“Off The Wall” Blog
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Predictions are Less Important than Conviction
By David B. Armstrong, CFA | Sep 30, 2013 | Weekly Market Commentary
I’d give anything for a Kardashian wedding right about now. It would be nice to have some other buffoonary to focus on besides the circus in Washington. Sun Tzu is screaming from his grave, “Supreme excellence consists in breaking the enemy’s resistance without fighting.”
Props to Josh Brown at The Reformed Broker for the graphic. I swear I’m as funny as he is in my own head. Seriously – there are advisors out there gambling on this. Nothing, for the most part, surprises me anymore.
I hate to sound like a broken record right now, but predictions are a lot less important right now than conviction. I’m reminding everyone that our philosophy at Monument Wealth Management focuses on terminal wealth. The risk of not achieving the required terminal wealth needed to live in retirement is way more important that then daily, weekly or monthly volatility in the market. Have conviction in your plan and leave the predictions to the charlatans and the fools.
Washington D.C. Circus
I have no more of an idea about what will happen than Speaker Boehner does…so I’ll leave it at this: Our conviction is to stay invested unless your need for short-term liquidity has changed. The need for short-term liquidity should be the only reason an investor is selling right now. If you can’t sleep at night, your asset allocation does not accurately reflect your risk tolerance and you should call your advisor to update your long-term planning and allocations.
Worth re-reading is any or all of our blogs from August 2011 which can be found here.
There have been 17 government shutdowns since 1976, ranging from 1 to 21 days. Though markets slipped, the selloffs weren’t anything that any investor would consider memorable. Still, the lengthier cessation of services seemed to heighten uncertainty, creating some additional selling. Here is a chart from The Financial Jumble that shows the performance of the Standard & Poor’s 500 index (S&P 500) during shutdowns.
Past performance cannot guarantee how stocks will perform going forward and all that other compliance blah blah blah…but it’s worth noting especially in the context of how well the S&P 500 is doing this year.
However, even if someone blinks, the government will run up against the debt ceiling issue later in the month, which means it will no longer have the authority to borrow to pay its bills. If no deal is reached on that issue, the U.S. would technically default on its debt for the first time. Unlike government shutdowns, there is no precedent for the markets.
The last time there was a stand-off over the debt ceiling was during the summer of 2011. This initiated a downgrade in the U.S. credit rating by Standard & Poor’s. Recall there was heavy volatility in equities – again please see our blogs from August 2011 which can be found here. But the debate in 2011 was also accompanied by a debt crisis in Europe and a U.S. economy that appeared to be running out of gas (and it turns out, it wasn’t).
Currently, the U.S. economy is plodding along and is even showing some signs of firming. There are still problems in Europe, but nothing that has grabbed headlines like we saw in 2011.
Stay convicted – there are plenty of fools out there trying to trade around the outcome of the potential shut down and the pending debt crisis. It’s like flipping a coin – some will be right and some will be wrong, but if you win one flip (sell and raise cash) you have to flip the coin again guessing when to get back in to the market. Those are bad odds – even in Vegas.
Please call or email with questions.
Investment advice offered through Monument Advisory Group, LLC a Registered Investment Advisor (RIA). Securities offered through LPL Financial. Member FINRA/SIPC. Monument Advisory Group and Monument Wealth Management are separate entities from LPL Financial.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly. Stock investing involves risk including loss of principal. The Dow Jones Industrial Average is comprised of 30 stocks that are major factors in their industries, and widely held by individuals and institutional investors. The Standard & Poor’s 500 Stock Index (S&P 500) is an unmanaged capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. The NASDAQ Composite Index measures all domestic and non-U.S. based common stocks listed on The NASDAQ Stock Market. The market value, the last sale price multiplied by total shares outstanding, is calculated throughout the trading day, and is related to the total value of the Index. The Russell 2000 Small Stock Index is an unmanaged index generally representative of the 2000 smallest companies in the Russell 3000 Index. The Russell 2000 is an unmanaged index generally comprised of companies with lower price-to-book ratios and lower forecasted growth values. The 2, 10 and 30 year Treasury is simply the yield at the close of the day.
(1) West Texas Intermediate crude spot price is as of end of week.
(2) London Bullion Market Association; gold fixing pricing at 3 p.m. London time.
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