My mantra remains the same and frankly it always will: If you have a need for cash over the next 18-or-so months, you should already have it raised. Reflect back to Christmas Eve of 2018. Were you awake at night thinking over your losses that began to materialize in October 2018, telling yourself you wish you had made better decisions?
It’s redemption time.
At their core, planning and investing are simple, but that does not mean they’re easy. Far from it. Behavior takes over and our brains are not wired to process the risks and rewards of investing.
Patience and discipline – that’s what it takes to grow wealth. As Buffett said, “Everyone wants to get rich, they just don’t want to do it slowly.” (…or something like that. I’m going off memory.)
You can see what’s been happening in the Bespoke Investment Group charts below.
Small-Caps and Mid-Caps have exceeded their prior highs that were posted in the fourth quarter of 2018…see the red arrows. The S&P 500 and Nasdaq are not quite there yet, but close.
The S&P 500 has broken through its 200-day moving average, which is also nice to see. (For me, it’s an indicator of sentiment more than an actionable event.) The S&P 500 also finished the week posting its third straight week of gains. More impressive is the Nasdaq which has closed up for eight straight weeks. According to Bespoke, that’s tied with August 2016 and April 2010 for the longest streak of positive weeks since May 2009.
Remember May of 2009?
The most impressive thing about last week is that all this happened while climbing a wall of worry. There was plenty of bad news that came out, like Amazon abandoning NYC for their HQ2 project, the worst Retail Sales report in 10 years, and while this is more of a quarterly theme than a weekly news item, earnings expectations are being lowered for next quarter.
Yet, here we are.
I fear that there are investors who yielded to their impulses back in December and sold. A common refrain I hear in general conversations is “I’m going to sell and wait for the market to get better before I get back in,” or some variation of that.
Believe me, there have been plenty of times since March 9th, 2009 where the news was bad enough to cause people to say, “Man, I just can’t sit back and take another 2008 market correction, so I’m going to cut my losses and sit tight until things get better.”
They can all be seen in this chart from StockCharts.com:
What if those people instead said, “I don’t have to worry about doing anything because I can live off my cash for 18 months if needed.”
People with that outlook–with that kind of plan–or dare I say it, with some patience and discipline didn’t give a hoot (I’d normally use the F word, but ehhh…) about anything other than the fact that the the S&P 500 over this time is up almost 400%.
That means the people who didn’t overthink ANYTHING and simply had a plan and a solid investment strategy were huge winners. See below for a chart from a newcomer FINTECH service I really like called Koyfin.com. Rob Koyfman, the CEO, is building a fantastic service for RIAs. It’s Version 1, but get ready to cancel your Bloomberg or FactSet subscription.
So, what now?
- You had anxiety over the market pullback and it really bothered you, yet now you feel just fine, it’s time to adjust your asset allocation and/or cash position. Remember how you said, “I’m going to wait for things to get better”? Well…
- You had no anxiety and you felt good about your situation throughout the 4th quarter, congratulations. You are a real investor and probably have a great plan. Take some time to review your trust and estate documents, your beneficiaries, requalify your financial goals and objectives. Are you all set there? Great – enjoy spring, eat better, exercise more and tell your loved ones how much they mean to you. And go read Annie Duke’s Thinking in Bets.
- If you are a Monument client and you fall into #1, please pick up the phone and call our Team. We will fix this. If you don’t fall into #1, see #2 and pass this along to someone who may enjoy it.
- If you totally panicked last quarter and now you are rethinking everything, you can fix it. Don’t let your ego or any lament over a mistake compound the situation. Again, look at the StockCharts.com chart above. Anyone who had a behavioral reaction to risk and volatility (see any red portion of the graph) was able to correct and fix their discomfort by creating a plan and a corresponding investment strategy.
- If you are not a client and fell into #1 or #4, read more of our blog posts. Reach out if you need a different kind of help than what you’re getting now. On paper, we’re a wealth management firm. In reality, we’re equal parts creative lab, brain trust, and outspoken critics of the financial industry. But…what we really are is a team of razor-sharp, innovative, collaborative, and creative thinkers with seasoned financial expertise, a renegade spirit, and zero commitment issues. And what we do is provide opportunities for people to use what they have to get where they most want to go—and tap not just their potential for wealth, but their potential for living.
Bottom line – if you don’t have a decent amount of cash to give you a mental and behavioral buffer to ride out volatility, BUILD IT NOW.
Why? See the charts above; the markets have gotten better.
Keep looking forward,
We remain at MONCON 5. We see no data on the horizon that has increased the probability of a recession anytime soon. When that changes, because one day it will, we will have an immediate blog announcement. But for now, it’s MONCON 5 and chill.
See more of an explanation by reading this blog post, “How to Forecast and Manage a Recession.”
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