Stay Calm, Stay Invested, and Focus on The Long-Term

During times of market volatility, it is always best to focus on your long-term goals. Markets are always irrational and tend to overreact and even become emotion. What we are seeing now is concern about the Coronavirus and what I would consider panic. Decisions made with investing must be made based on your long-term goals, not short-term concerns. Whether its retirement, your family, a legacy, or a major purchase, the focus of where you want to be in the future. As Warren Buffet always says:

Remember, we are investing in individual businesses at the end of the day. Each of them is focused on the continued growth of their business. As businesses grow, the stock price goes up. As businesses slow down, the stock price goes down. With the Coronavirus, we a have nothing more than a reset in how we thought businesses were going to perform. If you are Starbucks, you sell less coffee overseas. If you are McDonalds, you close a few stores. A lot of workers taking time off and not helping their businesses grow. Nothing more than that!

As you can see from the chart below, this is not an uncommon event, just a loud one!

First Trust Securities

Here are two articles I wrote a few years back during similar periods of volatility. These are also good reads on how to manage emotions during periods like this if you want more to read.

  1. A blog post I wrote in 2018:
  2. A second post I wrote in 2018:
Please ignore typo’s, I will be editing grammar as I go!
Full Disclosure: Nothing on this site should ever be considered to be advice, research or an invitation to buy or sell any securities, please see my Terms & Conditions page for a full disclaimer.

Pulse Check – 2018

This year will go down in the record books as one of the best years to be a journalist. It seems like you can’t go more than 15 minutes without hearing some new headline that throws everyone for a loop. One simple tweet and the entire market goes into panic mode.

What I wanted to do with the article, is to highlight most of the noise blocking investors from what’s really important. Whether you want to blame politics, economics, the Federal Reserve, or business leaders, it’s all just diverting your attention away from your own personal finances.

Let’s start with a quick snapshot of some major news headlines from this past year.

Major Events in 2018:

  • US/China Trade War tension
  • Federal Reserve raising interest rates
  • Flattening and inverting of the yield curve
  • Stock market volatility returns
  • Facebook-Cambridge Analytica data scandal
  • Bitcoin – major rise in 2017, followed by a crash in 2018
  • Marijuana companies become the next hype stocks
  • Johnson & Johnson’s baby powder has asbestos?
  • Robinhood jumps into banking…for a minute
  • Elon Musk’s erratic behavior
  • Huawei’s CFO arrested in Canada
  • Stocks enter Bear Market territory
  • Sears files for bankruptcy
  • The fall of General Electric

In 2018, we also lost two of the most iconic and influential people of our time, Stephen Hawkins and Stan Lee. Between the two of them, science and science fiction have both been dealt major blows.

Next, let’s look at some data points from 2018:

Stock Market Returns (YTD as of this post):

S&P 500 Index
Dow Jones Industrial Average
Barclays Aggregate Bond Index0.34%
FTSE 100 (Europe)-12.27%
DAX (Germany)-18.64%
NIKKEI (Japan)-15.27%
Shanghai (China)-23.70%

Source: Morningstar I plan to update these numbers post 12/31

US Economic Data:

GDP: The US Economy grew at 3.4% in the 3rd quarter of 2018. Some slight reductions in global growth due to early tariffs from China but, nonetheless, we still see positive economic growth in the United States.

US GDP Growth – Prior 10 Years

Inflation: Inflation is on the rise…but really only since 2015. We are still at historically low levels of inflation. Prior to 2008, we saw inflation run at a rate above 4%. We are still way below normalized levels of inflation. Most people confuse rising inflation with a sign of a recession. But, if we look historically, we are still very low relative to prior years.

US Inflation- Prior 10 Years

Unemployment: People not working is a pretty good indicator the economy is struggling. But if we look at our current unemployment rate, we are sub-4% unemployment. That means 96% of people in your community are going to work each day. That’s a lot of people contributing to a healthy and growing economy. Could tariffs and trade wars impact this? Sure, but right now, the data looks good, indicating that we have a strong workforce.

US Unemployment – Prior 10 Years

Corporate Profits: Business owners are a large portion of what drives the economy forward. As individual businesses become more profitable, they reward their shareholders, employees, and their communities. When we talk about the “Stock Market”, we are referring to the pulse of businesses across the globe. And in the US, we are continuously hitting record levels of corporate profits.

US Corporate Profit Levels

In summary, the US Economy is really in good shape. The Federal Reserve is working to raise interest rates for this exact reason. A healthy economy shouldn’t sit at such low-interest rates forever.

Companies are more profitable than ever, more people are working, and inflation really isn’t a big issue at this point. We can debate the economics all day but my point here is things are not as bad as the media makes them out to be.

What’s Important:

So what the does any of this have to do with you? Absolutely nothing.

News happens, life happens, and the economic and political landscape will continuously change. How quickly you are able to shift your attention back to what’s actually important is what defines good investors. 2018 should have been a year you spent focusing on your family, personal finances, career development. If it was anything else, you need to readjust your thinking.

For most all investor, the gyrations in the stock market are nothing more than noise. A speed bump between today and whatever goal lies ahead. Spending your time worrying about the ups and downs in the market is only going to increase your stress levels. Instead, plan for future vacations, create a real budget, or use periods like today to really ask yourself if you are comfortable with your current portfolio.

There is a common term known as the “Behavior Gap” within the investment community. What it simply means is that most investors will underperform the investments they own, simply due to bad behavior. Selling when the market is low, and buying when the market is high.

Think about this for a second. Underperforming the investments you actually own. This means you are emotionally making decisions to jump in and out of the market at the wrong time and missing the total return some fund/stock/portfolio provides.

If you look at the illustration below, which term best describes how you feel about the markets today? My guess is, based on this years market, desperation and panic are probably setting in full force.

At the end of the day, markets are erratic at best. Everyone know’s the market will get volatile at some point, yet no investors want to comfortably sit through it. A negative return in a calendar year is actually quite common. In fact, it’s happened 24 times since 1928!

I like to think of it like hurricanes in Florida. EVERYONE in Florida knows we will have hurricanes. Yet, instead of appropriately planning ahead of time, we wait until the last minute and all rush the hardware stores and gas stations like maniacs.

Source: WSJ
Image result for hurricane irma gas lines
Source: Google Images

Instead, prepare for volatile periods. Plan today as you would for tomorrow. Your investment allocation doesn’t need to be readjusted each and every time market volatility shows itself. By properly taking time to make sure your portfolio can weather storms like today, you can alleviate a lot of stress and help close the behavior gap!

Image result for hurricane irma
Source: Wikipedia – Hurricane Irma
Please ignore typo’s, I will be editing grammar as I go!
Full Disclosure: Nothing on this site should ever be considered to be advice, research or an invitation to buy or sell any securities, please see my Terms & Conditions page for a full disclaimer.

The Urge to Act

Patience - Lao Tzu.jpg

Meditation relies on sitting still, calming your mind, and drifting off into a deep relaxation. The goal is to allow ourselves to feel what’s happening in our body and clear the mind of what causes us stress.

Many medical professionals say that meditation is a great exercise for reducing stress, anxiety, and depression while increasing happiness, peace, and well-being. Sounds great, but one session will not do the trick. It takes time and dedication to see see the results of meditation.

But how do you get started? The first time I tried to meditate I could barely keep focused. Any noise around me had to be investigated which kept me from focusing. This image perfectly explains my first attempt at meditating.

Source: Giphy

Meditation takes time to get used to. Sitting in your chair, listening to someone talk about all peaceful things sounds great, but most beginners have a hard time of staying focused and lose track of what they are doing. An itch gets scratched, a noise gets investigated, and our tranquil mind is now gone. We find an urge to do something even while everything else is telling us to relax.

Similarly, with investing, the patience required to allow your investments to grow takes a lot of practice. It can be hard to put money to work simply to watch it sit there. Or worse, watching your money fall in value shortly after beginning your investment career. The process of compounding wealth takes substantial time, and allowing it to do so is even harder. Allowing yourself to do nothing in volatile periods is one of the hardest aspects of investing.

Focus - Carl Richards.PNG

Behavioral economists have a term called Hyperbolic Discounting. This is a really fancy way to say we prefer immediate gain instead of waiting for a long-term return on our investments.

Makes sense. If someone is going to give you $100 today or $1000 in 5 years, we naturally gravitate towards the short-term benefit of $100.

Today, more than ever, immediate rewards are sought after much more than any long-term benefits. With platforms like Robinhood, Betterment, and other “instant (and sometimes free) trading platforms”, investors can be inundated with short-termism. It has never been an easier time for someone to begin investing, but at the same time, it has never harder to stick with your investments. Like meditation, the best rewards are provided to those who can focus and stick with the process.

As investors, we need to try to understand how the market works and not be tricked into making short-term decisions. One main area of conditioning investors need to feel comfortable with is facing market volatility and down periods in the market. According to Ned Davis Research, the market drops 5% multiple times throughout the year and 20% or more every 3 years or so. AND THAT’S CONSIDERED NORMAL!

Market Declines.png

Source: Ned Davis Research

Market volatility happens and will continue to happen. As I mentioned in my last post, you are compensated for sticking with your investments through these volatile periods. If we jump in/out at every volatile point, we have almost no chance of succeeding with our investment strategies.

Ben Carlson, of Ritholtz Wealth Management, put together some great visuals to explain why to focus on the long-term.

We start with the yearly declines an investor would have faced in any given year while investing in a balanced portfolio:

Portfolio Drawdown 1965 - 2015

Source: A Wealth of Common Sense

Seeing a rather conservative investing strategy drop by 30% multiple times is kind of scary. Better yet, being able to stick with it through for decades is even harder. But if we can focus on the long-term, we see the compounding returns of that portfolio:

Portfolio Growth 1965 - 2015

Source: A Wealth of Common Sense

And this is where the benefit of investing lies. Being able to consistently save money and keep your investment strategy simple will do more your wealth than investors can imagine. The media’s focus on short-termism and the constant hype about trading, do little to nothing to benefit investors. Focusing on your personal balance sheet and allowing your investments time to grow is the best way to successfully invest for the future.

Please ignore typo’s, I will be editing grammar as I go!
Sources: Giphy, Ned Davis Research, A Wealth of Common Sense
Full Disclosure: Nothing on this site should ever be considered to be advice, research or an invitation to buy or sell any securities, please see my Terms & Conditions page for a full disclaimer.

Stay Focused

Stay Focused

In the spirit of Halloween, Mr. Market decided to wake up October 1st and scare the crap out of everyone. October has been one of the most volatile markets in years and a lot of investors are worried that Mr. Market might have turned into Michael Myers…

Michael Myers Halloween GIF

Source: Giphy

This month has been a series of neverending scary market headlines. And rightfully so, there is a lot of news coming out this month that is really driving investors to rethink if they should be investing or not. If we just look at the past two days, the point changes in the Dow Jones are really quite remarkable.

  • On Wednesday, the Dow Jones Industrial Average fell more than 600 points.
  • On Thursday, the Dow Jones Industrial Average climbed more than 400 points.

When it comes to volatility, we have to focus on why we are in the markets in the first place. There is a reason your checking and savings accounts pay virtually nothing. That reason is the fact that you are insured and taking virtually no risk.

The stock market pays you to take risk.

This is the entire reason why we invest. The S&P 500 has grown by 9.65% annually since 1928. The cost you have to pay to receive these returns is to stick with your investments through the inevitable volatility. How you manage your behavior and emotions is DIRECTLY responsible for how your investments will do. Image from iOS (1)

Now, I sympathize completely with the concerns about losing money. Every investor has a different goal they are saving for and that makes it hard to fully understand how the markets make each of us feel.

However, investors need to focus their attention on the right aspects of their investments and financial planning or they will truly never achieve their goals. Stressing over the individual DAYS in the market is a fool’s errand.

Things You Control - Carl Richards

Where You SHOULD Focus Your Time:

  1. Ensuring you have a proper asset allocation
  2. Making sure you are invested in tax-efficient accounts/products
  3. Maintaining a budget
  4. Regularly saving
  5. Reading more of Jack’s blog
  6. Focusing on your career
Please ignore typo’s, I will be editing grammar as I go!
Sources: Giphy
Full Disclosure: Nothing on this site should ever be considered to be advice, research or an invitation to buy or sell any securities, please see my Terms & Conditions page for a full disclaimer.

Stop Chasing Returns

Buffett Quotes - Emotions.jpg

What is it about human behavior that has us all chasing the newest, shiniest investment that comes our way? Each and every year some new topic has the markets all excited and people rush out the door to figure out how they can take advantage of it. But the thing we have to try to focus on is what SHOULD we be chasing with our time, attention, and money.

Let’s look back to the theme for 2017: Bitcoin & Cryptocurrencies

Last year, people went nuts at the first sign of Bitcoin’s price skyrocketing. Without understanding what Bitcoin actually is, how cryptocurrencies work, or even what to do with a Bitcoin, billions of dollars continued to rush in.


The price of Bitcoin climbed more than 1,000% during 2017 and led every news outlet on the planet to allocate at least a few hours discussing the topic. Immediately your plumber, barista, mechanic, and attorney were all cryptocurrency experts and you were the idiot.

So, what exactly happened?

My guess… the FOMO got a little out of control.


Source: The Interwine Group

In the end, most global markets became volatile at the start of 2018, and so did the price of Bitcoin and other cryptocurrencies.


If we look at the Google Trends over the past year, as soon as the market volatility picked up and the price of most cryptocurrencies plummeted, consumer interest flatlined.


Source: Google Trends

If we run this scenario over and over again, there are dozens of other topics the average investor will chase. From international stocks to real estate, we could swap Bitcoin with any other asset class and see similar results in some prior year. We are consumed by the FOMO and seeing others make great returns, so we instinctively chase after whatever seems to be doing well.

So, thank you to Meb Faber for finally putting together this simple and elegant overview of where investors SHOULD be focusing their time.

Meb's Food Pyramid of Investing.jpg

If you take a look at Meb’s Investing Pyramid, we see the core of any financial plan should be focusing on emergency cash and paying off your debt. If you’re making 15% annual investment returns but paying 20% credit card interest, you’re going nowhere. You need a strong foundation to build a home and with investing that starts with a strong personal balance sheet.

Investments should be one of the LAST areas an investor should be spending their time and energy. If you think you have a real edge against the millions of investment professionals and computer algorithms across the globe, you are in for a rude awakening.

Focusing on the basics of personal finance, budgeting, and simple financial planning will vastly improve the outcomes of investors instead of grabbing an extra few percentage points of returns in your 401k.

With personal finance comes personal development. Continuing your education, completing certifications, excelling at your job, improving your well being and community involvement. All of these areas will provide stronger personal and professional returns than trying to focus on your investments to make up the difference.

Invest in Yourself Buffett - VC.PNG

Source: Visual Capitalist

Stop focusing so much on the small minute details like your annualized investment returns and instead focus on how to improve yourself and your household finances. Beating the market in 2018 will do almost nothing towards your retirement. Instead, pay off a few extra bills, advance your mortgage payments, or consider contributing more to your tax-advantaged accounts.

Please ignore typo’s, I will be editing grammar as I go!
Full Disclosure: Nothing on this site should ever be considered to be advice, research or an invitation to buy or sell any securities, please see my Terms & Conditions page for a full disclaimer.