WHAT’S NEW IN INVESTING?

  • Global Stock Indexes Return to Previous Highs: What a Short Strange Trip It’s Been

    The recent recovery in global stock prices has been astonishing and is of historic proportion. Investors would be very hard-pressed to recall a period when stock prices have ever made such a big percentage round trip – both down and back up – in such a short period of time. The reasons for the global sell-off have been well chronicled: Federal Reserve rate hikes, slowing economic growth and corporate profits, the US government shut down, and tariff wars to name a few. Though these were – and are – legitimate concerns, why have stock prices shrugged these risks off? Is this the beginning of another significant, multi-year leg higher for global equity prices? Maybe.

    One thing we know for sure is that stock markets serve as a discount mechanism to future events.  Stocks have an uncanny way of rising just ahead of better news or falling prior to the darkest part of dawn. That is why it is often best to buy stocks when the economy is at its worst – or when the list of worries is as long as it was during the first quarter. The other thing I know about stock prices is that shorter-term movements – months, not years – are often driven by investor psychology – not necessarily fundamentals.

    Fear and greed can move stock prices quite significantly in both directions, as we have seen in the past six months. Is the recent volatility, both up and down, a sign that the market is discounting better news about the economy going forward? Or is it just a massive bout of investor fear and greed? I would suggest a bit of both, which means we should be careful but more opportunistic during any upcoming market corrections and put the odds in your favor for a good year of investment performance.

    It is pretty easy in hindsight to look back over the past three months of this recovery and think that only a fool would have been cautious during such a period. I tend to take a more “safe than sorry approach” when the key pillars of stock market strength – economic growth and corporate profits – look as vulnerable as they have in the past six months. Often times “cracks” in these important pillars bring on treacherous bear markets and catastrophic declines (40-50%) in stock prices – i.e. 2001, 2008. These types of bear markets occur about every 9-10 years and can ruin a healthy financial/wealth plan or an endowment’s spending policy. Investors would be wise to keep that statistic in mind, should one think that risk management is a fool’s game.

    As you know, you have had less stock exposure than normal during this period to mitigate the potential of a further slide in stock prices. This more cautious stance (less stock) has temporarily muted your upside. However, the difference between your return and the market would be easily rectified if we had a normal market correction of 7-9% which is – in my opinion, and that of other bright investment experts – way overdue.

    The laundry list of worries that we faced at year’s end has dissipated. The Federal Reserve has made a key pivot to be more accommodating while the economy looks to have slowed, but maybe stabilizing at the current lower growth rate of 1.5-2% annually. This, in turn, may allow corporate profits to meet already lowered expectations. You can make great profits in a slower-growing economy by tilting your portfolio to companies that can deliver consistent growth.

    Given the fact that things look a bit brighter, you should continue to add stock where you see great value. If we do experience the way overdue, much anticipated, normal market correction you should most likely speed up such purchases to get your portfolio more in line with market returns.

    Though one might be tempted to add back any missing stock exposure now, or within days, I would suggest a more patient approach to yield the best returns over the longer term.  If the economy is truly on a slower, but solid growth path, there will be better opportunities over the coming weeks and months to be fully invested.

    Though the skies appear to be a bit brighter and the clouds are dissipating, we are in the thick of corporate profit reporting for the first quarter. This may bring some disappointments and a return to volatility on the downside. Should profits and economic data experience a further decline, we will continue to manage this risk by adjusting your portfolio’s allocation to stocks, your sector exposure and the use of carefully placed stop-loss orders.


    The Sustainable Endowment was written for executives and board members of small- to mid-size U.S.-based nonprofits, charities, or foundations. Running a nonprofit requires specialized knowledge and skills, especially regarding foundation management and investing your endowment so it remains sustainable for years to come.

    This book walks you through the basics and best practices of what you need to know to be successful.

    Order your copy today on Amazon

  • Patient and Value Conscious: Upcoming Data Should Align Stock Prices and the Economy

    Long-term investment success often requires short-term periods of patience, restraint and being value-conscious. In today’s fast-paced, short-term performance, the digitally-driven world this can be a challenging combination. However, the discipline to step away from short-term “noise” and carefully examine the “forest” as opposed to the “trees” can result in significantly better long-term returns. This can often mean going against the crowd in the face of a falling or rising market.

    Years ago I learned that short-term movements in equity markets are driven by psychology, but long-term trends are driven by economic and corporate profit growth. This comes to mind during the past few months as I witnessed the dichotomy of sharply rising stock prices in the face of declining economic growth and corporate profits. Investors need to ask at this point which of the two – the recent direction of stock prices (up) or corporate profits (down) – has greater longevity? And, how will this play out over the next few months and the balance of the year?

    In just a few weeks, stock prices appear to have lost their momentum. In fact, for most of March, global stock indexes were in the red. At the same time, economic statistics and corporate profit reports have continued to deteriorate. Perhaps the long-term fundamentals are beginning to trump short-term psychology? I believe that this may be the case. The bond market, which has historically been the best predictor of such things, appears to agree.

    This is evidenced by the bond market’s recent yield curve inversion – short-term yields higher than long-term yields. This unusual phenomenon often precedes weaker economic data and profits. A bit more time, along with earnings and economic data in April, should bring the disparity between stock prices and underlying fundamentals back in line.

    We faced the beginning of a bear market in the fourth quarter of 2018 with most indexes down 20% and many sectors down much more. Though we don’t predict Armageddon for the global economy or stock market, we also do not believe that a real bull market can begin again without at least a normal correction or perhaps something worse. We may be on the precipice of such a move given that the market has lost its momentum and we are heading into what is likely to be a dismal period of earnings reports and economic statistics from the first quarter when the US Government was shut down. For that reason, we continue to be a bit more defensive than your normal, fully invested portfolio.

    I suggest you continue to search for and take advantage of isolated opportunities in companies that represent great value regardless of the market’s direction. These are difficult to find and, given the overall market environment, the pace of adding significant exposure has been slow.

    It is always difficult to predict with accuracy the direction of stock prices, but one simple rule holds true: When the economy and corporate profits are rising, stocks do great! That has just not been the case over the past 4 months, which poses a risk to investors. As a reminder to anyone who has experienced a normal bear market, stocks typically fall before the bad news about profits as happened in October – and then have sporadic, often significant, advances as we’ve seen recently – only to decline again into poor earnings reports.

    Though global stocks historically decline approximately 40% during an average bear market, I am not predicting such an outcome. In fact, be ready to become more growth-oriented as soon as stock prices and earnings growth are more aligned – most likely when stock prices are lower and most of the bad news about profit growth has been digested. I wouldn’t be surprised to see this come to fruition in the next few months.

    After decades of managing money, I have experienced a number of these short-term periods of being less invested and they have proven to be a bit trying in the middle, but valuable in the end. None of those past periods lasted more than months and I don’t expect this period to be an exception.


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    The Sustainable Endowment was written for executives and board members of small- to mid-size U.S.-based nonprofits, charities, or foundations. Running a nonprofit requires specialized knowledge and skills, especially regarding foundation management and investing your endowment so it remains sustainable for years to come.

    This book walks you through the basics and best practices of what you need to know to be successful.

    Order your copy today on Amazon

  • Charitable Giving: Changes to Tax Laws May Change How You Gift Going

    I actively give back to local and global charities through my company and I know many of you do as well. In that spirit, I wanted to provide you with some changes that have been put into place regarding tax laws that may affect the way you gift to your favorite non-profits. If you are a non-profit, it is good to keep up with changing tax laws when asking for support.

    With the 2017 Tax Jobs Act, many more taxpayers will be using the standard deduction instead of itemizing. As a result, individuals who are used to charitable write-offs may no longer see a tax benefit from their contributions. This puts contributing to Donor Advised Funds (DAFs) and Qualified Charitable Distributions (QCDs) in a new light.

    Donor-Advised Funds (DAFs)

    You may also consider front-loading your charitable contributions while compounding your charitable impact, by contributing to a Donor-Advised Fund (DAF). One of the biggest advantages of a DAF from a strategic tax planning perspective is their flexibility: you make donations to the account and receive immediate tax benefits for doing so.

    You receive the deduction in the year the contribution is made, with no expiration on when the contribution must be made to the charity of choice. In fact, there is currently no set time frame during which you must pay out the funds. The donation you make can grow in the donor-advised fund account indefinitely or be distributed right away. Think of this as your charitable savings account where donors can contribute to the fund as frequently as they like and make grants to their favorite charity when they are ready.

    Donor-advised funds, like Schwab Charitable, – the 6th largest in the world – are recognized by the IRS as a tax-exempt public charity or 501(c)(3), thus are eligible to receive tax-deductible charitable contributions. However, donations to DAFs are not eligible as a QCD.

    Additionally, the 2017 Tax Jobs Act created higher standard deductions for taxpayers, making it less efficient to write off charitable donations. Instead of donors bunching their donations every other year to get over the standard deduction threshold and causing a feast or famine cycle for charities they can qualify for a current year, itemized deduction and grant to charities on their own timetable by donating to a DAF.

    DAFs might be useful for people who want to donate appreciated stock, mutual funds, exchange-traded funds, or other securities.

    Assets generally accepted include:

    • Cash equivalents
    • Publicly traded securities
    • Certain restricted, controlled, or lock-up stock
    • Mutual fund shares
    • Bitcoin shares
    • Private equity and hedge fund interests
    • Real estate
    • Certain complex assets, such as privately held C- and S-Corp shares

    Donor-advised fund tax deductions include up to 60% of adjusted gross income for cash donations and up to 30% for securities. Whether the donation is securities, cash or both, you must itemize in order to take the deduction.

    Qualified Charitable Distributions (QCDs)

    Individuals claiming the standard deduction can still get a tax break for giving to charity, just so long as they are 70½ or older and transferring the funds from a traditional IRA directly to a qualified charity.

    The QCD allows an individual to transfer funds from a traditional IRA directly to a qualified charity without the money being added to their adjusted gross income. If you are 70 ½ and have not yet taken your Required Minimum Distribution (RMD) for the year, then it can count toward your RMD for that year.

    One of the most important caveats is that these distributions must be made directly to a qualifying charity. If it is distributed to an individual taxpayer first, then it will be considered a taxable event.

    Many brokerage firms now allow individuals to order checks on their IRA accounts so that checks can be written and mailed directly to these charities. This is very convenient; however the taxpayer must be certain that the charity has cashed the check before the end of the year.

    Always get a receipt from the charity for tax reporting purposes. The charity must be a 501(c)(3) organization. Individuals, private foundations and donor-advised funds do not qualify as recipients. There is also a cap on the amount that can be gifted income tax free each year at $100,000 ($200,000 for spouses filing jointly).

    If neither of these options suit your gifting needs, please keep in mind you may gift up to $15,000 ($30,000 for spouses) per individual recipient in 2019. These gifts can be made tax-free either by check, transfer of funds, wire transfer or direct deposit into a 529 account.

    Here’s to happy giving!




    The Sustainable Endowment was written for executives and board members of small- to mid-size U.S.-based nonprofits, charities, or foundations. Running a nonprofit requires specialized knowledge and skills, especially regarding foundation management and investing your endowment so it remains sustainable for years to come.

    This book walks you through the basics and best practices of what you need to know to be successful.

    Order your copy today on Amazon

  • Market Rise Driven by Speculation…Not Positive Data

    My Strategy for a Good Year Regardless

    The recent advance in stock prices has been stellar and has caught most investors by surprise. The biggest mystery surrounding the recent rally is the lack of any signs that the economy or corporate profit picture is improving. In fact, during the last two months, economic data points both here and abroad continue to show signs of slower than expected growth, while corporate profit growth targets have been unable to meet previously lowered guidance.

    If economic growth and corporate profits drive stock prices (which is how it’s always been) how can one explain the market strength in recent months? Is the stock market indicating that the recent global slowdown will be over sooner than we think? Or is the recent rally based on overly enthusiastic investors simply participating in an all-too-common case of chasing stock prices in a bear market rally? Let’s take a look at both scenarios and provide you with an update on my strategy going forward, and why I am optimistic about your portfolio’s performance as the year progresses.

    As a reminder investing aggressively in the face of a significantly slowing economy and deteriorating corporate profit environment is risky business. It is during these types of circumstances that investors have historically been hurt most – think of past bear markets (2008 or 2001) that started in a similar fashion – hence our more careful approach in recent months.

    Was all of the “bad news” already in the price of stocks back at the December lows?
    We are just weeks away from corporations reporting their earnings for the first quarter of this year, which should be very telling. Included in this data will be the impact of the long US government shutdown and the negative affect it had on consumers and business spending during those three months. These upcoming profit reports will likely be worse than the previous quarter, and far worse than comparisons to a year earlier. Maybe the recent market strength is a sign that both upcoming and future reports will not be as bad as originally suspected?

    The Federal Reserve appears to be much more accommodating which is supportive for the market. Historically, stock markets often begin rising before profit growth improves (speculation by investors) and it is possible that we are witness to such a phenomenon at this point. If that is the case the market lows of December would not need to be revisited and the bull market will continue to be alive and well for now.   Over the next few weeks, I will be watching earnings and economic data points for confirmation that this is in fact true. If that is the case, I plan to use any temporary weakness in stocks to become more invested.

    A normal market correction is way overdue
    Both bullish and bearish professional investors agree that we are way overdue for a normal correction in stock prices after such a strong rally and we should use that weakness (combined with a more supportive outlook) as an opportunity to reinvest. Upcoming negative earnings reports will probably be the catalyst of a normal correction. A normal correction (8-10%) would provide an opportunity for our performance to get back in line with markets (I am looking forward to that!) and set us up for a strong and profitable year.

    It is possible that all the bad news hasn’t been fully priced into stocks
    The alternative and less optimistic case to the one described above is that stock prices at current levels are not priced correctly (too high) for the upcoming (negative) data on both economic growth and earnings. In this scenario, stock prices would adjust downward, most likely closer to the lows of December and possibly lower. Though the recent market strength is encouraging, stock prices have failed to reach previous highs and, in some sectors, are nowhere near those levels.

    From a purely technical level (looking at charts) the market has struggled in recent weeks to make any serious progress which may be a sign of an upcoming correction or perhaps something worse. As I have reminded investors, bad or “bear” markets don’t take long – months not years – but average declines are close to 40%. I want to ward against this type of loss by advising you be less invested as you are today, but also take advantage of the great bargains that become available after bear markets, which your more defensive posture will allow you to do.

    It isn’t easy being less invested during a temporarily rising market. However, historically, the outcomes have sided with patience.


    The Sustainable Endowment was written for executives and board members of small- to mid-size U.S.-based nonprofits, charities, or foundations. Running a nonprofit requires specialized knowledge and skills, especially regarding foundation management and investing your endowment so it remains sustainable for years to come.

    This book walks you through the basics and best practices of what you need to know to be successful.



  • Global Stocks Rally Off Lowest Levels: Is It Safe to be Fully Invested?

    Over the past six weeks, global stocks have staged a significant comeback. After being down nearly twenty percent in late December (bear market territory), indexes have climbed half-way back to their previous highs (see chart below). Much of this recent gain can be attributed to the Federal Reserve being more sensitive to what is now obvious: the global economy has been decelerating along with corporate profits, neither good for stock prices.

    In addition to the Fed’s accommodation, there is swirling speculation (mostly optimistic) that another US government shutdown and harmful trade negotiation outcome can be averted. I have taken a more defensive position during the past few months – which can be trying given the most recent upward trending market. Is the recent market strength a sign that “all is well” and we should be once again fully invested (up to your asset allocation)? Or is the recent strength just a temporary “relief” rally to be followed by a decline?  Let’s look at some data points.

    MSCI World Stock Index (1 year)

    Short Term Trends and Fiduciary Responsibility
    Although the recent market strength is welcome, investors should be careful about assuming that short term price movements dictate the health of the underlying economy and corporate profits. Short term (weeks) movements in stock prices should also not be used to predict the health or future direction of stocks, as tempting as it may be.  For instance, a decline in stocks during a bull market can appear to lead one to consider selling, just as a temporary rise in stocks in an unhealthy market can lead one to go “all in” – both bad ideas.

    In my view, investors would be best served by confirming that the basic fundamentals of a healthy economy and stock market justify being fully invested in the stock market.

    The Slowing Economy and Profits Picture
    If the global economy can slow down to a consistent “cruising speed” of 2% annually and the Fed stays accommodative, we believe that – with corrections along the way – stocks can go higher this year.

    However, at this point, the downtrend in economic growth and earnings has not shown signs of slowing.  Today, for instance, the big industrial company Caterpillar warned of weaker than expected sales. In my view, a continuation of weaker than expected economic statistics and profits can easily send markets lower and your first priority for your assets is to mitigate significant downside risk.  I will be watching all the data points in the coming days and weeks for signs of stability.

    Trade, D.C., Brexit, etc.
    Each of these factors played a role in the market’s decline and subsequent recent market strength – depending on nothing but short term speculation. Investors would be wise to consider the potential negative impact that these events could have on the health of the economy. I will also be watching these data points over the course of the coming days and weeks.

    Is Recent Market Strength Sustainable? Is a Market Correction Overdue?
    In a bull or bear market, stock indexes have periods of short term strength (rallies) and weakness (corrections). Interestingly the recent strength in stocks has not been accompanied by any clarity on the issues discussed above, except for positive Federal Reserve commentary. The strength, however, has been significant and has reached a point by many measures I consider to be overextended. So yes, a correction or decline in stock prices is probably overdue at this point.

    Should You Buy Shares in Great Companies During the Next Market Correction?
    If the economy and profits appear to be on better footing and trade and government shutdown risks dissipate, the answer is YES. A moderate stock market correction, with better fundamentals, would remove recent underperformance and allow you to buy some of the world’s best companies at great prices. On the other hand, in the face of continued deterioration in market fundamentals, continue the tact of keeping “safer than sorry.”

    A Profitable 2019
    It is important to recall those periods of tough economic climate and bad markets are not long affairs (months not years). In my view the stock market will soon – if it already hasn’t done so – discount the worst-case scenario for the economy and corporate profits, leaving you plenty of time to make great strides in growing your wealth during the course of the year ahead and the many years beyond.




    The Sustainable Endowment was written for executives and board members of small- to mid-size U.S.-based nonprofits, charities, or foundations. Running a nonprofit requires specialized knowledge and skills, especially regarding foundation management and investing your endowment so it remains sustainable for years to come.

    This book walks you through the basics and best practices of what you need to know to be successful.

    Order your copy today on Amazon

  • “Should I Stay or Should I Go Now”

    Is Recent Stock Market Strength a Sign of Safety…or Danger?

    Since early October there has been a “bear market” in stocks, both here and abroad. Though some indexes declined approximately 20% from their highest point, most stocks were down much more until just recently. In the past few weeks, stock indexes have rallied about 10% providing some relief for investors, but far from the peak reached in late September.

    This is a good time to explore if the recent strength in indexes is the beginning of a better stock market or just a short-term advance leading to further trouble ahead. As you know we have kept your portfolio defensive during this period, with less stock exposure and less volatile stocks. Though this is effective during market declines, it can be a bit trying in the face of the recent market strength.

    How can we determine if there is further downside ahead or if the recent rally is the beginning of a real recovery? Let’s review the data points that were the cause of the tough market. In my view, we need these data points to stop trending downward or to become more clarified, before we take a more “risk on” growth posture. 

    Economic Data
    The economy and stock market are co-dependent. The first sign of economic weakness at the end of the third quarter is what sent stock prices into the downward trajectory. Since that time most leading economic indicators continue to be in a downtrend. Investors need global economic growth to stabilize stock prices to stage a meaningful long-term recovery. If economic growth can stabilize – albeit at a lower rate – stocks could still do very well and better than most investment alternatives. However, we need to see clearer signs of stability on this front.

    Corporate Profit Growth
    Economic growth is directly tied to the profitability of companies both here and abroad. We are now at the beginning of earnings season and need to see companies meeting or exceeding the lowered expectations that analysts have adjusted downward since the fourth quarter. Some of the most recent warnings and reports have not been positive, including Apple, JP Morgan, Macy’s and Ford – all of which have been negative.

    However, the earnings season has just begun and we have some big bellwether companies reporting over the next few weeks including domestic heavyweights Boeing and Caterpillar. These upcoming reports should shed further light on the sustainability of the market’s recent advance.

    Lastly, when it comes to earnings reports, it is very important that investors realize that these reports are about what happened last quarter and are not a precursor to what may happen going forward. This is why we also want to consider the following three policy challenges. These policy issues need to be better clarified before markets can be on more sound footing. 

    Federal Reserve (Fed) Policy
    The Fed has raised rates nine times over the past two years in an effort to prevent the economy’s growth (inflation) from accelerating too quickly. As we have written before, this effort comes with the risk that the Fed can mistakenly “overshoot” their estimate of interest rate increases versus growth and turn an otherwise sound economy into a recession.

    This concern is real and is one of the reasons investors have been selling shares. Fortunately, the Fed has recently backed away from being so adamant about further rate hikes. In the short run, this has soothed investor’s fears. However, I would like to see further clarity in the Fed’s message and a willingness to reverse course if necessary. The next Fed meeting at the end of this month may provide this.

    Global Trade Policy
    Tariffs and other impediments to trade with China and other global trading partners are a negative for global and domestic growth. On this front “no news is bad news.” Economic data from China is slowing and they remain an important trading partner for the US and global economy. A trade deal that turns out to be better than earlier perceived would go a long way to alleviate investor fear and support both economic growth and global corporate profitability. We will be watching these negotiations carefully.

    Government Shut Down
    Though short-term government closures have been stock market nonevents in the past, we are now in uncharted waters. Previous government shutdowns have been measured in days while this one is now more than a month old. This has a negative effect on a number of sectors of the US economy and some of our country’s largest corporations. Investors would be wise to consider the shut down as a further risk to stock prices. As with the other policy challenges, any sign of improvement or positive outcome to this standoff would be supportive of a better stock market environment.

    Clearly, there is no shortage of bad news and challenges on the domestic and global front – for the sake of brevity, we left Brexit and US debt levels out of the discussion. At times the stock market “discounts” all of the bad news by lowering the price of shares. We are not sure that the stock market has fully priced in some of these current risks, particularly given the more recent elevated level of share prices. However, if it turns out that the recent strength is the beginning of the recovery – coupled with some clarity on the issues described above – a re-test or normal correction from these levels would be expected, allowing us an opportunity to invest at more attractive prices in the very near future.

    Keep in mind that bear markets often demonstrate periods of short term strength which are followed by declines back to the old lows or even lower. This was the case with the market rally in November that resulted in a further 10% decline in indexes. If this recent strength is just another temporary rally in the bear market – given that all major indexes still remain in long-term downtrends – I want to make sure your assets are safe. In that spirit, I continue with my recent, ongoing mantra of “better to be safe than sorry” when it comes to the bulk of your liquid net worth. Keep in mind that historically bear markets last just 6-8 months and this one is already entering its fourth month. Over the next few weeks and months I will be continuing to monitor the data points and view any pullback in stock prices as a possible re-entry point, but one that will need to be validated by better fundamentals. 

    I am excited about the prospect of re-investing in a significant global stock market recovery.


    I hope you find this update helpful.

  • Stranger Things: An Unprecedented Period of Low Volatility Will Run Its Course

    The rise of stock prices, coupled with the lack of market volatility, in the past 12 months has been wonderful. I hope you have enjoyed it as much as I have! However, it is unprecedented. Global equity indexes have not experienced a decline of more than 4% for more than 14 months in a row. Never in history has there been such a long period of low volatility. This is truly one of the “stranger things” that I have witnessed in my almost 25 years of managing financial assets and in my 35 years as a professional investor. Is this the new normal? Have we entered a new era? Sadly, I do not think it is possible.

    It’s not that months of low volatility and rising stock prices are uncommon, it’s just that this one is much longer than most. When I revisit similar periods of low volatility paired with advancing stock prices, there appears to be some common ingredients. Almost always low volatility and rising stocks come with an environment of better than expected economic and profit growth, underinvested institutional and individual investors (high cash balances) and some type of outside stimulus that make stocks the most sought after investment alternative. Historically, these phenomena have been most common during periods of economic and profit improvement – think 1985, 2003 and 2009. When I consider the financial circumstances of the past 14 months, this all fits neatly into place. We have certainly experienced a significant recovery in global economic and profit growth, which caught the over worried and underinvested public and private investor by surprise. Pile on the significant pro-growth fiscal policy, such as tax cuts, and you get the makings of a huge demand for stock exposure. The mere concept of trillions in currencies chasing a fixed number of publicly traded stocks makes for higher stock prices with low volatility – the Holy Grail!

    This cozy and profitable environment will eventually end – and we don’t dare predict when so as not to spoil its longevity. However, investors would be wise to prepare for a return to a more normal stock market. Still profitable – but not as cozy. There is enough economic and profit growth momentum for stocks to continue upward – and we believe for quite some time. Global stock prices based on earnings (Price/Earnings Ratios) are not excessive at 18.3 and the “E” continues to grow at a great clip, with the help of fiscal stimulus. This should keep the P/E reasonable as equity prices rise. What this market will be missing going forward are the over worried and underinvested public and private investors. They are no longer underinvested or as worried. Over the past 14 months every dip in stock prices was met with piles of cash itching to get more fully invested, preventing normal stock market corrections. Now that those cash levels have been depleted, we can expect business as usual. As global stock markets grind higher, we will likely see very normal 8-10% corrections along the way.

    Whenever we get our first real correction in stock prices we should be prepared. The numbers can be a bit unsettling when the Dow Jones Industrial Average is above 26,000 (it was 700 when I started in the business!). A simple and normal market correction of 8-10% would be the equivalent of 2000-2600 points! Don’t let the absolute numbers mess with your brain or emotions – try to keep your wits and look at your portfolio and the market in terms of percentages.

    For the fixed income investor, the higher interest rates that have come with the stronger economy and profit cycle are a blessing. I expect the Federal Reserve to continue raising rates this year which will make purchases of bonds even more attractive. This is not a time to own bond funds or bond exchange traded funds. These products perform very poorly as rates rise, which investors are just starting to experience. I only invest in individual bonds, which will benefit me well as rates continue higher.

    I am optimistic in regard to outlook, however circumstances could change or get “stranger”.

    *****

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  • Happy New Year and Hello 2018!

    In terms of investment performance it is almost sad to say goodbye to 2017.  Global politics, tragedies and dramas aside, it was an unusually great year for stock market investors. The global economy had just the right ingredients to make for stellar stock market returns – a global economic and profit cycle recovery, coupled with historically low interest rates, and a large crowd of underinvested institutional and individual investors. Historically, this rare combination delivers above average stock price performance and 2017 did not disappoint! It was a particularly good year for global investors as foreign markets outperformed US indexes.  However, can we expect more of the same for 2018?

    Though we would welcome a repeat of ‘17 in ’18, we find it highly doubtful based on my research and historical precedent. As we discussed one year ago, the first year of a global economic recovery and profit cycle can produce tremendous stock price performance and we would suggest most of that is now behind us. Many of the data points that sent stock prices soaring over the past 18 months – namely better economic and corporate profit growth – were a surprise to most investors.  This coupled with a large crowd of underinvested institutions and individuals caused a huge appetite for stock purchases and this tremendous demand for stock itself is the primary reason for the “way better than average” return of stocks.  At this point the element of significant positive surprises on the economic and profit fronts are quite slim and most of the underinvested have put their funds to work.  Does that mean that the party is over for stock market returns?  No way.  The party is just likely to be more subdued, and much better than the bond market could muster in terms of return.

    I have suggested that we have been at the beginning stages of a new business cycle and bull market for over a year now, and that the bull market of 2009-15 died with the 20 percent decline in equities during ‘15-‘16.  This was not and is still not conventional wisdom.  As I follow my theory, I see no reason why the current economic, profit cycle and bull market cannot continue for a number of years.  Unlike the media and many other investors today, I believe that the stock market is reasonably priced and that economic growth and corporate profits will continue to expand, supporting even higher stock prices as we move forward.  However, the stock price trajectory of 2017 will most likely shift down a few notches in 2018 to a level more in tune with profit growth in the 8-12% range, still far superior to just about any other liquid investment!  In terms of volatility 2017 exhibited one of the least volatile years in history with no corrections of 3% or more!  Investors would be wise to expect normal volatility (8-10% corrections) to return in 2018 as both foreign and domestic stocks churn higher. It should be a good and more normal year for stock investors.

    As you may be aware Janet Yellen, the Federal Reserve chair, raised interest rates four times in the past 12 months and she and her replacement Jerome Powell will likely continue this policy to normalize interest rates.  Expect two to three rate hikes in 2018 assuming the economy and profit growth stay on course.  These rate hikes pose risks to bond mutual fund and bond Exchange Traded Funds – areas that I always avoid.  A significant rise in rates could cause these bond funds to fall in value and create massive selling and significant volatility in these instruments.  That risk (which we are not subject to) aside, a higher interest rate environment is welcome to those of us that buy individual bonds and can lock in these higher yields.  Hopefully, a healthy economy will bring attractive bond yields to your portfolio in the coming year.

    Here’s to a Happy New Year! Time to take command of your wealth. My book can help.

    Purchase the Paperback for only $14.95 Today on Amazon.

    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.

     

  • The Biggest Risk To Financial Markets – (It is not what most investors think)

    When investors consider risk today they think of North Korea, elevated stock prices, Trump, or maybe even Bitcoin!  However, the real risk to today’s financial markets is something bigger and that is rarely mentioned. It is also something that has caused most of the big stock market declines over the past five decades.  What might that be?

    Historically, most significant and longer term stock market declines (beyond 20%) have been a result of Federal Reserve policy and its corresponding negative effect on economic growth – namely a policy of raising interest rates too much in an effort to ward off inflation, particularly during a period of strong economic growth.

    As you may know, when the Federal Reserve (“the Fed”) lowers interest rates, it has a tendency to spur economic growth as businesses and individuals become enticed to borrow and invest for future projects creating greater good for the economy as a whole.  The most recent and historic case was in 2008-09 when the Fed reduced rates to near zero in an effort to bring the global economy back to life – which eventually, and thankfully, worked!  On the other hand, during periods of strong economic growth Federal Reserve policy becomes more “tight” as they begin to raise interest rates back to more normal levels.  Over the past 12 months we have seen the Fed raise rates three times and the general consensus is that they will raise rates one more time by year’s end.

    The Fed’s main objective in raising rates is to mitigate the economy from growing too strong. What’s wrong with an economy that is growing too strong?  It creates inflation which causes the prices of goods and services to skyrocket, eventually choking off growth and causing economic havoc.  Once inflationary spirals begin they can go on for years, as any of us who recall the mid-70s-mid-80s can attest. So when economies are growing the Fed is caught in a very fine balancing act: raising rates gently enough to allow growth to continue while keeping inflation at bay; and simultaneously being sure not to raise rates too much or too fast to avoid halting economic growth and tipping the economy into recession.

    If this balancing act sounds challenging, believe me, it is!  When you keep in mind that the Federal Reserve Board is comprised of smart, experienced, individuals, it is important to remember that they, too, are prone to error – hence their track record of causing many of the past recessions and market plunges over the past few decades.  Often when economies have been perceived to be growing too strong, their policy of raising rates has not just slowed, but stopped, the economy in its tracks and caused recession.  Is Fed Policy a risk right now? NO.  Is it a risk coming in the next few years? YES.

    My company’s research suggests that the risk of Fed Policy error will become higher over the next 2-4 years.  Though we have confidence in Janet Yellen and her most likely replacement, Jerome Powell, both are prone to error given that they, like us, are human.  This economy is just shaking off a mild recession in 2015-16, so we believe it is still in its early stages (hence the rapid rise in stock prices this year).  However, as economic growth over the next few years continues, finding that right balance – the Goldilocks’ formula of “not too hot” and “not too cold” – may become a challenge and will be a risk today’s investors should prepare for in their investment portfolio.

    The Big Risk for Most Investors…But Not You!
    Strangely, the biggest risk of an error in Fed policy will be in the bond market – more so than the stock market – particularly for holders of bond funds as opposed to those that own individual bonds.  I do not suggest investing in bond funds or bond products – only individual bonds.  Bond funds have no maturity date, they will decline in value every time rates rise, and will not return to their original value until rates eventually come back to earlier levels.  This recovery time could take many years, if not a lifetime, given that we are at a historically low level of interest rates.  This risk is compounded given the nature of today’s demographics and the advent of bond “products.”

    A quick peek at where most bond assets are held today, and one quickly realizes that there are trillions of dollars in bond mutual funds, bond exchange traded funds (ETFs), and other Wall Street products.  None of these have maturity dates and once rates rise in earnest, investors will begin to experience declines – those with longer maturity funds will be the worst.  The sheer amount of assets held in these products begets a bigger problem.  Should investors try to sell their bond funds and other bond “products” (which investors always do when prices fall more than normal!) there will not be enough liquidity (buyers) to support the underlying bond prices and interest rates could likely skyrocket, causing bond funds to fall even more significantly!  We have seen smaller versions of this throughout history, but never has there been so much money tied to bond products in the past, which threatens to make this time a real doozy!

    Though I think that the next few quarters should be good for corporate profits, the economy and stocks, a significant rise in interest rates could have a negative impact on the stock market or parts of it.  

    Again, I believe that the current level of stock prices is justified based on economic and corporate profit growth.  There will be some corrections along the way, but until the Fed gets heavy handed, we should see financial markets embrace this better growth environment.

    Happy Holidays!

    Purchase the Paperback for only $14.95 Today on Amazon.

    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.

     

  • Investing Just Got A Little Easier

    Today I am pleased to announce the launch of a paperback version of my award-winning book, The Journey To Wealth, which is now available on Amazon and priced at 63% less than the hardcover edition.

    The old rules of investing simply no longer work. In today’s uncertain times it’s no wonder that nearly 80% of Americans do not invest. Yet people at all income levels can transform their lives with a basic understanding of financial markets and a solid, stress-free investment strategy. 

    The Journey To Wealth distills the jargon of financial markets and equips readers with the tools they need to achieve financial independence. It is my hope that this new edition will be more accessible to the millions of Americans who are not currently investing but would like to start. It is far better to have a prosperous society than a struggling one, which is why I am passionate about this opportunity to share my tried and tested strategies with a wider audience.

    Success as an investor in today’s financial markets often requires going against much of Wall Street’s so-called “wisdom.” My book helps readers develop a personalized wealth plan tailored to their particular lifestyle, goals, and family circumstances. Too many investors fall prey to the same catastrophic mistakes. Such pitfalls can easily be avoided with my SMART investing philosophy, which includes:

    • Knowing about different types of investment instruments and understanding their pros and cons
    • Understanding the history of financial markets
    • Recognizing and taking advantage of market patterns and cycles
    • Learning how to maximize returns while managing risks

    In short, my book demystifies the process of investing and empowers readers to make wise investment decisions. Anyone can discover that investing the right way will help you achieve financial freedom. Here’s to your financial future!

    The Journey to Wealth strikes a winning combination: authoritative information written by a polished professional presented in a highly digestible, extremely attractive, high-quality package. — Barry Silverstein, Foreword Reviews

    Winner of The 2017 Indie Excellence Book Award. Winner of the 2017 Beverly Hills Book Award.

    Finalist in the 2017 Best Book Awards. Honorable Mention in the 2017 New York Festival of Books.

     

    Purchase Your Copy for only $14.95 Today on Amazon.

    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.