a couple of days ago, and frankly I’m recording this right as we’re going into the weekend so I don’t know who won but you do, so hopefully your team won.
Mike Brady, Generosity Wealth Management; I’m a comprehensive, holistic, wealth management firm, with tax planning, estate planning, investment management, retirement planning, I really try to do all of those in order to help my clients meet their goals. Mike Brady, Generosity Wealth Management-303.747.6455.
You have a wonderful week! I’ll talk to you later, bye bye now.
Goodbye 2011 and hello 2012! What happened and what’s my outlook for 2012? Optimistic or pessimistic?
Watch my video to find out.
TRANSCRIPT:
Hi there, Mike Brady with Generosity Wealth Management, and today I want to talk to you about a little bit of a review on 2011, but spend most of my time talking about the current situation right now. And you know, maybe do a little bit of a, …, thinking about 2012 and what the future may hold.
2011 was a real volatile year. I mean frankly, when we look back at year upon year we can always say that it’s very volatile. I’m going to show you a graph in a minute or two that actually shows, we kind of forget about it, but many years have large declines intra-year. So 2011, (I’m going to throw this box up there); this is kind of a style box from value, blend, growth, and large, and mid, and small cap.* And by the way, I’ve got lots of disclosures at the end of this video so I highly encourage you to read those disclosures about the unmanaged stock indexes. So what you’ll see is, in general, the U.S. market was up a couple of percent to down five or six percent, but it was a wild ride the way we got there.
The first four, four and a half months of the year were up starting in May and June, we saw some weakness and then August and September were really quite brutal. Just huge, you know, hundred point swings in the DOW every other day and it was really quite painful and there was a huge focus on the downgrade of the U.S. government by S & P and a real focus on the U.S. federal debt. And, you know, 2011, one of the surprises was how well bonds did. I know I’m very surprised. And Bill Gross, who runs one of the largest funds out there, particularly bond focused funds, he admitted half way through the year, well maybe three quarters of the year, that he guessed it wrong. So, I think that how well the bonds did in 2011 is going to be the big surprise. But that’s why we remain diversified. Because my experience has shown, in twenty-one years, that the thing that you love the most sometimes you’re just darn wrong about! And so the thing that you hate the most, sometimes you’re wrong about that as well. So it’s really looking at the percentages, maybe weighting one over the other and changing that allocation throughout the year.
So you’re probably wondering about 2012. Right here in my hands I’ve got “15 Experts Predict 2012,” a little article. And we’re talking big names, Goldman Sachs, and UBS, and you know, kind of every big name that you can think of out there. And frankly, one article says that China is the best thing in the world, then the next one says China’s going to be a problem. One says that the U.S. is going to have great growth and the next one says it’s going to have poor growth. One saying bonds are good, one bad, and really the answer is always unclear, this year is no different.
I do believe we’re going to continue to have volatility, and one thing that I’m going to do is meet with clients and talk about whether or not some strategies need to be implemented to take advantage of that. But I am optimistic about 2012. I’m going to throw up a chart here; we’re going to see that the percentage of current assets that are in cash and equivalents has increased. And from a corporation point of view, that makes a lot of sense. I mean that when there’s uncertainty, you’re not sure how many widgets you’re going to be able to sell or how many services you’ll be able to provide, you want the best balance sheet that you can have. And I think the best recipients, when that cash gets converted back into research and development, gets back into the economy, I think that mid and small cap companies are going to be the ones that are kind of the first beneficiaries of that.
2012, I feel will be event driven, just like 2011 will. [sic.] We’re going to hear lots of stuff from Europe, and we’re going to hear a lot about the debt, and of course this is an election year so we’re going to hear all about, all about the election year politics. But I think we’re also going to hear about China. That’s going to come in here because it’s had a huge growth. It’s been one of the largest, kind of emerging into the developing markets, but it’s faltering. And this could be the year where it kind of teeter-totters to the bad side. So that’s something that I’m going to really watch out for.
I’m going to throw up here on the chart, that as it relates to volatility, here’s a chart that, we kind of forget about it but most years have some kind of volatility. The bottom number is entry year, kind of decline, and that does not mean that the year ended. The black number is actually what the year ended. So although there might have been a double digit decline throughout the year and everyone kind of freaks out, you know, it’s not over till it’s over. I’m here in Boulder and we got our Denver Broncos and between the fourth quarter and overtime, you know, the game’s not over till the whistle blows. And so throughout the year if we have some huge declines we have to assess at that time, “hey, wait a second, is this going to continue, or is this just one of those throughout the year declines that we still feel firm in our analysis that the market may be under-valued?”
Speaking of the market being under-valued, I don’t hold much weight with forward price to earnings ratios, but I do like, not the forward, but the actual price to earnings ratio is low right now. Particularly in comparison to like the twenty year average and what it’s historically been. So I’m kind of in the Warren Buffett camp that believes that this is a market that is under-valued; that the economy is actually getting better, it might not feel that [sic.], particularly if you’re unemployed. I mean we have an unemployment problem, and we have a housing problem. But you know, I’m kind of in that camp.
You know I could sit here and go on and on and on. But I think that I’ve gotten my feelings out to you that in general, I’m optimistic about 2012. I think that small and mid-cap are probably kind of the styles that deserve closer attention. But you’ve got to, of course, do what’s consistent with what your risk levels are, and your particular goals. And work with your financial advisor and hopefully that financial advisor is me, but if not, of course, everything I say here today is kind of general, so you can get a general feel for how I’m thinking.
That’s it for 2012.
Mike Brady, Generosity Wealth Management; I do have these videos on a weekly, sometimes every other week, depending on how busy I kind of get and if I’m able to get it out in time.
I am a full service wealth management firm, here in Boulder, although I have a number of clients in many different states. I named it Generosity Wealth Management because I truly believe that people are trying to make the world a better place and that includes making things better for themselves so that they are not a burden upon others in their own retirement. That they make things better for their family – so that they can pass money on to their family or just provide for them; whether it’s a college education; whether or not it’s just to make their life a little bit easier. But also to make their community a better place- both local and global community. And so there’s some “generosity” that each of us have inside us. And that’s many of the thoughts that went into my company name of Generosity Wealth Management.
303.747.6455
www.generositywealth.com
And please, stay tuned, I will have another video and another newsletter before you know it. You have a wonderful, wonderful day- bye bye.
* Small Cap- refers to stocks with a relatively small market capitalization. The definition of small cap can vary among brokers, but generally it is a company with a market capitalization of between $300 million and $2 billion.
Mid Cap- refers to a company with a market capitalization between $2 and $10 billion, which is calculated by multiplying the number of a company’s shares outstanding by its stock price. Mid cap is an abbreviation for the term “middle capitalization”.
Large Cap- A term used by the investment community to refer to companies with a market capitalization value of more than $10 billion. Large cap is an abbreviation of the term “large market capitalization”. Market capitalization is calculated by multiplying the number of a company’s shares outstanding by its stock price per share.
Keep in mind that the dollar amounts used for the classifications “large cap”, mid cap”, or “small cap” are only approximations that change over time. Among market participants, their exact definitions can vary.
Definitions courtesy of www.investopedia.com and reflect a general rather than specific understanding of these industry terms, unless otherwise stated.
John Corzine? John Paulson? Both very wrong in their market calls.
You’ve heard me over past 3 years talk about humility and diversification. My 21 years in the business has taught me that the investment, sector, stock, etc. that I absolutely love is still the one I need to calmly and rationally buy in an amount that I’m willing to be really wrong in and cut my losses quickly if necessary.
