A few words of wisdom, perspective, and advice

We appear, for now, to have recovered from the market’s volcanic eruptions of February.  Today, March 12, 2018, was a down day, I know, but those things are going to happen.  Moreover, you have to expect that after the market rises 2+% the week before and 1.7% on the prior trading day. Remember, markets rise, on average, only 2/3rds of the time.

Now, after the terrors of last month, I’m calling a timeout for a huddle. I want to bring in some “friends.” I want you to meet and listen to a few people who know lots and lots about the market – not today’s market or next week.  But the market. Period.  And they want to tell you that, very likely, we are still very much in a bull market. The voices you will read in our huddle are those of Jeff Saut, the Chief Investment Officer for Raymond James; Leon Tuey, a now-retired, revered stock analyst, based in Vancouver, British Columbia; and Warren Buffett, who needs no introduction.

I’ll begin the huddle with a Jeff Saut quote from today that says we are still in a “secular bull market.”

Here’s Jeff.

“Secular bull markets last 14+ years and tend to compound money at a double-digit return per year. The secular bull market of 1949-to-1966 compounded money at 11.41% per years basis the S&P 500. The 1982-to-2000 secular bull market compounded money at 14.38%. Were there pullbacks in those secular bull markets? You bet there were, but it didn’t stop the secular bull market. And there, ladies and gentlemen, is the most misunderstood point about bull markets. Most pundits cut the 1949 – 1966 Bull Run off in 1956 when the stock market took a ~21% “hit” because Egypt attempted to take over the Suez Canal, but that did not stop the bull market. Fast forward to the 1982 – 2000 secular bull market, which many participants cut off in 1987 due to the crash, but neither did that stop the bull market. We think the current secular bull market is going to be bigger than both of those secular bull markets.

“It has been said that an investor will experience three secular bull markets in their life time. In the first one, you will not have enough money to take advantage of it. In the third one, you will be too old to take the amount of risk to really take advantage of it. Therefore, you had better take full advantage of the second bull market. Most baby boomers were not old enough to do anything with the 1949 – 1966 “run.” Moreover, most boomers did not have enough money to take full advantage of the 1982 – 2000 rally, except near the end of that Bull Run. And then most did not heed the Dow Theory “sell signal” that occurred on September 23, 1999, so they gave back much of their late-cycle gains. Consequently, they need to take full advantage of this secular bull market, which we continue to believe has years left to run. And there is yet another much misunderstood point.

“Most believe this bull market began on March 9, 2009. However, the majority of stocks made their “lows” on October 10, 2008. At that time, we wrote that 92.6% of all stocks traded made new annual lows. Sure, the indices went lower into March 2009, but the majority of stocks bottomed in October 2008. That is where we think the current secular bull market began. The bottoming sequence was almost classic. We made the “selling climax” low on October 10, 2008 followed by a “throwback rally,” that failed, leading to the undercut low of March 6, 2009, which was below those October 2008 selling-climax lows. As an aside, this was the same bottoming chart pattern that we identified in February 2018 when we said to buy the “undercut low” that occurred on February 9, but we digress. Such bull markets also tend to have three upside “legs” to them. We believe the first leg began in October 2008 and ended in May 2015. The second leg began in February of 2016. The second leg is ALWAYS the longest and strongest. Once the second leg ends we should experience another upside consolidation like the one between May of 2015 and February 2016. Eventually the indices should resolve out of that consolidation on the upside and begin the third, or speculative, leg of the secular bull market. For example, the third leg of the 1982 – 2000 “run” started in late 1994 and lasted until the spring of 2000. Regrettably, there are not many of us still around that have seen a secular bull market, which is why so many refuse to trust this one.”

Jeff then turns our huddle over to Leon Tuey, whose comments I have put in italics:

“One savvy seer, however, that has seen such Bull Runs is our friend Leon Tuey, who is one of the best technical analysts on Wall Street. Recently (March 6, 2018) Leon wrote a report titled “Endless Worries.” To wit:

“One of the key features of this great bull market is investor sentiment. October 10, 2018 will be the 10th anniversary of this great bull market. Yet, from its beginning to date, investors are burdened by worries, even when there is nothing to worry about. Global depression, China’s huge debt and empty cities, the European Debt Crisis, the Arab Spring, the Japanese Tsunami and nuclear plant meltdown, Capitol Hill gridlock, the U.S. election were some of the concerns that troubled investors. More recently, they worry about inflation, Fed tightening, and trade wars. They worry endlessly. Not surprisingly, the market always climbs a wall of worry.

“In early February, fear was widespread and globally, investors panicked. Consequently, I concluded that peak selling intensity was witnessed and the market had entered a low-risk, high-reward juncture point and felt the after period of base-building, that the bull market would resume. Moreover, investors were advised to emphasize stock selection rather than worrying about the S&P 500. If you are worried, you are among the majority. Last Friday, the CNN Fear & Greed Index stood at 8, indicating extreme fear. Also, the Barron’s Insider Transaction Ratio dropped to 9. Readings below 12.1 are bullish. Moreover, last week, the AAII Sentiment Survey showed that the Bullish percent dropped to 37.3%.  Also, it is interesting to note that in February, the TD Ameritrade Index registered its biggest monthly-drop ever; small investors bolted for the exit. Gripped by fear, investors panicked. Clearly, sentiment backdrop is ideal. Remember what Warren Buffett said – “Be fearful when others are greedy and be greedy when others fearful.”

And, now, this final comment from Leon, this morning, to Jeff:

“Many are waiting for the market to bottom or a “test” not realizing the market bottomed in early February when the whole world panicked and the great bull market had resumed. Last week, the Advance-Declines [lines] for the S&P, Dow, and many other indices closed at record highs. Clearly, recent events show that investors are still haunted by the bear market of 2007-2009. Their optimism in early January was only skin-deep as optimism turned to fear almost overnight.”

Back to me now:  We don’t know what is ahead.  But there are lots of reasons I’ve enumerated in recent blogs (you might go back and look at them) to believe that more of what we’re experienced in the last 16 months will be coming at us.  Not without time-outs, of course, or occasional down-drafts and scary stuff for the faint-of-heart. Savers beware! But if you can live with the occasional hiccups and volatility, I’d advise you stay aboard for the ride.

Now, get out there and play some ball.

Posted in economic recovery, fear, investment myths, investment wisdom, market corrections, Market falls, market volatility, Personal Finance, retirement investing, saving, stock rallies, Successful living | Leave a comment

Where are we?

Well, what have we here?

All was going along so well, and now…well, where are we?

I turn to writing again, not because I have to, but because I sense some of my readers may be about to do something very troubling.  That is, I sense, some may be at the point of throwing in the towel on their stock investments and going to cash or buying a CD.

Now if those investors are well into retirement, then that could be a reasonable, if still debatable, step to take.  But if those investors are years or decades from retirement, then such a retreat will prove, I fear, a very costly mistake.

If I had to pick a single most important source for investors to read this week it would be Warren Buffett’s annual letter. You should take the time to read the whole thing, but if you can’t or won’t, at least read pages 11 to 13 from the link I have attached. In those pages, he reviews in very down-to-earth language a $1,000,000 bet he made back in 2007 that the S&P 500 would outperform the best hedge fund managers his opponent, Protégé, could pick.  The bet lasted a decade, and Buffett beat – or, that is, the S&P 500 won – handily.  Still, remember what happened the year after Buffett made his bet: the S&P 500 tanked some 37%. It was awful.  But Buffett wasn’t phased by it; he hung on.  In the end, the S&P’s returns were not that far off from the kinds of returns one might expect from the stock market over time.  Here’s a juicy nugget from Mr. Buffett’s Pages 9-11:

“Investing is an activity in which consumption today is foregone in an attempt to allow greater consumption
at a later date. “Risk” is the possibility that this objective won’t be attained.
“By that standard, purportedly “risk-free” long-term bonds in 2012 were a far riskier investment than a long-term investment in common stocks. At that time, even a 1% annual rate of inflation between 2012 and 2017 would have decreased the purchasing-power of the government bond that Protégé and I sold.
“I want to quickly acknowledge that in any upcoming day, week or even year, stocks will be riskier – far riskier – than short-term U.S. bonds. As an investor’s investment horizon lengthens, however, a diversified portfolio of U.S. equities becomes progressively less risky than bonds, assuming that the stocks are purchased at a sensible multiple of earnings relative to then-prevailing interest rates.
“It is a terrible mistake for investors with long-term horizons – among them, pension funds, college endowments and savings-minded individuals – to measure their investment “risk” by their portfolio’s ratio of bonds to stocks. Often, high-grade bonds in an investment portfolio increase its risk.”

Buffett, likes yours truly, is a big fan of low-cost index funds and ETFs. They are the tools to use, but that does not mean that Buffett, you nor I will not get dinged from time to time.  Remember, the stock market rises only about 2/3rds of the time.  It falls the other 1/3rd.

Now, lets review recent investment history.  From Trump’s election on November 8, 2016, to the end of January 2018, the market rose about 35%. Yes, the market rises more than it falls, but it is not “normal” to rise 35% in 15 months.  Moreover, the market rose every month.  And it did so with the lowest volatility in history.

Impressive? You betcha. But hardly “normal.”

So, it was time for a break.  And early February provided that time for a pause, especially those awful days in early February – the 6th and 9th – when the market fell more than a thousand points.

When markets fall hard – and quickly – as our did last month, it is much like a person suffering a heart attack.  That person will not get up and run immediately, and he or she may suffer a set back or two.

Last week, we started the ongoing recovery from a heart attack well, but then suffered three or four days of set backs, not in themselves unexpected.  What was unexpected and what really tanked the market late in the week was our President’s launch, at least in expressed intent, of his plan to have a little trade war.  That itself would be bad, but he added that such wars are nice and easily won.

Now, folks, I am not unhappy with almost everything that Donald Trump has DONE.  But I have rarely been pleased with what he SAYS.  And his mentions of specific tariffs on steel and aluminum and that trade wars are nice and easily won was/is beyond the pall. It is atrocious. Dangerous. And stupid.

Might we now hope that like so much of Donald Trump’s words, these trade-war related words are only bargaining positions.  At least, I can hope so.  And if they are, then this, too, shall likely pass. But holy cow! Even if they are just bargaining positions, they are foolish things to say, especially for the President of the United States.

For no one will win a trade war. Consumers will lose, investors, producers, exporters, importers. They – we – will all get banged up.

As I wrote up top, our markets have suffered a kind of heart attack from exerting so much energy during the 15 months before last month. The markets were due a rest. A sudden recovery of about half the losses after the heart attack was not unusual.  Nor would be a subsequent retracement of the recovered half gained back down to test the prior low.  But threatening a trade war is like a second heart attack. I can only hope that this week Trump walks back this words and threats.  If not, responses from others and retaliation will be forthcoming, and that may not be pretty.

This is not the end of the world for the long term investor, please understand. Not at all.  (See Buffet’s bet, above, and when he made it and what followed.) But it certainly could give us a much longer period of corrective angst and even, yes, it could trigger a recession.  Right now, there’s so much going for us – corporate earnings, improved corporate revenues, tax reform, regulatory reform, low interest rates, low inflation, low unemployment, and lots else.  But markets live on confidence and optimism, too – things Trump has restored to the markets.   Trade wars in a time of such profound global market integration is craziness and perversity.

We’ll just have to see, my friends.  In the meantime, keep your faith and your long term investments.

Posted in economic recovery, investment myths, investment wisdom, market corrections, Market falls, market volatility, Personal Finance, stock rallies, Successful living | Leave a comment

Here we go again….yuck!

When my boys were little, they were very fond of a book I’d read them titled “Alexander and the Terrible, Horrible, No Good, Really Bad Day.” Or some such ridiculous title.

It’s a timely title, if not a great book, for kind of days such as we’ve had lately in the stock market.

But investors must learn to live through such times as, tough as they are.  They test one’s soul. I’ve said as much.  For such times as these are, believe it or not, great spiritual exercises.  Great opportunities for personal, spiritual growth.  How real is our faith? In what do we hope? Are we strong? Brave? Resilient people?

For some of my readers, that kind of stuff may be irrelevant or even offensive at a moment like this when the market has plunged 10% in a week or so.  But I would argue that my blog is not just about helping you make more money for your retirement, it’s also about how to live a rewarding and purposeful life. In pursuit of those goals, money is definitely part of the puzzle but it’s not enough.  In those pursuits, money may even be irrelevant or dangerous. If our character does not grow along with our ability to endure – come what may – is money really important?

Ask Michael Jackson.

Or many other very rich successful celebrities who, for all their success, don’t seem to have figured out or worked out what it takes to have a truly rich, purposeful, contented, successful life.  It takes character.  And such times as we investors are experiencing right now, painful and scary though they are, are important crucibles in which stamina and grace are forged under pressure.

So hang in there. Enduring this nastiness in the markets will be good for your future and your wealth, too.

On a more practical note, may I say that when markets fall as hard as ours have recently, it takes time to shake out the fearful and establish a tradable base.  The horrors of Monday were followed by a bounce on Tuesday and maybe a hope that the worse was over.  But in such cases, usually, there will be a test of the low. That was today, for sure, but I don’t know if we failed it yet.  If we begin to rise tomorrow, then today may have been an “undercut low,” from which we will now begin to rise. But the normal rise from a 10% or so dive, such as we’ve experienced, is a long, slow process of feeling our way up, taking many weeks or months with lots of backing and filling along the way.

Suffice it to say, we have risen a lot since the fall of 2016, since Trump’s election, with hardly a hiccup down.  Well, the bill for such non-stop euphoria has come due, as we should expect. Our markets are contracting and consolidating, yes; but on a very solid economic base, unlike 2008.  There is much good, economically speaking, around the world, and here in the U.S. there’s more good coming from corporate tax changes, rising earnings, and more.  But some market participants are stressed with the prospects of rising interest rates and inflation. These are not crushing specters amid a growing, healing economy.  In the past, stocks have risen many times with rates rising, if the economy is growing.  Ours is.  Ours rates were kept too low too long to help our economy heal.

I am not now persuaded that the rate rise we’re seeing, from the low levels from which they are rising, is the death of this bull market as opposed to a sign of the growing health and resilience of our economy.  In fact, not by a long shot do I think this bull market is over.

But one thing I want to add is that some of you may have too large an allocation of your retirement portfolio concentrated in stocks.  Of course when they’re rising, I know, you can’t seem to have enough of them.  But then, events like this month occur, and some of us get weak kneed and sell.

It may be time to re-examine your asset allocation – specifically, your stock allocation – if you’re losing sleep right now.

Posted in economic recovery, fear, investment myths, investment wisdom, market corrections, Market falls, market volatility, Personal Finance, retirement investing, stock rallies, Successful living | Leave a comment

Whoa, Nellie!

Over the last 37 years, the U.S. stock market has, on average, fallen sometime during any given year, about 14%.  In 2017, it never fell more than 3%.

We’re in make-up time right now.

Having plunged over the last few days, and having lost more points yesterday in a single day than at any time in history, today seems to want to pick up yesterday left off.

Or maybe not.  Earlier this morning, Dow futures were down 303 points. They’ve cut that anticipated opening loss in half, while the S&P 500 and the NASDAQ are, weirdly, now anticipating tiny gains, after also having been down big earlier this morning. It’s just crazy.

Markets, we know, are propelled by fear or greed. Well, greed is hibernating this February morning again, and fear is roaming the streets. At least at this moment. Maybe ten minutes from now, not so much.


What’s happening is technical, mechanical, and psychological in nature. It’s a most unusual “healthy correction.” Volatility is going through the roof.  How sad for those souls who left the market, maybe, years ago and only now, in early 2018, thought it safe to come back. While few of you may in any ETFs that were marketed to make money on shorting volitility, those ETFs aren’t working.  In fact, they are blowing up and taking parts of the rest of the market with them.  Oh, and by the way, have you checked bitcoin lately?  About a month ago, it was knocking on the door of $20,000. Today?  It’s below $6,000.

Please! Stay away from the exotica!

To this boy, the market’s plunge (not bitcoin’s nor the exotic ETFs’) is all the more strange when there is so much good news still coming. My own take on this mess, and my own investing right now, sees this as a healthy (but unhealthy looking) correction and an opportunity, not the end of the world.

Let me share a few charts to give you, I hope, a little perspective and maybe comfort.  I hope not false comfort.











The above chart looks only at years since 1950 and only when the S&P 500 gained 5% or more in January. It then tells us what happened the rest of the year. Answer?  The record shows that, on average, stocks lost some 10.7% during the year, yet ended the year up an average of 24.8%. There were NO negative years.

Of course, some will say that “this time it’s different.” And to those fearful, doubting souls, I would say, “Good luck to you. It may be, but we have no better evidence of likely outcomes than what I share above.”

Now, behold Chart II:







The above chart, from Bespoke, shows that, over the past year, the market (the S&P 500) was, for most of the year, in “the red zone” – or beyond – in relation to historic valuation measures.  The “beyond” describes those times when it went north of the red zone (very expensive), as you can see on the chart.  Well, in just the last few days, the S&P has “reverted to the mean” – that is, it’s fallen back from the stratosphere into fair value – and is now very close to the top of the oversold, green area.  In other words, the market is rapidly approaching “cheapness” again.

Does this mean the market is finished with its hissy fits?  No, once its waters have been disturbed as much as they have (such as in the last week), it can take a while for them to settle down. How wonderful it would be to see a few days when the market does nothing – doesn’t go up a lot or down.  That would be evidence of the beginning of a “scabbing over” the deep wound it has experienced.

Now, let’s look at one final chart.  One that helps us see what has happened after a big market fall followed by an even bigger market fall, such as we saw last Friday (down 2%) and Monday (down 4%). Make sure your read my commentary below. It may, inexplicably, drop out of sight.















(Thanks again to Bespoke for this chart. It’s simply amazing to me that they can – and so well do – access and analyze the kind of data this chart embodies.)

Don’t let the title or size of the above monster chart scare you. It’s simply a chart about what has happened – and gives us an idea of what may happen – when the market plunges at least 2% one day followed, the next day, by a drop of at least 4%. It tells us this in terms of what happens the next day, next week, next month, and next three months.

Most of this data – 28 occasions – go back to the Great Depression, with a few from more modern corrections, like 2008.

There are no promises, of course, that the above chart will perfectly predict what will happen in our case, but the news again is not “end of the world” stuff. In most cases, the market rises the next day, week, month and three months later, from, on average, + .35% to +6.52%, respectively.

No doubt about it, my friends, this is a tough correction. So violent, so big.  It is trying our patience and kindling our fears.  Go back a couple of posts, if you might, and check out that knight on his horse riding to his goal, the Celestial City.

This, too, shall pass.  “Patience gains all,” as St. Teresa said.  Keep the faith, and keep your faith.  This kind of thing can be a great spiritual discipline.



Posted in fear, investment myths, investment wisdom, market corrections, Market falls, market volatility, Personal Finance, retirement investing, saving, stock rallies, Successful living | Leave a comment

Keep that chin up, my friends

I’m writing more frequently these days because I think a lot of you need some encouragement and some hand-holding – some good, old-fashioned reassurance.

It looks like the nastiness of last week is continuing into this week.  I’m sorry. I can’t help the news.  But I hope this posting may help you with your response.

Earlier this morning, the S&P 500 futures were down 26 points. Yikes! that’s another one percent. But as of about 9 am this morning, they were down “only” 10 points.  That’s progress, but it’s still going to hurt.  Let’s see how the day goes.  The markets close at 4 pm EST A lot can happen by then.  Last week showed markets opening better than they closed. In other words, their mood soured during the day. That often happens in corrective phases.

But lets put this downdraft, correction, adjustment, or whatever we want to call it in perspective.  Study the chart below from Doug Short:











Study it carefully.  Some love charts and take-in their message immediately. Others get sweaty palms thinking they’re about to take a math test.

Note two things, please. First, notice the overall slope of the S&P index line from early 2009 until the present.  It is, clearly, upward sloping and delightfully profitable to any who rode its progression. In fact, that total “progression” works out to be 324.6% – somewhat better than the best CD rate you could have had from the bank near you.

However – second point – unlike the CD rate from your nearest bank, the 324.6% return came with a series of untimely, unpredictably downdrafts that chopped off anywhere from about 5% to 20% of what you had already “progressed” through.

Moreover, on the left of the chart, you see the frightening tail-end of the 2008-09 monster bear market wherein almost 57% of your prior returns had been lopped off and sent to the dumpster. (Somewhere in there, many of you might have gotten out of the market.  Are you back in yet?)

One never knows when the next downdraft will come nor how deep it will go nor how long it will last, but the worst ones are usually attended by or come just before recessions.  With corporate earnings growing as they are; with corporate revenues doing well too; with so much else – still low interest rates and inflation, improving unemployment, less regulation, lower taxes, and much more – the prospect of a recession is tiny right now.  That does not mean that there will be no more recessions – there will be – or oil price rises, or geo-political shocks or just bad stuff happening, no; all that will keep on happening in this broken and fallen world. BUT! as an investor, you and I can control only what I can see or reasonably expect, not every single remote possibility out there.  To try to control everything, I would wind up in a nut house or I’d wind up putting my money in the ground in my back yard.

Look at that chart again.  Try to absorb its comforting, reassuring message about where we are, where we’ve been, and what is not unlikely to be ahead for now.  Don’t focus on an invasion from Mars or a nuke from North Korea hitting LA or the next earthquake under San Francisco.  Neither you nor I can control those things; we can control only what we can. So, my advice, for now, is to stay invested or get invested.

God bless you, my friends. I’ll have more helpful, encouraging charts for you later this week, if things continue to test our fortitude. For now, keep you chin up.

This, too, shall pass. (And please, stay away from cable, financial news right now.)

Posted in fear, investment myths, investment wisdom, market corrections, Market falls, market volatility, Personal Finance, saving, stock rallies, Successful living | Leave a comment