The 1st Quarter 2016 is behind us, and boy was it a volatile one!
My video today is addressing the very common human behavior when things don’t seem to be moving in the direction we want.
When we look at the past 2 years or so, we’ve been in much of a “sideways” market, seemingly without a lot to show for it. The tendency for many investors is to “do something”, but I highlight in the video that proactively doing nothing is an active choice! Don’t be lulled into a false sense of achievement and unnecessarily move things around just so you feel like you’re doing something.
Another good video (if I do say so myself!)
Click on the video
Transcript:
Hi there. Mike Brady Generosity Wealth Management, a comprehensive full service firm right here in Boulder Colorado. Want to talk about the first quarter of 2016, but I also want to talk about the human behavior that we bring into up, down and sideways markets. When we look at a two and a half year time horizon it’s really been a sideways market interspersed with some down and markets in between there. And so what does this really cause many of the average investment investors to do? And I want to talk about that, also the non-linear nature of markets.
Let’s talk about the first quarter 2016. I’m going to put up on the chart there the unmanaged stock market index, the Dow Jones, the most common, but because it’s the best but only because it’s the most common. What you’ll see is that it went sharply down for about six weeks, all the way down to about 15, 666, and then now it’s on it’s way closer to 18,000. Who knows if it’s going to hit 18,000. But that’s a huge variance there. And if any kind of a diversified portfolio with some stocks and some bonds mushed together probably didn’t see the huge down like that 100 percent stock market index, but also probably didn’t see the huge up on the way up as well. And so it’s good to remember that most people don’t have 100 percent of their portfolio in just stocks or the Dow Jones so it’s hard to always correlate exactly what you’re doing with some kind of an unmanaged stock market index.
If you want 100 percent of the market one way or the other there are various indexes and ETFs that you can go into, but the reason why we have portfolios or why most people have portfolios is they like the dampening effect so that they’re not getting all of the down or all of the up. So so far this year, give or take a few percent, it’s about break even after being sharply down just seven weeks ago.
I will tell you that I did a video about two months ago and at that point I was very calm. And one or two clients that I’m very close with said, “Mike, how can you be so calm? Every day it seems like there’s all this bad news and the market lost 200 points here and eight days in a row had lost or however many days in a row, how can you be so calm?” And my answer is after 25 years I’ve seen, I’ve seen ups, I’ve seen big swings of multiple days and weeks and months of being up. I’ve also seen downs. I’ve seen 2000, 2001, 2002 that was three negative years in a row. I mean I’ve seen this. And as a matter of a fact I kind of expect at some point that there’s going to be declines. That’s just part of the deal and so that when it happens I’m not so surprised. Markets are non-linear and what that means is just because it’s down for one month doesn’t mean it’s going to be down for the entire year, or if it’s down for a week doesn’t mean the next week it’s going to be down. And, of course, the opposite is true too. Things go up, they go down and they go sideways. And one of the dangerous things is when it is sideways, meaning that when you look back a year or two or even three and you haven’t really made much money as an investor or a portfolio and it’s just kind of middling around, there’s this tendency to want to do something. I’m going to put up quotes up there “to do something”. There’s obviously something that we’ve got to do. And I would say that idling is part of the deal. I mean it’s sideways, down and up and the important thing from a behavior point of you is to be cool as cucumbers when it’s down, if you believe that over the time horizon, and hopefully the time horizon is at least five years, that it will be higher. It’s absolutely cannot guarantee.
All I can really say is I’m going to put a chart up on the screen and what you’ll see is on the second and third grouping of bars that a diversified portfolio has always at least broken even over a five and ten year time horizon going back to 1950, but it could be different in the future. Once again, by definition the future is unknown. That’s why they call it the future.
So, that being said, I think that it’s important, particularly when it is a sideways and maybe we’re not making much money we’re just in a holding period, not to just get so anxious and get frustrated and try to be moving around because one of the other things that I’ve learned is that people want to move so that they feel like they’re doing something when sometimes the calm professional is saying we’ve looked at everything and doing nothing is a proactive choice. Not moving things around just to feel like we’re doing something but really not getting anywhere, let’s avoid that. Let’s avoid the false feeling and the false hope of moving things around just for the sake of feeling like you’re doing something. And I have to tell you that I think that some of my colleagues, my peers sometimes do that. If they’re not moving things around clients feel like they’re not doing anything or earning their fee or whatever it might be and I think that does a disservice to the client; that does a disservice to the investor.
That’s all I have for today. I wanted to make it real short. I’ve got all the quarterly statements out hopefully by the time you get this newsletter. I’m also taking a – I’ve sent an email out to all the clients that I’m taking a two week vacation, first one in a couple of years. And so I might be a little slow on responding but I will be able to respond via email and phone if necessary. But that being said, if you could hold off until after April 14 I’ll be happier and hopefully you’ll be just fine. 303–747–6455, always open to any concerns, questions, criticism, anything just give me a call; I’d love to open up the dialogue. Mike Brady 303–747–6455. Thank you. Bye bye.