“We called the correction! We saw this coming and got out before the fall! Our sell strategy worked!”
Have you been hearing these kinds of “told you so”, self-congratulatory expressions in the media lately? Do you believe them? In 1987, while working as a stock analyst at Shearson Lehman, Elaine Garzarelli became the darling of Wall Street for predicting Black Monday’s market crash. As Wikipedia writes, “her subsequent predictions were much less stellar”. In other words, she hasn’t been right like that for nearly 20 years. Harvard graduate and financial prognosticator Harry Dent wrote a fascinating book in 1998 called the “Roaring 2000’s”. His “spending wave theory” and trend analyses were highly regarded. The cover of the book lauded his methods of “building the wealth and the lifestyle you desire in the greatest boom in history”. The book’s back cover went on to declare that “the Dow will reach 21,000 and possibly 35,000 by 2008.” Two years after he wrote these words, we had the market “tech wreck” in 2000…and we have never seen 21,000 on the Dow, let alone 35,000. As the expression goes, “even a blind squirrel finds an acorn once in awhile”. Harry hasn’t been so lucky…yet he’s written 9 books and people keep buying. [1]
Another media “blame” strategy out there is the one that begins, “Has your financial advisor told you to just hang in there?” This question is designed to frighten, put down, and capitalize on the current negative market conditions. Yes, experienced advisors will tell you to hang in there and be patient…because they’re right and it works. They have been through the cycles, the recessions, and the corrections. Prices of goods and services simply go up over time…a haircut, a car, a dinner bill. The markets come back because prices go up…it’s just a matter of time. If you have the time…keep your good investments close.
Your end of September investment statements will likely show some damage from the recent storms in the equity markets. For the month, the DOW was lower by 1.5%, the S&P 500 declined by 2.6%, and the NASDAQ dropped 3.2%. In the third-quarter, the S&P 500 was lower by 6.9%…its first back-to-back quarterly loss in four years. The worst performers during the period were the energy and raw materials stocks, followed by health care and biotechnology. The biotech sector had risen 56% from last October to this July…then fell back 24%. For the short term optimists, history shows that after sharp summer declines in 1990, 1998, and 2011…the market bottomed out in October.[2]
Last week, Charles Schwab hosted a “Digital Transformation” symposium. One of the main topics was the rise of Robo-investing. This is an automated, algorithm-generated style of investing that would have fewer choices and fewer decisions for a lower cost. In other words, you would take a financial “selfie” and the robot software would make your investments. We are embracing this technology if it fits our smaller accounts.
Uber, Amazon, AIRBNB, and Tesla are a few great examples of the speed in which our society is becoming digitally transformed. These are truly “software” companies that have created new industries and changed the entire playing field. A side by side photo was shown of the Ford and Tesla assembly plants. The difference…Tesla had only robots putting the car together. Another model of today’s quick service is HEAL. This is an Uber-like company that promises a doctor on your doorstep in less than 60 minutes for $99.
Amazon, you may recall, started out as a book seller and recently received an Emmy award for their TV series. Now that’s digital transformation. The Emmy’s this year were highlighted by Jon Hamm’s first win after 8 tries as best actor in a drama series. The ever popular repeat winners included Julia Louis-Dreyfus, The Daily Show with Jon Stewart, and Game of Thrones. Diversity reigns on the tube these days.
There is no denying that the market has caught a serious case of the flu. There’s also no doubt that it will recover and become healthy again. Consider that right now you earn less than 1% in the bank, most bonds have a risk of losing value with an interest rate hike, and overseas investing is shaky at best. The problems in China and Europe have given our markets the “bug”. Gold and silver may be thought of as “safe havens” by some, but they typically have very long periods of stagnation and pay no dividends at all. Most real estate has flattened out and the property sector may also struggle with a rate increase.
No one really knows if the economy is headed towards a serious case of pneumonia or about to make a full recovery. There are fewer places more resilient than investing in American business, especially when you can track the blue chip stocks and ETFs that have consistently grown and paid dividends. The current dividend yield for the S&P 500 is 2.3%. Many of these companies will outlive us by several generations.
Beware of the marketing and media people who are using this latest downturn to cast negativity on advisors. These naysayers and promoters are usually interested only in selling their insurance products, annuities, or day-trading schemes. They would love to entice you into buying their better “mouse trap”. Try not to fall for their pitch and stick with good investments that will stand the test of time. Whether it’s a stock or a pair of shoes, a car or a home in an excellent location…buying good quality tends to last.
If you need money now, or soon, then take some profits off the table…or deduct your losses and cash out. The markets could fall further. If you’re in it for the long haul, now is a good time, in my opinion, to be adding potential growth investments that are “on sale”. Most surveys agree that value beats growth when it comes to investing. Over the last 25 years, US large cap value earned 9.58% annually while large cap growth earned an 8.72% annualized return. For the same 25 years, mid cap value beat mid cap growth 11.15% to 10.16% and small cap value outperformed small cap growth by 10.96% to 9.72%.[3]
Remember you haven’t lost or gained anything until you sell. This recent bull market run is one of its best ever. The markets are taking a breather…and no one can predict how long it will be before they start up again.
Today’s the day.
Mitch Fisher
[1] Wikipedia; [2] Donald Selkin Daily Market Notes 10/1/15; [3] Lipper Investment Management