By Andy Pulsfort
The last month has brought an increase in volatility to stock markets and investment accounts. As global and domestic issues work out, it is important to keep a clear head and take a focused approach. The S&P 500 was up 80% from its low before the recent tumble. A correction in equities was overdue and we are experiencing that now.
One important fact is that global financial markets are in much better condition now than they were a year ago, so we did enter this recent uncertainity on much better footing.
We are 14 months into the current bull market, which is close to the average time for the first correction (17 months). It is usually found that markets begin to correct after a 60% recovery. In 2009 and early 2010 we blew past that threshold by a third again as much. This welcome, but unsustainable return suggested that any correction would be swift and perhaps a bit more significant than others.
What defines a correction? Most financial gurus consider a decline of 10% or greater as putting the market into correction mode. So far we are a bit over -12%. This can be expected from the greater than average run up in value. The success of the market recovery also caused the one clear area where this market correction differs. in that generally it takes 54 days to reach the -10% mark, and in this case it took only 27.
While no one has enjoyed seeing their earnings relinquished, it is important to remember that the activity we are seeing now is normal. Stock markets progress better when operating efficiently, which means investors making choices based on sound financial knowledge. Since 1928, 70% of the years have experienced a correction at some point.
While its important not to ignore what is occuring around the globe, it is also important to continue taking prudent approaches to investing. Many will even argue it is time to buy.
Showing posts with label stock market. Show all posts
Showing posts with label stock market. Show all posts
Wednesday, May 26, 2010
Monday, May 24, 2010
Despite Market Swells, Advisors Maintain Allocations
By: Donna Mitchell
May 21, 2010
The financial planners at Seattle-based Moss Adams Wealth Advisors knew how to respond to the ongoing European sovereign debt crisis, which included the punishing market dip on Thursday. Largely, they did nothing, and that was alright with their clients.
There was no dumping of equities across the board. They did not pull up stakes and hunker down in cash positions. “We don’t change our allocations based on the markets dropping or increasing,” said Sheryl Rowling, a San Diego-based partner at Moss Adams Wealth Advisors.
The company generally takes a passive approach to investing, and uses institutional mutual funds for their low costs to investors. The firm does believe in using talented managers when the markets are less efficient, Rowling said, but there was no overwhelming sense that clients were clamoring for change.
After the so-called flash crash on May 6, and leading up to the $1 trillion debt bailout extended to Greece, Moss Adams emailed letters to its clients assuring them that such market upheavals happen, and that they should not react by changing their positions. “Not surprisingly, we got zero phone calls and emails expressing concerns,” Rowling said. “They understand that the market will be volatile, and they understand that what they have is a long-term strategy to meet goals in the long run.”
Certainly, the markets have given advisors and clients enough to spur them to action. The MSCI EAFE Index, a benchmark used by many international mutual funds, was down 13% through Wednesday night. Negative currency exchanges made matters worse, says Alec Young, an international equity strategist at Standard & Poor’s. On Monday, the Euro was down 20.3% against the dollar, and by Wednesday had hit a four-year low below $1.22. Early Friday, the Euro had recovered briefly against the dollar.
“That is more currency risk than clients are used to taking,” Young said. S&P, which lowered its recommendation on international stocks from overweight to marketweight, now says clients should hold back on making new investment decisions. “We are not recommending initiating any new positions.”
Further upstream, executives at asset management firm PIMCO, based in Newport Beach, Calif., say independent advisors on a whole are not shifting their portfolios around dramatically. Instead, they are making changes on the margins. They are hedging for inflation by picking up Treasury Inflation-Protected Securities. To ensure that clients will have money on hand for short-and longer-term needs, they are buying staggered durations of money markets, Doug Ongaro, a managing director at PIMCO, said in a phone call. Ongaro is head of its registered investment advisor channel and a member of the management team for the firm’s global wealth management group. Aside from that, advisors are mainly asking a lot of questions about what their appropriate allocations should be. “They have strategic allocations and methodologies that they stick with,” Ongaro said. “They are trying to be smart about what those allocations mean, and they are trying to be more flexible, in terms of what the markets are providing.”
But some professionals, like the ones at Rockingstone Advisors, a wealth management firm that manages separate accounts for high-net-worth clients, felt they had the answers to those questions: overhaul the portfolio. Rockingstone, based in Larchmont, N.Y., slashed its European equity positions, holding on to just one stock, the AerCap Holdings [AER] the Dutch aircraft leasing company. Emerging markets positions, which used to account for 15% of its clients’ holdings, were also dumped. But it did hold on to emerging market government bonds from markets like Chile and Vietnam. It kept long positions on large-cap technology companies like Apple [AAPL] and Intel [INTC], said Brandt Sakakeeny, the firm’s managing partner.
The market was disappointed with the $1 trillion debt bailout, and felt that Greece should have been allowed to default and leave the Euro, Sakakeeny said. But Germany’s unilateral ban on naked short selling of securities two weeks later really undermined the market’s confidence in European leadership during the crisis. In that practice, a trader sells assets he or she does not own hoping to buy them back cheaper at a later date.
“I confess, we were on the long side of this,” said Sakakeeny. “We thought the initial European response would have been sufficient, but clearly it was not.”
May 21, 2010
The financial planners at Seattle-based Moss Adams Wealth Advisors knew how to respond to the ongoing European sovereign debt crisis, which included the punishing market dip on Thursday. Largely, they did nothing, and that was alright with their clients.
There was no dumping of equities across the board. They did not pull up stakes and hunker down in cash positions. “We don’t change our allocations based on the markets dropping or increasing,” said Sheryl Rowling, a San Diego-based partner at Moss Adams Wealth Advisors.
The company generally takes a passive approach to investing, and uses institutional mutual funds for their low costs to investors. The firm does believe in using talented managers when the markets are less efficient, Rowling said, but there was no overwhelming sense that clients were clamoring for change.
After the so-called flash crash on May 6, and leading up to the $1 trillion debt bailout extended to Greece, Moss Adams emailed letters to its clients assuring them that such market upheavals happen, and that they should not react by changing their positions. “Not surprisingly, we got zero phone calls and emails expressing concerns,” Rowling said. “They understand that the market will be volatile, and they understand that what they have is a long-term strategy to meet goals in the long run.”
Certainly, the markets have given advisors and clients enough to spur them to action. The MSCI EAFE Index, a benchmark used by many international mutual funds, was down 13% through Wednesday night. Negative currency exchanges made matters worse, says Alec Young, an international equity strategist at Standard & Poor’s. On Monday, the Euro was down 20.3% against the dollar, and by Wednesday had hit a four-year low below $1.22. Early Friday, the Euro had recovered briefly against the dollar.
“That is more currency risk than clients are used to taking,” Young said. S&P, which lowered its recommendation on international stocks from overweight to marketweight, now says clients should hold back on making new investment decisions. “We are not recommending initiating any new positions.”
Further upstream, executives at asset management firm PIMCO, based in Newport Beach, Calif., say independent advisors on a whole are not shifting their portfolios around dramatically. Instead, they are making changes on the margins. They are hedging for inflation by picking up Treasury Inflation-Protected Securities. To ensure that clients will have money on hand for short-and longer-term needs, they are buying staggered durations of money markets, Doug Ongaro, a managing director at PIMCO, said in a phone call. Ongaro is head of its registered investment advisor channel and a member of the management team for the firm’s global wealth management group. Aside from that, advisors are mainly asking a lot of questions about what their appropriate allocations should be. “They have strategic allocations and methodologies that they stick with,” Ongaro said. “They are trying to be smart about what those allocations mean, and they are trying to be more flexible, in terms of what the markets are providing.”
But some professionals, like the ones at Rockingstone Advisors, a wealth management firm that manages separate accounts for high-net-worth clients, felt they had the answers to those questions: overhaul the portfolio. Rockingstone, based in Larchmont, N.Y., slashed its European equity positions, holding on to just one stock, the AerCap Holdings [AER] the Dutch aircraft leasing company. Emerging markets positions, which used to account for 15% of its clients’ holdings, were also dumped. But it did hold on to emerging market government bonds from markets like Chile and Vietnam. It kept long positions on large-cap technology companies like Apple [AAPL] and Intel [INTC], said Brandt Sakakeeny, the firm’s managing partner.
The market was disappointed with the $1 trillion debt bailout, and felt that Greece should have been allowed to default and leave the Euro, Sakakeeny said. But Germany’s unilateral ban on naked short selling of securities two weeks later really undermined the market’s confidence in European leadership during the crisis. In that practice, a trader sells assets he or she does not own hoping to buy them back cheaper at a later date.
“I confess, we were on the long side of this,” said Sakakeeny. “We thought the initial European response would have been sufficient, but clearly it was not.”
Thursday, March 11, 2010
Will March bring the Luck of the Irish?
This week marked the 1 year anniversary of the current bull market. In the 13 bull markets experienced since 1930 that have lasted a year, return averaged 153% and total length averaged 4.4 years.
According to these statistics, the market has 54% more to go over the next 3+ years. This is one case where no one will complain should history choose to repeat itself! Happy investing.
Wills: The Cornerstone of Your Estate Plan
Alright, I admit I went to the archives for this one. What can I say, its tax season and everyone is a bit busy around here. I hope you don’t mind my knocking the dust off of this ever so important issue of estate planning.
During this month of St Patrick’s Day, I have taken a few minutes to reflect upon the vast changes that have occurred in how we view, accept, and move on after death. For many years, and even still today in some Irish villages, death was viewed as a new beginning for the unfortunate sole it had come to take. When reading old newspaper clips from Ireland, death often came in some dramatic fashion; a fall from the roof top, a trampling of a farm animal, or often in the midst of a jig and a good pint at the local pub.
A few days later, the entire town would parade through the village, following the deceased, wailing all the way to the final resting place. Within an hour of the burial everyone was back at the pub toasting and remembering Uncle Liam whether he really deserved it or not. They celebrated the grand afterlife, cherished the thought of the old bloke watching over them, and the family inherited what was rightfully theirs within days and moved on. Things are needless to say, much different now.
Today, if you care about what happens to your money, home, and other property after you die, you need to do some estate planning. There are many tools you can use to achieve your estate planning goals, but a will is probably the most vital. Even if you're young or your estate is modest, you should always have a legally valid and up-to-date will. This is especially important if you have minor children because, in many states, your will is the only legal way you can name a guardian for them.
Wills avoid intestacy and distribute property according to your wishes
Probably the greatest advantage of a will is that it allows you to avoid intestacy. That is, with a will you get to choose who will get your property, rather than leave it up to state law. State intestate succession laws, in effect, provide a will for you if you die without one. This "intestate's will" distributes your property, in general terms that may not be what you would have wanted. Wills allow you to leave bequests (gifts) to anyone you want. You can leave your property to a surviving spouse, a child, other relatives, friends, a trust, a charity, or anyone you choose.
Wills allow you to nominate a guardian for your minor children
In many states, a will is your only means of stating who you want to act as legal guardian for your minor children if you die. You can name a personal guardian, who takes personal custody of the children, and a property guardian, who manages the children's assets. This can be the same person or different people. The probate court has final approval, but courts will usually approve your choice of guardian unless there are compelling reasons not to.
Wills specify how to pay estate taxes and can help minimize taxes
The way in which estate taxes and other expenses are paid can be directed by your will. To ensure that the specific bequests you make to your beneficiaries are not reduced by taxes and other expenses, you can provide in your will that these costs be paid from your residuary estate. Or, you can specify which assets should be used or sold to pay these costs.
A will also gives you the chance to minimize taxes and other costs. For instance, if you draft a will that leaves your entire estate to your U.S. citizen spouse, none of your property will be taxable when you die (if your spouse survives you) because it is fully deductible under the unlimited marital deduction. However, if your estate is distributed according to intestacy rules, a portion of the property may be subject to estate taxes if it is distributed to heirs other than your U.S. citizen spouse.
There are many other advantages to having a will, and even more should one choose to complete the package with living wills and health care directives. These additions will protect your rights and desires should you ever become incapacitated or unable to communicate. So while things are much different today than they were years ago on the “Isle of Green” there is still much we can do to keep our legacy prosperous and easy to administer. So this March, take a few minutes to get your affairs in order. I for one like to imagine my heirs and well wishers toasting the night away at my wake then mired by taxes, intestacy, and family strife. The traditional lyrics below bring to mind the contentment one with only a will could have. Happy St. Patrick’s Day!
Oh all the money that e'er I had, I spent it in good company
And all the harm that e'er I've done, alas, it was to none but me
And all I've done for want of wit to memory now I can't recall
So fill to me the parting glass, good night and joy be with you all
~Traditional Irish Tune
by Andy Pulsfort
According to these statistics, the market has 54% more to go over the next 3+ years. This is one case where no one will complain should history choose to repeat itself! Happy investing.
Wills: The Cornerstone of Your Estate Plan
Alright, I admit I went to the archives for this one. What can I say, its tax season and everyone is a bit busy around here. I hope you don’t mind my knocking the dust off of this ever so important issue of estate planning.
During this month of St Patrick’s Day, I have taken a few minutes to reflect upon the vast changes that have occurred in how we view, accept, and move on after death. For many years, and even still today in some Irish villages, death was viewed as a new beginning for the unfortunate sole it had come to take. When reading old newspaper clips from Ireland, death often came in some dramatic fashion; a fall from the roof top, a trampling of a farm animal, or often in the midst of a jig and a good pint at the local pub.
A few days later, the entire town would parade through the village, following the deceased, wailing all the way to the final resting place. Within an hour of the burial everyone was back at the pub toasting and remembering Uncle Liam whether he really deserved it or not. They celebrated the grand afterlife, cherished the thought of the old bloke watching over them, and the family inherited what was rightfully theirs within days and moved on. Things are needless to say, much different now.
Today, if you care about what happens to your money, home, and other property after you die, you need to do some estate planning. There are many tools you can use to achieve your estate planning goals, but a will is probably the most vital. Even if you're young or your estate is modest, you should always have a legally valid and up-to-date will. This is especially important if you have minor children because, in many states, your will is the only legal way you can name a guardian for them.
Wills avoid intestacy and distribute property according to your wishes
Probably the greatest advantage of a will is that it allows you to avoid intestacy. That is, with a will you get to choose who will get your property, rather than leave it up to state law. State intestate succession laws, in effect, provide a will for you if you die without one. This "intestate's will" distributes your property, in general terms that may not be what you would have wanted. Wills allow you to leave bequests (gifts) to anyone you want. You can leave your property to a surviving spouse, a child, other relatives, friends, a trust, a charity, or anyone you choose.
Wills allow you to nominate a guardian for your minor children
In many states, a will is your only means of stating who you want to act as legal guardian for your minor children if you die. You can name a personal guardian, who takes personal custody of the children, and a property guardian, who manages the children's assets. This can be the same person or different people. The probate court has final approval, but courts will usually approve your choice of guardian unless there are compelling reasons not to.
Wills specify how to pay estate taxes and can help minimize taxes
The way in which estate taxes and other expenses are paid can be directed by your will. To ensure that the specific bequests you make to your beneficiaries are not reduced by taxes and other expenses, you can provide in your will that these costs be paid from your residuary estate. Or, you can specify which assets should be used or sold to pay these costs.
A will also gives you the chance to minimize taxes and other costs. For instance, if you draft a will that leaves your entire estate to your U.S. citizen spouse, none of your property will be taxable when you die (if your spouse survives you) because it is fully deductible under the unlimited marital deduction. However, if your estate is distributed according to intestacy rules, a portion of the property may be subject to estate taxes if it is distributed to heirs other than your U.S. citizen spouse.
There are many other advantages to having a will, and even more should one choose to complete the package with living wills and health care directives. These additions will protect your rights and desires should you ever become incapacitated or unable to communicate. So while things are much different today than they were years ago on the “Isle of Green” there is still much we can do to keep our legacy prosperous and easy to administer. So this March, take a few minutes to get your affairs in order. I for one like to imagine my heirs and well wishers toasting the night away at my wake then mired by taxes, intestacy, and family strife. The traditional lyrics below bring to mind the contentment one with only a will could have. Happy St. Patrick’s Day!
Oh all the money that e'er I had, I spent it in good company
And all the harm that e'er I've done, alas, it was to none but me
And all I've done for want of wit to memory now I can't recall
So fill to me the parting glass, good night and joy be with you all
~Traditional Irish Tune
by Andy Pulsfort
Friday, March 6, 2009
The Scream of the Lizard
I recieved this e mail from Bob Veres (more on Bob below) and felt it was on target .. and puts yesterday's market in perspective.
I hope you enjoy it.
I don't know about you, but I'm feeling just a little beat-up at the moment, and not totally because of the stock market.
Today's returns, trickling in all day, reminded me of a time years ago when I foolishly allowed my children to talk me into accompanying them on a roller coaster ride at a theme park called Sea World. For most of the day, we had been staring at sharks that were safely housed behind thick glass, and polar bears behind even thicker glass, chilled in the penguin area and splashed while watching the killer whales throw their trainers 20 feet or more in the air.
It was a good day, and I still felt good about it as the roller coaster ominously rose into the air, but the people who built it were really clever, and after we crested and fell, nobody noticed that the dip was only about half of the distance we had climbed up, and I was breathing a sigh of relief while my children were pouting in disappointment.
Then the rollercoaster climbed again, and as we crested this secondtime, I looked down and saw that the rest of the park was inhabited by tiny creatures who were either ants or fellow humans who were dangerously far below, and I had just enough time to consider the implications of this and work up a good anticipatory fear when our car crested the top, and fell straight down and--this is the truly scary,fiendishly clever part--WE COULDN'T SEE ANY BOTTOM. The designers had created a fall where the bottom was invisible to us until we actually splashed into the water.
The park had an automatic camera which took pictures of the people in the cars on the way down, and the expression on my face closely resembled that of a heart attack victim, except for the greenish skintone. My kids looked overjoyed.
After the concerned woman from in a park uniform had helped me into a seat and asked me if I thought I needed medical attention, I remember thinking that, in retrospect, it was obvious that there WAS a bottom,and that I would survive, and that nobody had reported a large pile of blood and bones that was the remnant of others who had experienced this particular ride. So why was I so scared? Couldn't I have told myself that I would survive, that everybody else who had ever gone into this particular fee-fall had survived, and simply enjoyed the trip?
No, I couldn't--and I think that's what I'm remembering now. As soon as the roller coaster car crested the top of the tracks and I looked down,the lizard-like part of the back of my brain took over total control of my thought processes, and it screamed, against all logic and against many things I knew to be true, that I and my children were about to die,and it sent a surge of adrenalin and signals of dread into my system so strongly and thoroughly that it was a few minutes before I could standup, shakily, and go pet the sting rays.
This, of course, is what virtually all investors are feeling right now as we ride the roller coaster that is the investment markets, and whoever designed this particular free-fall was even better than the designers of that Sea World ride. I know that there is a bottom somewhere in front of me, and I know that the relentless tide of bad news will end and I know that at some point in the not-too-distant future, I will look at a graph of the markets and see a blip that started last Fall and ends somewhere, hopefully soon, and it will look as inconsequential and trivial as the October 1987 crash looks today, or the little jiggles that represent the 1930s, and I will wonder why we were all so damn worried.
And I will have forgotten--because we always forget this--that the lizard-like base of our brains sometimes decide to take control, and all our knowledge and all our intelligence is neutralized by a little lump of tissue that has no understanding at all of what's going on, no perspective, nothing except an "on" switch which, when triggered,activates a complex, instantly powerful native algorithm which screamsinto our brains and throughout our bodies that there is a saber-toothed tiger right behind us and we should be running for our lives.
This, of course, is the voice in the ears of investors all over the world today and, to some extent, for the last several months. All of us know, in the cortical part of our minds, that we signed on for a rollercoaster ride and that we will not die as a result of taking this ride down. But for most of your clients, for many investors, the game has suddenly gotten too tough, and their lizard's shout is winning the contest against your calm, reasonable, measured tones, your facts and figures, your perspective and experience.
The hell of it is that we, ourselves, design these roller coasters; they are a product of mass psychology. When the lizard's shout finally drowns out the last bit of reasonable perspective, the markets hit bottom because that is precisely when there is the maximum fear--by definition.
Then, again by definition, the markets begin to rally into what may be the next bull market or may be a sucker's rally opportunity to sell a little bit at a little less of a loss in hopes of recognizing the nextbull. The lizard's shout becomes less loud, people become hopeful, they buy back in at a higher price than they sold, the market moves upward until either the lizard screams again in panic or--the sure sign of a bull market--it starts tickling peoples' minds with a kind of panic that MAYBE THEY'LL GET IN TOO LATE as the roller coaster climbs again.
This, too, is our own creation, more tracks created by more mass psychology, aided and doubtless magnified by the echo chamber of the financial media and a thousand pundits who know no more than the lizard about where the markets will go tomorrow or next week.
I'm one of those financial media types, and also a pundit on occasion,and I can tell you that I can hear the lizard's scream echoing across the financial landscape, so loudly that it's hard to remember that stocks are on a fire sale now and they are certainly a hell of a lotless risky than the were last August, and that these rides are seldom fatal to those who stay in their seats, and they are usually at least harmful to those who panic, unhook their seatbelts and jump over the side toward the distant ant hill below.
I can hardly wait to look back on those charts and wonder what the hell we were thinking getting so panicky about a blip, and I know at that time that the lizard will be giving me a different message: that if only I'd had the sense to buy when everybody else was selling...
This too shall pass, and 99% of your brain knows it. The market belongs to the lizard now, and I am ashamed to admit that I, the pundit, the media guru, still feel that sense of panic on the way down, irrational as I know it is. I feel it so much that sometimes I can barely hear the rational part of my mind over the screaming that echoes that are calling up from a deeper part of my consciousness. I would curse the designer of this roller coaster, as I did the fiend who put that damn thing up at Sea World, but I'm afraid this time it is us, collectively, who designed our own fear machine.
And this is the moment, here and now, when the picture is taken.
Best,
Bob VeresInside Information HYPERLINK "http://www.bobveres.com" http://www.bobveres.com
Bob Veres is a nationally recognized leader in the independent advisory community. He is the author, creator and founder of, Inside Information is a master study group whose members are the leading practitioners in the financial planning profession.
I hope you enjoy it.
I don't know about you, but I'm feeling just a little beat-up at the moment, and not totally because of the stock market.
Today's returns, trickling in all day, reminded me of a time years ago when I foolishly allowed my children to talk me into accompanying them on a roller coaster ride at a theme park called Sea World. For most of the day, we had been staring at sharks that were safely housed behind thick glass, and polar bears behind even thicker glass, chilled in the penguin area and splashed while watching the killer whales throw their trainers 20 feet or more in the air.
It was a good day, and I still felt good about it as the roller coaster ominously rose into the air, but the people who built it were really clever, and after we crested and fell, nobody noticed that the dip was only about half of the distance we had climbed up, and I was breathing a sigh of relief while my children were pouting in disappointment.
Then the rollercoaster climbed again, and as we crested this secondtime, I looked down and saw that the rest of the park was inhabited by tiny creatures who were either ants or fellow humans who were dangerously far below, and I had just enough time to consider the implications of this and work up a good anticipatory fear when our car crested the top, and fell straight down and--this is the truly scary,fiendishly clever part--WE COULDN'T SEE ANY BOTTOM. The designers had created a fall where the bottom was invisible to us until we actually splashed into the water.
The park had an automatic camera which took pictures of the people in the cars on the way down, and the expression on my face closely resembled that of a heart attack victim, except for the greenish skintone. My kids looked overjoyed.
After the concerned woman from in a park uniform had helped me into a seat and asked me if I thought I needed medical attention, I remember thinking that, in retrospect, it was obvious that there WAS a bottom,and that I would survive, and that nobody had reported a large pile of blood and bones that was the remnant of others who had experienced this particular ride. So why was I so scared? Couldn't I have told myself that I would survive, that everybody else who had ever gone into this particular fee-fall had survived, and simply enjoyed the trip?
No, I couldn't--and I think that's what I'm remembering now. As soon as the roller coaster car crested the top of the tracks and I looked down,the lizard-like part of the back of my brain took over total control of my thought processes, and it screamed, against all logic and against many things I knew to be true, that I and my children were about to die,and it sent a surge of adrenalin and signals of dread into my system so strongly and thoroughly that it was a few minutes before I could standup, shakily, and go pet the sting rays.
This, of course, is what virtually all investors are feeling right now as we ride the roller coaster that is the investment markets, and whoever designed this particular free-fall was even better than the designers of that Sea World ride. I know that there is a bottom somewhere in front of me, and I know that the relentless tide of bad news will end and I know that at some point in the not-too-distant future, I will look at a graph of the markets and see a blip that started last Fall and ends somewhere, hopefully soon, and it will look as inconsequential and trivial as the October 1987 crash looks today, or the little jiggles that represent the 1930s, and I will wonder why we were all so damn worried.
And I will have forgotten--because we always forget this--that the lizard-like base of our brains sometimes decide to take control, and all our knowledge and all our intelligence is neutralized by a little lump of tissue that has no understanding at all of what's going on, no perspective, nothing except an "on" switch which, when triggered,activates a complex, instantly powerful native algorithm which screamsinto our brains and throughout our bodies that there is a saber-toothed tiger right behind us and we should be running for our lives.
This, of course, is the voice in the ears of investors all over the world today and, to some extent, for the last several months. All of us know, in the cortical part of our minds, that we signed on for a rollercoaster ride and that we will not die as a result of taking this ride down. But for most of your clients, for many investors, the game has suddenly gotten too tough, and their lizard's shout is winning the contest against your calm, reasonable, measured tones, your facts and figures, your perspective and experience.
The hell of it is that we, ourselves, design these roller coasters; they are a product of mass psychology. When the lizard's shout finally drowns out the last bit of reasonable perspective, the markets hit bottom because that is precisely when there is the maximum fear--by definition.
Then, again by definition, the markets begin to rally into what may be the next bull market or may be a sucker's rally opportunity to sell a little bit at a little less of a loss in hopes of recognizing the nextbull. The lizard's shout becomes less loud, people become hopeful, they buy back in at a higher price than they sold, the market moves upward until either the lizard screams again in panic or--the sure sign of a bull market--it starts tickling peoples' minds with a kind of panic that MAYBE THEY'LL GET IN TOO LATE as the roller coaster climbs again.
This, too, is our own creation, more tracks created by more mass psychology, aided and doubtless magnified by the echo chamber of the financial media and a thousand pundits who know no more than the lizard about where the markets will go tomorrow or next week.
I'm one of those financial media types, and also a pundit on occasion,and I can tell you that I can hear the lizard's scream echoing across the financial landscape, so loudly that it's hard to remember that stocks are on a fire sale now and they are certainly a hell of a lotless risky than the were last August, and that these rides are seldom fatal to those who stay in their seats, and they are usually at least harmful to those who panic, unhook their seatbelts and jump over the side toward the distant ant hill below.
I can hardly wait to look back on those charts and wonder what the hell we were thinking getting so panicky about a blip, and I know at that time that the lizard will be giving me a different message: that if only I'd had the sense to buy when everybody else was selling...
This too shall pass, and 99% of your brain knows it. The market belongs to the lizard now, and I am ashamed to admit that I, the pundit, the media guru, still feel that sense of panic on the way down, irrational as I know it is. I feel it so much that sometimes I can barely hear the rational part of my mind over the screaming that echoes that are calling up from a deeper part of my consciousness. I would curse the designer of this roller coaster, as I did the fiend who put that damn thing up at Sea World, but I'm afraid this time it is us, collectively, who designed our own fear machine.
And this is the moment, here and now, when the picture is taken.
Best,
Bob VeresInside Information HYPERLINK "http://www.bobveres.com" http://www.bobveres.com
Bob Veres is a nationally recognized leader in the independent advisory community. He is the author, creator and founder of, Inside Information is a master study group whose members are the leading practitioners in the financial planning profession.
Tuesday, February 24, 2009
Are you willing to be a Contrarian?
Sir John Templeton said, “Sell at the height of optimism and buy at the height of pessimism.”
While I have no model for determining if we are at the height of pessimism, there is plenty out there to go around!
This is a time when fortunes will be made, and lost. To be a winner requires the courage to step up against the current and buy. What is your choice? Do you have the courage?
Below are a few more articles, food for thought:
Click here for Seeking Alpha blog
click here for Forbes article
May prosperity be yours,
Mackey McNeill
President and CEO
Mackey Advisors
www.CultivatingProsperity.com
859-331-7755
Mackey@CultivatingProsperity.com
While I have no model for determining if we are at the height of pessimism, there is plenty out there to go around!
This is a time when fortunes will be made, and lost. To be a winner requires the courage to step up against the current and buy. What is your choice? Do you have the courage?
Below are a few more articles, food for thought:
Click here for Seeking Alpha blog
click here for Forbes article
May prosperity be yours,
Mackey McNeill
President and CEO
Mackey Advisors
www.CultivatingProsperity.com
859-331-7755
Mackey@CultivatingProsperity.com
Tuesday, November 25, 2008
Too big to fail
Yesterday the government decided Citigroup was too big to fail. I woke at four this morning thinking about this. Too big to fail. I guess that means once a company reaches a certain size, regardless of mismanagement, lack of leadership, lack of innovation, poor strategic judgment, or of any of the countless ills possible, it is entitled to a perpetual life.
I understand it would be scary, devastating to thousands of employees and their families and have countless consequences that we cannot predict if Citigroup were to go under.
What I am struggling with is what this really means. Does that mean that we not only have government entitlements, but we also have corporate entitlements? Do the taxpayers pay for both?
What is the scale at which one arrives at “too big to fail?” Who defines this?
How are the CEO’s of “too big to fail” companies held accountable?
The former CEO, Charles Prince received a 12.9 raise in 2007, just last year, to bring his total compensation to $25 million. Click here for the Market Watch 2007 story
Ok, in fairness, Prince lost his job. And most of us would be fine with losing our jobs if our final paycheck was $25 million.
A few people are now talking about forgoing bonuses for top executives as a condition for the government assistance. Which means the government now controls CEO pay in “too big to fail” companies? Read the Reuters story here
I am not saying I have the answers. I do have lots of questions.
New times, new territory. I would love to hear your comments.
May prosperity be yours,
Mackey McNeill, CPA/PFS IAR
President and CEO
Mackey Advisors
www.CultivatingProsperity.com
859-331-7755
Mackey@CultivatingProsperity.com
I understand it would be scary, devastating to thousands of employees and their families and have countless consequences that we cannot predict if Citigroup were to go under.
What I am struggling with is what this really means. Does that mean that we not only have government entitlements, but we also have corporate entitlements? Do the taxpayers pay for both?
What is the scale at which one arrives at “too big to fail?” Who defines this?
How are the CEO’s of “too big to fail” companies held accountable?
The former CEO, Charles Prince received a 12.9 raise in 2007, just last year, to bring his total compensation to $25 million. Click here for the Market Watch 2007 story
Ok, in fairness, Prince lost his job. And most of us would be fine with losing our jobs if our final paycheck was $25 million.
A few people are now talking about forgoing bonuses for top executives as a condition for the government assistance. Which means the government now controls CEO pay in “too big to fail” companies? Read the Reuters story here
I am not saying I have the answers. I do have lots of questions.
New times, new territory. I would love to hear your comments.
May prosperity be yours,
Mackey McNeill, CPA/PFS IAR
President and CEO
Mackey Advisors
www.CultivatingProsperity.com
859-331-7755
Mackey@CultivatingProsperity.com
Friday, November 21, 2008
What to do now?
Wouldn’t it be nice to turn on the news (or if you are like me, open your web browser) and get some normal, sane, understandable market results for the day?
Instead, yesterday the S&P 500 plunged to an 11-1/2 year low. Both the DOW and NASDAQ closed at their lowest points since March 12, 2003, which was just above the low of the last bear market.
Markets tend to over react at the top and at the bottom. I remember in the late 1990’s thinking, how can this be happening? Technology stocks were so over priced. Their valuations made no sense from a perspective of investment fundamentals. Fast forward to 2008, I find myself thinking the same thing in reverse. Stocks are so undervalued, why are they still plummeting?
When I teach my investment seminars, I say that the stock market, in the short term, is the emotional temperature of the collective. Valuations, P/E ratios, free cash flow and the hundreds of other fundamental measurements of stock prices, do not matter in the short term.
The only thing the market tells us on a daily basis is the whether the collective is optimistic or pessimistic about the future.
What is clear today is that the collective is pessimistic about the future.
In the long run, stocks trend toward the economic fundamentals. Earnings, cash flow and rational measures of value, clearly drive long term stock prices.
The second big truth of the market is that the past is clear. The future is always unpredictable. Timing the market is akin to attempting to determine if your spouse if going to be happy or sad today. Anyone’s guess is a good one and someone is going to be correct.
Barring any near-term recoveries, 2008 is likely to be one of the worst years in history for stocks (domestic and foreign) since the great depression. Unfortunately, other asset classes such as real estate, commodities and even many bonds have done poorly. While it is highly unusual for so many asset classes to fall at once, it is the current reality. Of course, this isn’t news to most of you. The question is how much further until the market hits the bottom and what to do now?
While there are many opinions, no one knows the future. The question for most people is what to do given what has happened and given the uncertainty of the future (especially near term). Much depends on your time frame and emotional constitution.
Previous bear markets have averaged 16 months. We are now 13 months into the current downturn.
The longest recession since WWII has been about 16 months. Assuming this recession started early in the year and it matches or slightly exceeds the longest postwar recession, it might be late spring to late fall 2009 before economic recovery begins. Since a stock market rebound typically precedes economic recovery, the market could rebound before then (historically, it's turned up 60% of the way through a recession). As with all observations, no guarantees are given or implied.
While it would be nice if we were at or near the bottom, there is a possibility that it could get worse. The stock market decline has probably anticipated a significant drop in corporate earnings but when revised earning estimates (likely lower) and actual earnings reports come out over the next month or two there may be further declines. Also, it’s normal for the stock market to overshoot on the downside (as it does on the upside).
It is helpful to look at what seasoned investors are doing. Here is a sampling.
Warren Buffett is buying.
Here are more details: Learn from Warren Buffett
Steve Leuthold, considered a perma-bear is bullish on stocks
Here is more information. Click here for Barron's article
Jeremy Grantham of GMO says, “…the odds are roughly two to one that stock prices will sink to new lows next year.” And he is buying because he does not attempt to time the market in the short term.
Click here for the complete article. Read NY Times, Market Bottom? piece
So what’s this all mean to me?
- Continue to stay out of the emotion of the day.
- Call your advisor (hopefully that is us) to review your needs and your portfolio.
- Look carefully at your personal situation. Is your job secure? Do you have any upcoming major expenses that can be deferred? What is your withdrawal rate from your portfolio?
- Keep the long term view.
As you know, staying power is an critical component to developing an investment strategy. Before anyone should commit money to the stock market, they need to have adequate reserves set aside for emergencies and financial commitments. One's time horizon should really be 5 to 7 years (or even better, the rest of your life).
Has this downturn made you realize you aren’t as risk tolerant as you thought? If so, it is time to change your stock/bond allocation? In general, if you're able to wait (financially and emotionally) we suggest not making any drastic changes now.
What we're doing now:
For retired clients, we will temporarily hold off on further rebalancing. Thus a 50/50 (stocks to bonds) portfolio which may have drifted to a 45/55 or 40/60 due to stock declines will be left as is, effectively making it a little more conservative for now.
For more aggressive clients who remain growth oriented and still have a long-term horizon, rebalancing probably continues to make sense.
For conservative and moderate growth clients, following a discussion of your personal situation, we are tweaking the fixed income investments and getting a little more conservative (giving up some longer term potential benefits in exchange for reduced short-term volatility).
We have looked at every client account for opportunities to harvest unrealized tax losses (losses that can be used to offset any gains or up to $3,000 or ordinary income). We are looking at opportunities to transfer funds from IRAs to Roth IRAs (for clients who have little income or significantly less income than normal this year). We are considering the estate planning opportunity of gifting.
The clients most impacted by this economy and stock market decline are those that are retired.
A prudent withdrawal rate is 3-5% depending on age, etc. One strategy for retirees drawing on their portfolios is to tap those assets that haven't declined significantly first (i.e. draw from money funds, short-term bond funds, longer-term bond funds).
We have run projections for all of our clients taking periodic or sporadic withdrawals to see how long-they could tap fixed income assets before having to sell equities based on the current withdrawal rate. On average, these clients could tap their fixed income investments to cover their monthly withdraws for 3 to 10 years (before having to sell significant portions of their equities in a down market). Of course, this strategy will gradually make the remaining portfolio more aggressive as the fixed income portion is a smaller portion of the portfolio.
If you are withdrawing funds from your portfolio (either periodically or sporadically) consider how the market decline has increased the rate of withdrawal. If you have been taking out more than 3-5% before the market decline, that rate (as a percent of the current value) is now higher. If you've exceeded our recommended withdrawal rate and have been taking out more than 5% (before the recent stock decline), we strongly recommend that you look for ways to cut back on expenses (particularly any discretionary spending). This is not sustainable for a long life expectancy.
If you’re not sure about your withdrawal rate, please call us. For those of you giving money to adult children, carefully weigh the impact on your own finances (if your withdraw rate is too high your money may not last as long as you do). We believe in Mom & Dad first, adult children second, and realize this is a hard pill for many to swallow.
After all this discussion, it is best to prepare for this decline to be longer than the norm and one of the worst markets in our lifetime.
Now more than ever is the time to consider a Prosperity Plan™. I have found no more effective tool to put and keep things in perspective that this. If you have a Prosperity Plan™ and we are managing your portfolio, updates are free! We encourage you to come in and review your goals, investment policy and spending. Whether the news is good or bad, putting it all into perspective for your life is the best way to sleep at night.
I know that market declines take an emotional toll. Please call us at any time. 859-331-7755
For after hours assistance, try one of these options (my current favorite is 7)
If you are obsessive-compulsive, please press 1 repeatedly.
If you are codependent, please ask someone to press 2 for you.
If you have multiple personalities, please press 3, 4, 5, and 6.
If you are paranoid, we know who you are and what you want.
Stay on the line and we will trace your call.
If you are delusional, press 7 and your call will be transferred to the mother ship.
If you're schizophrenic, listen carefully, a small voice will tell you which number to press.
If you are depressive, it doesn't matter which number you press. No one will answer you.
If you are dyslexic, press 6-9, 6-9, 6-9, 6-9.
If you have a short-term memory loss, please try your call again later.
If you have low self-esteem, hang up. All our operators are too busy to talk to you.
If all else fails, chill.
Please forward this blog on to friends, colleagues or anyone who might benefit from it. We welcome new clients who are looking for the kind of disciplined approach we offer.
May prosperity be yours,
Mackey McNeill, CPA/PFS IAR
President and CEO
Mackey Advisors
859-331-7755
Mackey@CultivatingProsperity.com
Wednesday, November 12, 2008
Keeping perspective
The wild daily swings of the market make it difficult to keep perspective. We are certainly in a cycle of deep fear, as evidenced by the daily market volatility and continued downward trend of virtually every asset class.
A recent article in Fortune magazine by Brian O’Keefe offers keen insight backed by hard data. Brain offers good reasons to stay out of our emotion and keep focused on the long term.
Read the article
May prosperity be yours,
Mackey McNeill, CPA/PFS
President and CEO
Mackey Advisors
www.CultivatingProsperity.com
859-331-7755
Mackey@CultivatingProsperity.com
A recent article in Fortune magazine by Brian O’Keefe offers keen insight backed by hard data. Brain offers good reasons to stay out of our emotion and keep focused on the long term.
Read the article
May prosperity be yours,
Mackey McNeill, CPA/PFS
President and CEO
Mackey Advisors
www.CultivatingProsperity.com
859-331-7755
Mackey@CultivatingProsperity.com
Subscribe to:
Posts (Atom)