"You've got massively oversold conditions in the equity markets. The setup is pretty good for a rally to the upside that's going to surprise a lot of people."
Jeffrey Saut, Raymond James Chief Economic Strategist
Of course we did not get this rally at the end of the 2015 that we thought we would. In mid October we pared back on some our more defensive positions and embraced equities only to see a good rally and then a fall off toward the end of the year that has continued to give us the worst first week of the year I have ever seen. China’s bubble economy seems to have popped and it has definitely effected markets in the short run.
We have seen stocks in general take out the December lows which was the first sign of weakness. Later in the week we saw smaller companies and the Dow Transports make new multi-year lows which encouraged us to take some chips off the table. We increased our bond exposure a good bit on Friday and although we do not see any major storms on the horizon in the US, we want to err on the side of caution.
Currently, unlike the Chinese economy of last year we see little sign of over-confidence, over-spending or over-borrowing here in the US. Most economic conditions are marginally positive on our shores although some of our neighboring countries whose economies are more closely tied to energy or commodities are suffering.
Our Three Pronged Asset Protection Strategy
In late 2008 and early 2009 we unveiled our three pronged asset protection strategy. The Chinese politicians and market regulators are acting much like ours did in 2008. There are some key differences between now and then, but I talked with a few clients that were interested in revisiting this strategy in our current environment. Whereas things in the U.S. look much stronger than seven years ago, we want to make sure that everyone is able to sleep well at night. If you would like to revisit things from this perspective, please feel free to give us a call.
This post originally appeared in the Brinker Capital blog last Friday
It’s at a time like this that it’s best to temper the catastrophic voices in our head with some research-based truths about how financial markets work.
For each of the rash, fear-induced common thoughts below (in bold), we have countered with a dose of realism:
“It’s been a good run, but it’s time to get out.”
From 1926 to 1997, the worst market outcome at any one year was pretty scary, -43.3%; but consider how time changes the equation—the worst return of any 25-year period was 5.9% annualized. Take it from the Rolling Stones: “Time is on my side, yes it is.”
“I can’t just stand here!”
In his book, What Investors Really Want, behavioral economist Meir Statman cites research from Sweden showing that the heaviest traders lose 4% of their account value each year. Across 19 major stock exchanges, investors who made frequent changes trailed buy-and-hold investors by 1.5% a year. Your New Year’s resolution may be to be more active in 2016, but that shouldn’t apply to the market.
“If I time this just right…”
As Ben Carlson relates in A Wealth of Common Sense, “A study performed by the Federal Reserve…looked at mutual fund inflows and outflows over nearly 30 years from 1984 to 2012. Predictably, they found that most investors poured money into the markets after large gains and pulled money out after sustaining losses—a buy high, sell low debacle of a strategy.” Everyone knows to buy low and sell high, but very few put it into practice. Will you?
“I don’t want to bother my advisor.”
Vanguard’s Advisor’s Alpha study did an excellent job of quantifying the value added (in basis points) of many of the common activities performed by an advisor, and the results may surprise you. They found that the greatest value provided by an advisor was behavioral coaching, which added 150 bps per year, far greater than any other activity. At times like this is why investors have advisors so don’t be afraid to call them for advice and support.
“THIS IS THE END OF THE WORLD!”
Since 1928, the U.S. economy has been in recession about 20% of the time and has still managed to compound wealth at a dramatic clip. What’s more, we have never gone more than ten years at any time without at least one recession. Now, we are not currently in a recession, but you could expect between 10 and 15 in your lifetime. The sooner you can reconcile yourself to the inevitability of volatility, the faster you will be able to take advantage of all the good that markets do.
It’s our behavior in the face of these pullbacks that will determine how we do in the long run. Unfortunately, sometimes the harder we try the more trouble we get ourselves into. I know many who on the baseball field or the golf course when they are feeling the pressure start swinging too hard or swing at too many pitches. It’s funny how too much effort in many of these types of situations defeats itself and calm nerves prevail.
The following excerpt was taken from “Competitive Advantage” a consulting service helping athletes overcome sports fears and blocks.
"A practical intro to staying cool & calm in the clutch."
It's not the best athlete or team that always wins! Instead it's the athlete or team that is best able to maintain their composure and stay calm under the heat of intense competitive pressure that is most always successful. Simply put, if you can't consistently control your nervousness before and during performance, then you will always underachieve. If you've ever choked before, then you painfully know what I mean. The good news here is that runaway nervousness is not a genetic disorder! It's not a personality trait! There are specific reasons why you get uptight and equally specific strategies that you can learn to prevent this from happening. Just because you've turned into Jell-O and melted down in the past does not mean that it needs to continue to happen. Contrary to what others may have said about you, you are not a hopeless head case!
First let's start with a basic understanding of where those nasty nerves come from. Most athletes think that what makes them nervous is the size, skill level or reputation of the opponent, how big the game or race is, the size of the crowd, the college or pro scouts in the stands, the officiating, or the game situation when you go in. While these factors may provide you with the opportunity to freak out, by themselves they do NOT cause your nervousness. If you really believe that these external factors make you nervous, then you will always be at their mercy and have no real control. The fact of the matter is that you do have control! So if these external factors don't cause your nervousness, then who is the real culprit here? Brace yourself for this one.
You cause your own nervousness by two things:
#1 Self-talk: It's your self-talk about the competitive situation you're in that ultimately ends up generating your internal stress.
The good news about this fact is that you are the one in control. Therefore you can learn to change your internal dialogue and as a result, learn to stay cool in the clutch.
The coach looks down the bench for a go-to-guy and gives you the nod. You trot onto the field and into the huddle swallowing a little too hard. This is
a must-do, game-deciding play. You know the ball is coming your way and you start to think, "Oh God, what if I blow it here? What if I miss my assignment? What if I drop the ball? Then we'll lose and it'll be my fault! Coach will never let me play another down for the rest of my life!" Is this a stressful situation? Yes! However, this kind of thinking will get you too uptight to play well and, in a cruel twist of fate, will cause your worst fears to actually come true!
#2 Focus: One of the major causes of stress is focusing on the "UC's" or un-controllables before or during the performance.
An uncontrollable is anything that is directly out of your control. When you go into a competitive situation and concentrate on an uncontrollable you'll get nervous, lose your confidence and then perform poorly. Examples of UC's are the playing conditions, weather, crowd, the play of your teammates, other people's
expectations, your coach and how much playing time you get, the ref's, everything about your opponent (their size, speed, skills, reputation, character, etc), anything in the past (mistake, loss, failure, or last time you played this team) and the "what if's" or anything in the future (winning, losing, qualifying, not getting playing time, your expectations, etc.).
Data as of 1/8/2016
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