The Longest Shot Has Won the Kentucky Derby
The unimaginable happens. If you didn’t catch the Kentucky Derby this year, we suggest that you check it out on YouTube. For context, Rich Strike’s chances of winning the Kentucky Derby were 80 to 1, which means that if someone bet $10, their bet would have returned $818. Furthermore, the likelihood of this happening was a little over a 1% chance, almost unimaginable. To spoil your YouTube search, Rich Strike not only won the Kentucky Derby, but he came from behind to win possibly the greatest race in our lifetime. Rich Strike’s victory proves that anything can happen even if you are behind, or the odds are stacked against you. We look forward to closing the books on the worst start for the stock market in over 50 years. Global equity markets continue to face headwinds of Russia’s invasion of Ukraine, supply chain disruptions from COVID lock downs in China, high inflation, and rising interest rates. Furthermore, fixed income markets have provided little protection for portfolios as the correlation between equities and bonds remains positive in 2022. The gates opened, the race began, and investors feel that they are behind the pack. The S&P 500 and NASDAQ reached bear market territory in the second quarter and the indexes are down about 20% and 30% year-to-date (YTD) respectively. The Dow Jones Industrial Average has fared better to start the year helped by its tilt toward value companies with the index down about 15% YTD. The performance dichotomy between the NASDAQ and Dow can be partly explained by their sector allocation. The NASDAQ Composite has an allocation over 60% to Information Technology and Communication Services, whereas the Dow has less exposure to technology and a higher allocation to Health Care. The information technology, communication services, and health care sectors are down about 27%, 30%, and 9% YTD. It is during times of high market volatility where we must rely on data over emotions as investors. Since 1942, a bear market has occurred about every six years for the S&P 500 and last on average just under a year. Whereas bull market periods last about 4.5 years and on average have a cumulative total return of over 150% (First Trust). Therefore, instead of preparing your portfolio for a bear market today, it may be more prudent to upgrade your portfolio to quality companies for the bull market of tomorrow. It may surprise some investors, but international equities (down about 18% YTD) have outperformed the S&P 500 this year. International markets have faced major headwinds caused by the Russian invasion and Chinese lock downs, but some countries like Australia have benefited from the rise in commodity prices contributing positively to market performance. Furthermore, Chinese equities may be a horse you want as easing COVID restrictions and potential additional stimulus may boost their equity market in the near-term. The race is not over until it is over and every household’s finish line is different. Some investors are focused on the finish line of retirement funding where others have education funding top of mind. Regardless of your household’s goal we work with our clients to create a plan and to stick to their plan during rain or shine. If a client abandoned their plan and missed just the 10 best days of the stock market from 1997 through 2021, they may have missed over 4% of annualized return (Invesco). Rich Strike was not the favorite, was not the leader, but he was the winner. Stick to your plan. We thank you for your continued support of our firm and look forward to our next phone call, zoom call, or hopefully an in-person meeting. As always, “you do the dreaming, we’ll do the math.”
Alone With My Thoughts – 06/15/2022
Today the Fed took another shot at inflation, raising interest rates by 75 basis points. During the pandemic in 2020-21, and also the Great Recession of 2008-09, the playbook was to throw money at the problem by either keeping interest rates at zero percent or by literally giving people money to spend our way out of a jam. The result of all the free money (trillions with a T) is the aggressive inflation which now needs to be addressed. The multi-trillion dollar question then is…can the Fed raise rates enough to slow the economy without throwing us into a recession and/or a much steeper downward spiral in stocks. The better question may be…are we fighting yesterday’s war and should we be putting our efforts towards freeing up the supply chains, loosening the grip of government controls on US businesses, and letting post-pandemic demand play itself out over a period of time. The only thing that is transitory is any Talking Head taking responsibility for their economic calls.
Alone With My Thoughts – 06/09/2022
Friday’s upcoming CPI report will unfortunately tell us the same story that we are living, that prices are higher and they are sticky at these levels. Inflation can be an insidious threat to our economy, acting like a silent tax on our day to day life. From our friends at 10-K Diver here are some pointers on dealing with inflation. Be a consistent earner, meaning now is the time to be valued in order to maintain and increase your income streams. Continue saving by being even more aware of what and how you are spending your money. Finally, inflation proof your portfolio by investing in companies that have pricing power, very manageable debt loads, and are capital light. Inflation is happening and will be working its way through the system for some time.
Alone With My Thoughts – 05/24/2022
Warren Buffet’s rule number one is to “not lose money”. His rule number two is “see rule number one”. That being said, our goal is to build long-term investment portfolios that can withstand the inevitable bear markets and recessions that cycle through any economy. We also are committed to protecting your assets from the unfortunate tremendous growth in Cyber Fraud. Everyone needs to be vigilant when it comes to their money and its place in the digital world.
Safe and Secure
Your wealth management system employs advanced security features and protocols to keep your data safe, private, and secure at every hour of every day, year round. Our comprehensive security measures include password protection, Secure Socket Layer encryption, firewalls, intrusion detection, audits, inspections, and more. With each measure in place, you can be confident that your important information is safe and secure. Download the PDF to read more.
Personal Security Insights
We all take measures in our daily lives to help ensure the safety of our home, wealth, and family. Today, as more and more aspects of our personal lives are conducted online, the danger of falling prey to cybercriminals and identity thieves is a particular threat that must be guarded against. The good news is that adopting a comprehensive personal security strategy is not as complicated as you may think. While there is a broad range of actions that you can take, finding your ideal spot on this spectrum—one that will protect you and your family from the vast majority of criminal actors—comes down to a relative handful of high-value steps in several areas where your money, your property, and your personal information can be put at risk. This brochure outlines the best practices you can adopt to protect yourself, without having to overthink it.
Make Yourself a Difficult Target for Cybercriminals
Cybercriminals may be targeting your wealth. Fidelity’s Cyber Fraud Investigations Team recommends you reduce your risk by considering the actions within this PDF document. Consult your financial representative if you are unsure how to accomplish these tasks.
Alone With My Thoughts – 05/06/2022
Yesterday, the White House again touted the fact that they have cut federal deficits by historic amounts the past two years. Just keep in mind that the deduction is only in the predicted yearly deficit, in other words the national debt is still going up in historic fashion, but just not quite as fast. In classic political double-speak, the Biden administration would have you believe that they were able to cut the deficit by $350 billion last year, but due to pandemic emergency spending running out, if they had done nothing, according to the Committee for a Responsible Federal Budget, the deficit growth would have slowed by $1 trillion, much more than what they are hanging their hat on. Whether Republican or Democrat, unfortunately our elected leaders do not appear to have the resolve to tackle governmental spending and now we get to deal with the effects of higher interest rates begotten from higher inflation. The more you repeat something the more likely you are to believe it.