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.
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.
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 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?
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 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.