Do you notice how much conflicting investment information there is out there?
Here are some of the varying points of view that we all come across daily:
Buy bonds.
Don’t buy bonds.
Don’t buy funds.
Buy individual stocks.
Buy international stock funds because the economies in places like India and South America will grow faster than the US economy in the coming decades.
Don’t buy international stocks.
We will avoid a recession and this will be a big year for stocks.
The US economy will be going into a recession in 2024 and stocks will decline by 30% or more as a result.
I could keep going and going with this list. It seems that no one can agree on anything about investing or the economy.
Why is this the case and, more importantly, what is the average investor supposed to do with all this conflicting information?
There are several reasons why all these contradictions exist.
Nobody can predict the future with any accuracy or consistency. It is just too hard to predict asset prices and the economy. There are too many things (known and unknown) that affect financial markets.
The motivation of the forecaster may not be about being correct. Often, the people who predict things just do it for media attention. Bold and dire predictions get the most clicks and the most views. Look for hidden agendas.
When it comes to investing guidance, people are relying on different facts or theories. And some of those theories are driven by the interests of the investment industry and not the interests of the investor.
Because the investing world is so messy and full of conflicting information, it is important for you to:
Ignore short-term forecasts of things that are too hard to predict like the direction of the stock market, the direction of the economy, the direction of interest rates, etc. Since investing is a long-term game, this is fine. Stay focused on long-term data and data that is consistent.
Understand the data and the facts behind the advice. Is it just an opinion that is grabbing a bunch of facts to support their opinion? Or is the advice driven by sound and consistent data and logic that have held up for 30 years or 50 years or more?
Understand the motivation of the forecaster or expert. Are they committed to truth and logic or are they going to benefit financially if you believe their assertion. The Asset Allocation model based on risk-profiling is the financial lifeblood of the investment services industry. If you believe in their model, then you will need their services and you will pay their fees to help you manage your investments.
The facts are very clear. There are several foundational principles about investing that you can rely on:
The broad US stock market as measured by the S&P 500 will grow by roughly 9% to 10% per year over the long term.
Large cap, growth index funds can generate 12% to 13% per year in the long run.
The best you can do with bond funds is about 3% to 4% per year.
International stock funds have only generated about 6% per year over long periods of time. International stocks also carry currency risk.
Stock market investments will be very volatile. In the short-term, stock prices will be move up and down irrationally.
To be an excellent investor, you need to do just a few things well.
You need to take a long-term view. Focus on your 5-year, 10-year and 20-year returns. Avoid the temptation to win on short-term trading. Short-term trading is gambling and not investing.
You need to invest in the funds that have the best and most consistent long-term performance. You will not be able to beat the market in the long run by picking individual stocks.
You need to invest in a very disciplined fashion. Avoid emotional investing.
You need to have a proven and tested strategy of dealing with the inevitable stock market collapses.
Stay Disciplined My Friends,
Phil
Disclaimers The Beyond Buy & Hold newsletter is published and provided for informational and entertainment purposes only. We are not advising, and will not advise you personally, concerning the nature, potential, value, or suitability of any particular security, portfolio of securities, transaction, investment strategy or other matter. Beyond Buy & Hold recommends you consult a licensed or registered professional before making any investment decision.
Investing in the financial products discussed in the Newsletter involves risk. Trading in such securities can result in immediate and substantial losses of the capital invested. Past performance is not necessarily indicative of future results. Actual results will vary widely given a variety of factors such as experience, skill, risk mitigation practices, and market dynamics.
After reaching an all-time high on July 16th, the stock market has declined fairly quickly. The chart of the S&P 500 below clearly shows the reversal in the last two weeks.
The S&P 500 has dropped almost 9% from its peak and the Nasdaq has fallen almost 14% since its July peak. As of Monday, the S&P 500 was still up about 9% for the year.
It is important not to panic at times like this. These moves are quite normal for the stock market. Market drops of over 5% in a given year happen 94% of the time. Market drops of over 10% in a given year happen 64% of the time.
We would all like to know if this is a minor short-term correction or if this is the start of a bigger move to the downside. No one knows for sure but the good news is that you are already protected from the worst case if you are one of our Market Signals customers.
Let’s examine the factors behind this recent decline.
Recession Fears – The market did not like the negative surprises last week for the manufacturing index and the jobs report. We seem to have quickly moved from inflationary fears to recession fears. And we know that the stock market overreacts to both good news and bad news. The economy is clearly slowing down, and it has been for a while. This was to be expected with the Fed interest rate increases. The Fed appears to be poised to cut interest rates in the near term and the concern would be that the Fed is too late again. If economic and market data continue to be soft, expect the Fed to lower interest rates sooner rather than later.
Japan – The Japanese stock market has fallen by roughly 20% after the Japanese government raised interest rates. This may have contributed to the selling, but the American economy should be able to get past any short-term bumps in the much smaller Japanese economy.
As I have previously written, the odds of the Fed achieving a soft landing were very low to begin with. It has never been done before. A soft landing is still a possibility, however, albeit a small one.
Stay Disciplined My Friends,
Phil McAvoy
Disclaimers The Beyond Buy & Hold newsletter is published and provided for informational and entertainment purposes only. We are not advising, and will not advise you personally, concerning the nature, potential, value, or suitability of any particular security, portfolio of securities, transaction, investment strategy or other matter. Beyond Buy & Hold recommends you consult a licensed or registered professional before making any investment decision.
Investing in the financial products discussed in the Newsletter involves risk. Trading in such securities can result in immediate and substantial losses of the capital invested. Past performance is not necessarily indicative of future results. Actual results will vary widely given a variety of factors such as experience, skill, risk mitigation practices, and market dynamics.
Through the end of last week, the bull market in stocks continued to reach all-time highs. And the underperforming Russell 2000 (small cap stocks) finally began to move higher – see the uptick for the grey line on the far right of the graph.
This week has seen a reversal with the S&P declining 1.4% for the week and the Nasdaq down 3.0% this week (as of Thursday afternoon). Nasdaq and S&P prices are getting overvalued, so a pullback is not too surprising after the big move higher over the last eight months.
It will be interesting to see if the falloff this week is just a minor pullback or if it is something bigger. The economic news has been mostly positive with inflation continuing to fall and expectations for a Fed rate cut growing. GDP is slowing down slightly but this has been expected following the Fed rate increases. If investors think the GDP slowdown might turn into a recession, stocks will continue to fall.
At this time, my guess is this week’s activity is a minor pullback, but we will keep a close eye on job reports and economic data.
Between November of last year and July 12th this year, the S&P 500 and the Nasdaq (top two lines) have moved sharply higher. Both the S&P 500 and the Nasdaq are at all-time highs. Notice how the Russell 2000 (bottom line) is still in a bear market – sitting about 12% below its previous high in November of 2021.
Our customers have posted huge gains since November of last year as we have been “all in” on stocks. The S&P 500 has gained 33% since November 1st. And our customers can be extremely confident knowing that our Market Signals system will move them to cash if the market declines significantly.
When you have downside protection, you can be comfortable putting 100% of your money in stocks and getting the big gains in bull markets. You can also sleep better at night.
Without an investing system like Market Signals, investors are forced to shift money to lower performing and safer assets before the bull market is over or be willing to get crushed in a bear market decline.
Stay Disciplined My Friends,
Phil
Disclaimers The Beyond Buy & Hold newsletter is published and provided for informational and entertainment purposes only. We are not advising, and will not advise you personally, concerning the nature, potential, value, or suitability of any particular security, portfolio of securities, transaction, investment strategy or other matter. Beyond Buy & Hold recommends you consult a licensed or registered professional before making any investment decision.
Investing in the financial products discussed in the Newsletter involves risk. Trading in such securities can result in immediate and substantial losses of the capital invested. Past performance is not necessarily indicative of future results. Actual results will vary widely given a variety of factors such as experience, skill, risk mitigation practices, and market dynamics.
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