active risk management

  • Radio Interview on “People of Distinction” with Al Cole

    I was recently interviewed about my book, The Journey To Wealth, with nationally syndicated talk show host Al Cole.  His show, People of Distinction, is  featured nationally w/CBS RADIO, BBC & NPR on the #1 iTunes radio network.

    Al and I had a great discussion on investing in the world today, the fact that many people aren’t taking part in the stock market and why they should start.  Here is the replay:

    To learn more about SMART investing, check out my book:

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    No matter your level of experience, The Journey to Wealth teaches you to invest using a clear, easy-to-follow sequence of concepts. In a four-step process, you will learn how to identify your lifestyle goals for building immediate and long-term wealth, as well as how to invest according to your risk tolerance and needs. Straight-forward detailed explanations, charts and graphs, inspiring citations about wealth creation, and artwork will keep you reading, learning, and creating a SMART investment plan for your future.

     

  • Happy First Anniversary To The “Unloved” Bull Market & Global Earnings Recovery

     About one year ago stock prices began their ascent from the 15 month “funk” that began in the summer of 2015. As you may recall, China’s growth slowed during that time and global corporate profits took a tumble sending global stock indexes down nearly 20% in the summer, and once again into the first quarter of 2016. It was the first time since 2008 that stock indexes were negative for more than a year, once again testing investor’s patience.
    However, since last summer, I have witnessed a powerful rally in global stock prices that rivals some of history’s best one year advances, all in the face of above average doubt and general nonacceptance from the average investor, the media and many institutional investors. Why is this market recovery so untrusted and unloved?

    I can understand why most investors questioned the viability of rising stock prices last year, given that it coincided with the surprising (to most) election of Mr. Trump. The initial rise in stock prices, referred to last fall as the “Trump Bump,” has seemed to take on a life of its own despite Trump’s inability to get anything done on Capitol Hill. Today’s doubters are understandably under invested and paying dearly for it. Years like these don’t come often. If history is a guide these doubters will eventually capitulate and embrace the steady rise in stock prices for one main reason: the recovering business cycle and increasing corporate profits support higher stock prices.

    Though the earnings recession and market decline of 2015-16 was unusually mild, it did constitute a bear market and recession in our book. This very well may be another point of confusion for the average “doubting” investor who thinks that this bull market started in 2009 and is the longest bull market in history.  The doubters need to recognize that the prior bull market ended at the 2016 low and we are at the beginning of a new business cycle and not the end of an aging one. One can simply look at the impressive and broad recovery in earnings growth across all economically sensitive sectors and almost all regions of the globe – it’s the real deal and it’s a great time for you to be a global investor.

    Lastly, I would like to point out that although Dow 22,000 sounds high, it is not overpriced relative to earnings. Moreover, foreign markets are even less expensive relative to earnings. As global corporate profits continue to advance, markets will support even higher stock prices and a higher Dow Jones Index than one might imagine. Of course, as markets continue upward the doubters will, over time, become more fully invested – which in turn will drive stock prices higher. Nothing lasts forever, but we would suggest that we are at the early stages of better times to come. The first year of business cycle recoveries typically result in big stock market gains (just like this one) and in subsequent years returns normalize in the 8-12% range, hence the importance of being involved early.

    Though I am optimistic, I do expect the normal 8-10% corrections along the way upward. Investors haven’t seen one of those in over a year and should prepare themselves for the likelihood of a return to more normal volatility. Additionally, I want you to know that within my optimistic view, I am very aware that we are dealing with the unknown and that it is a risky world. Therefore, I suggest to continue to employ my Active Risk Management tools such as having a flexible approach to your portfolio’s asset allocation, sector management and the careful placement of stop loss orders on the economically sensitive areas of your stock portfolio.  All of which can be found in my book.

    I hope you find this update helpful.

    No matter your level of experience, The Journey to Wealth teaches you to invest using a clear, easy-to-follow sequence of concepts. In a four-step process, you will learn how to identify your lifestyle goals for building immediate and long-term wealth, as well as how to invest according to your risk tolerance and needs. Straight-forward detailed explanations, charts and graphs, inspiring citations about wealth creation, and artwork will keep you reading, learning, and creating a SMART investment plan for your future

    Purchase Your Copy Today on Amazon.

  • Markets Don’t Go Up Forever

    I hope you are enjoying the profitability that stock ownership can provide as global stock indexes continue to reach new highs. Year-to-date most indexes have reached double digit returns, with global indexes providing the most upside.

    I believe that the last bear market occurred in 2015-16 when global indexes fell 20% and corporate profits experienced a very mild recession. Over the past year we have been witness to a significant global corporate profit and business cycle recovery. Though many have called this a “Trump Bump,” it should be obvious at this point that the improving global economy and corporate profits cycle has little to do with the US President and more to do with how the business cycle works. The best part of our message today is that we believe that this new bull market has a brighter and longer future than most investors believe.

    Corporate profit cycles last years – not months – and this one is in its infancy. Though many investors are in awe that the Dow Jones Industrial Average is over 22,000, they should try to remember that it is simply a number – it was 800 when I started my career! What is more important is the price of the market related to its underlying profitability or “price-to-earnings ratio.” In statistical terms the market is nowhere near overvalued. In fact, there are sectors of the market that still trade at ridiculously inexpensive multiples to earnings – not at all a symptom of a market that is overvalued.

    There are many investors who question the future longevity of this market strength – which is another indication that we are far from a market top. However, there is a much larger crowd who seem immune to the old adage, “what goes up must (at some point) come down.” Though we believe that the recent market strength is well justified and has “legs,” we would not advise investing without some tools to manage the risk of this thesis being wrong and to protect your portfolio from catastrophic loss. As you know, we employ our Active Risk Management process specifically for this reason – this includes actively managing your asset allocation, your sector exposure and the careful placement of stop loss orders – the combination of which we call our “plan B.”

    I find it hard to believe that today’s investors would invest aggressively without some sort of “plan B” should it all come to a crashing halt. Surely investors must recall the recessions and corresponding stock market declines of 35-55% that have occurred several times in the past two decades?  Or the time it took for stocks to recoup those losses – on average six to seven years?  I find the short term memory of the average investor just plain astonishing. However, with the media’s attention on passive/robo/index investing, perhaps we can’t blame these naïve investors for getting sucked in! Let’s face it – while markets are going up the tide lifts all ships and your average index fund will participate in market returns. However this view is extremely shortsighted, particularly when it comes to the bulk of an investor’s wealth as they approach important timelines, such as retirement. They say that stock market history is riddled with investors repeating the same mistakes. The lack of some sort of “plan B” risk management appears to be the most obvious.

    The increasing popularity of passive/robo/index investing should be a warning to all investors to employ risk management tools and a plan for avoiding catastrophic loss, for the next inevitable and eventual market decline may just be much bigger than expected. In the meantime, continue to invest with an eye towards growth and be well prepared should things go awry. My book can help.

    No matter your level of experience, The Journey to Wealth teaches you to invest using a clear, easy-to-follow sequence of concepts. In a four-step process, you will learn how to identify your lifestyle goals for building immediate and long-term wealth, as well as how to invest according to your risk tolerance and needs. Straight-forward detailed explanations, charts and graphs, inspiring citations about wealth creation, and artwork will keep you reading, learning, and creating a SMART investment plan for your future

    Purchase Your Copy Today on Amazon.