I’m strange. I know it. I talk funny, look funny and at times when the market is taking a dump so far this year, I’m more excited now than I have been in the past 18 months. In a few conversations last week, I found myself talking with passion about the prospects for some individual stock names and the market in general. I’m used to having people tilt their head sideways when I’m speaking, but I always thought it was due to my accent. Last week (in a discussion with peers), I had them tilting their heads because they couldn’t understand why I was more bullish now than I was 18 months ago.
I don’t think it was because they have opinions that differ greatly from mine, rather I think they don’t like the times when markets pull back and clients calls start concerned about their account balances. I’m extremely fortunate to have the clients I have because they know better. The market will never go in a straight line, there will be periods of time that will be negative. Pull backs are part of the normal market cycle, and pullbacks are where the opportunities lie.
If you’ve followed along with this note for a while, you’ll know that I’ve been concerned that the market was overpriced for some time and that the first half of this year was likely to be choppy (aka volatile). I love it when I’m right, but it also sucks to lose money. Problem is, I have no clue when or what will make the market pull back, and how swift and deep it will be. The good times can roll for many years or even a decade, like it did in the 90s. Therefore, I can never make bets when the market will pullback, I just know that it will at some point. I guess to that extent it’s like death, know it’ll happen, just not sure when.
What I do know is that a good money manager should be like a good coach. First you need a long-term game plan for success (that’s the process and discipline). Second, you need to acquire talent (that’s the securities we own). Third, we want to get the most of that talent for as long as they are able to produce. Fourth. Sometimes I understand that the season might be underwhelming, but it gives us the chance to rebuild. Lastly, good coaches are educators. Teaching you the skills and discipline you need to reach your optimum performance.
Although we are not playing for titles, we do play against the competition. Our competition is the benchmark or index. Most investors, look at their balance as a measure of success. That’s the plan for those that don’t know how to play the game. We need those teams to play against because someone needs to sell at the bottom, and it will likely be the players that haven’t trained for this. We know that sometimes saying “I lost 7% this quarter”, can actually be a good thing…as long as the index was down more, that is. Beating the index when markets are negative can provide a great platform to bounce from, and give you a head start when things turn positive again.
As the quarter rolls to an end, depending on what happens in the next few days, we may be looking at the first negative quarter for a couple of years. But look at the benchmark and then look at the game through my eyes and ask, am I winning the game?? We invest in equities (stock market) because we know over time the bias will be upwards. The lowest 20-year return for equities (pick any time period) was 6% a year (JP Morgan). That’s why I always say the market is a crapshoot short term, predictable long term.
As for where we are right now, it was a positive sign to see the S&P 500 (the U.S. large company index) break through its downward trend line (see below). I think that’s a real positive sign. If it can stay above that downtrend line and not break the recent low of around 4170 we may have seen the bottom for a while. If not, then it’s likely we may be in for some lower lows. I’m leaning toward the former.
With all that, remember you’re a well-oiled machine with a great coach. Even if he does talk funny. Here’s the buy/sell.
Bracket basketball is in full swing. I get lost in the emotion and enthusiasm of the fans and the players. A lot of these may be playing their last games, either through graduation or on to the Pros. The full court press….I’ve used that term quite often but remembered this week where it came from watching some of these games. You definitely don’t see that type of energy from the Pros.
My wife is a UNC fan and to take the other side of the bet, I’ve always followed Duke. We have stupid bets on these games, (some I can’t tell you about). They usually involve some type of public humiliation. She may or may not have had to walk around our local pub clucking like a chicken one year. Well at the time of writing this, we are on a collision course to play each other in the semis. No guessing as to what the bet will be for this game, but any ideas would be welcome because I’m feeling confident this year.
Anyway, enjoy the rest of the tournament and I wish you well, except of course if you’re a UNC supporter
Mick Graham, CPM®, AIF®
Branch Manager Raymond James
Financial Advisor Melbourne, FL
The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Mick Graham and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor’s results will vary. Past performance does not guarantee future results. Future investment performance cannot be guaranteed, investment yields will fluctuate with market conditions.
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