Keep Calm and Carry On!

Keep Calm and Carry On

As I've noted  in prior commentaries, the stock market has not seen a meaningful (10% or greater) correction in years.  Remember, it is not normal for the market to ascend to new record highs without meaningful setbacks. Thus, what we are seeing currently is a return to normalcy and how the stock market has traditionally behaved. So, now is the time to just remember that any market declines let the air out of any potential future bubbles.

July brokerage statements are going to be sent soon and for the first time in many months the percentage of you who throw them away unopened will rise. In fact, while ratings on financial TV and traffic on stock websites will almost certainly show an impressive spike this week, the number of you who log in to see how your portfolio is doing will drop.

That isn't an indictment of your maturity or sophistication. It validates your humanity. We are hard wired to avoid what is painful. The last few days have reminded us that investing can be a scary, painful experience.

If you're looking for answers, there really are none. What we know is that after spending most of the month tip-toeing around like they were trying to sneak out of a bear's den investors finally gave into their fear and stormed the exits yesterday. The result was the worst day since April 11th. The Dow dropped 1.9%, while the S&P 500 and the Nasdaq both fared slightly worse.

Mass psychology isn't a new science. In 1895 a French social psychologist named Gustav LeBon wrote a book called "The Crowd: a Study of the Popular Mind" in which he basically noted that people tend to do stupid things when operating as a group. His analysis was simple but the conclusion holds. This sell-off is very much a global event. Yesterday all ten sectors fell between 1.56 and 2%. You're going to hear all kinds of fancy economic theories for catalysts but the most obvious explanation for the selling is that the masses are scared.

I can't tell you exactly how this will play out, but I can tell you how to avoid  panicking and incurring large losses that many did in the past bear markets (e.g., 2000-2002 and 2008-2009). Just simply separate yourself from the crowd. This isn't a time for over thinking. It's a time for taking a measure of your emotions. If you're afraid of your statements, then you need to not listen to the voice in your head. Get in front of that emotion before it reduces your intellect to that of the masses. No one unbuckles in the middle of a roller coaster ride...that would be crazy. As it relates to your investments, you shouldn't either. You should buckle up and look for opportunities or simply ride it through. History suggests the selling will end when most of us are good and scared, and that could be much sooner than you think.

Remember, successful, long-term investment strategies are just that...long-term. As such, they should not be altered in the near term due to market volatility and emotions.

It's Back to School Time Again

For those planning to attend college or have children/grandchildren attending, this can be an expensive and exhaustive process.  It is especially difficult when deciding where to go and the costs involved.  As such, the following College Net Price Calculator may be a useful tool. For more information, click on the image below to watch the video.

Net Price Calculator

 

 

 

Market Outlook on Equities and Risk Concerns

Don Taylor is the Chief Investment Officer at the Franklin Equity Group, which oversees the Franklin Templeton Mutual Funds. The following is an interview with Mr. Taylor done earlier this month regarding his thoughts on what he sees ahead for the stock market and any areas of concern. It is a 9 1/2 minute video and quite insightful. However, if you don't care to watch the video, I've listed his key points below.

Market Outlook on Equities

Key Points

  1. The first quarter GDP was pretty weak, but I think the markets are correctly thinking about that as being primarily influenced by very severe winter weather. Most of the data we have seen over the last couple of months looks solid across many of the areas where you measure economic activity.
  2. I think the whole energy renaissance and manufacturing renaissance is really more in the early stages than in the late stages. For the last five to seven years, oil production and natural gas production in the US has increased substantially. That’s led to more investment in those areas in the U.S.
  3. When you think about the environment in the U.S. in contrast with much of the rest of the world where there seems to be a lot more uncertainty, I think that bodes well for the U.S. market.
  4. One of the market risks that come to my mind is that it’s been a while since we have had a double digit correction in the market.
  5. A market risk I wonder about is China. Clearly China has slowed in the last year or so. That’s fine for the U.S. equity investors. I think it takes some pressure off commodity prices. Now if China collapsed, for whatever reason, I think that would be a whole other story.
  6. Another risk relates to estimates of when the Federal Reserve will start raising interest rates. It’s possible that kind of concern could cause some sort of pullback in the marketplace.
  7. Technology is an interesting area for us. If you go back 10 or 15 years ago, I’m not even sure if there were any technology companies that even met our screens. In recent years, we have seen companies within that sector start to have the kind of long-term rising dividends records we are looking for.
  8. We are at a time, particularly in large cap companies, where cash balances are quite high and there is a lot of pressure on companies to do something with that.
  9. I think investors are fearful that companies get too aggressive in investing in their own business and end up wasting the shareholders’ capital, by building plants and equipment that they really don’t need. But when companies do that selectively and carefully, it can drive organic growth rates of those companies.

 

Quotes

"Remember that there is nothing stable in human affairs; therefore avoid undue elation in prosperity, or undue depression in adversity."

                             Socrates

"You are not here merely to make a living.  You are here in order to enable the world to live more amply, with greater vision, with a finer spirit of hope and achievement. You are here to enrich the world, and you impoverish yourself if you forget the errand."

                             Woodrow Wilson

On the Lighter Side

"You know you're getting old when the candles cost more than the cake...

I like to play in the low 70's. If it gets any hotter than that I'll stay in the bar!..

I grew up with six brothers. That's how I learned to dance - waiting for the bathroom."

                             Bob Hope

Tony Moeller, CPA

The information listed in this commentary is a compilation of various publicly available sources and is for informational purposes only. It is not a recommendation or solicitation of any particular investment or strategy. A risk of loss is involved with investments in the stock and bond markets.

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