We live in an increasingly integrated world economically. This brings both opportunity and risk when managing money.
It is often challenging to stay the course as I watch our portfolios react often negatively in relation to the S&P 500, the most often used benchmark; which by the way, has virtually no real correlation to a globally diversified portfolio such as ours.
Yes it’s been quite a first quarter. We ended 2010 on a high note but promptly went into a tailspin. First the “PIIGS” in Europe swooned. Then, Mubarak walked like an Egyptian out the door, followed by Libyan dictator wacky Khadafy who balked as the Libyan youth “twittered” away his power base leaving the midEast in turmoil. Top it off with an earthquake and Tsunami in Japan (emphasis on the T as George Takei aptly pointed out on Howard Stern last week).
My Father was a salesman and there’s an expression he used to counsel me about spending. He said “When your out-go exceeds your income, you’re up-keep becomes your downfall”. He’s almost 94 and still lives by that rule. I’ve never known him to be in debt over his head.
It’s always our goal to continue providing the highest level of service to our clients. That includes improving our technology and trading platforms. Technology is constantly changing and has evolved to the point where today you have easy access to your money via computer, iPad and smart phone.
I'd like to address some concerns about the recent market sell-off. Since reaching new market highs in mid-September. Since reaching new market highs in mid-September, financial markets have been affected by global uncertainty and declined.
I want to discuss some of the factors behind this recent sell-off and give you some insight into how these declines fit into historical market patterns.
Please stay tuned at the end for a required disclosure statement.
First of all, I want to acknowledge that volatility and market declines are very stressful. It's hard to keep calm when you see your account value go up and down.
However, it's important to keep in mind that market corrections are a natural and normal part of overall market cycles.
Since 1928, the S&P 500 has generally experienced between three and four corrections of more than five percent each; this most recent pullback was the 20th decline of five percent or more since the bull market began in 2009.[i]
Many analysts predicted a pullback this fall. Between the beginning of 2013 and September 19, 2014, the S&P 500 gained 43.35%.[ii]
The recent market decline was largely caused by fears surrounding recessionary pressures in Europe, slowing growth in China, Ebola, and some negative domestic economic reports. However, the good news is that economic fundamentals remain strong and the sell-off is mostly fear based.
Though the S&P 500 lost significant ground, it's still up by over eight percent over the last 12 months.[iii] Looking further back, the S&P 500 is up nearly 75 and a half percent since October 2009.[iiii] How far stocks decline during a sell-off depends on a lot of factors, including investor sentiment, corporate earnings, and future growth prospects. In this case, markets are largely moving because of fear, not because of fundamental factors, so we can hope that the sell-off will be brief.
Although global worries still exist, equities halted their slide and regained ground on the strength of positive earnings reports.[iiiii] This willingness to respond to good news gives us hope that investors will soon move back to optimism and buy the dip.
Though market sell-offs are almost never welcomed, I want you to remember that they are a natural part of market cycles and it's important to take them in stride.
As professional investors, we've learned to seek out the opportunities in market volatility and corrections. While we don't engage in short-term speculation, we do use sell-offs to find tactical investment opportunities.
Market declines also give you the opportunity to really test your risk tolerance and make sure that your financial strategies are aligned with your long-term goals and attitudes about risk.
It's very important to stay calm and not panic. While we can't use the past to predict the future, history shows us that staying calm and patiently waiting out the brief rough patches often benefits us in the long run.
Above all, I hope you've found this letter to be educational and reassuring. If you have questions about how you're invested or how recent market movements may have affected your portfolio, please give us a call; we're always happy to help.
Stephen K. Davis
While we believe the information in this report is reliable, we cannot guarantee its accuracy. Opinions expressed are subject to change without notice and are not intended as investment advice or a solicitation for the purchase or sale of any security.
Investment Advisory Services offered through Safe Harbor Asset Management, Inc., a registered investment advisor. Securities offered through AMERICAN PORTFOLIOS FINANCIAL SERVICES, INC*A Registered Broker-Dealer*Member FINRA/SIPC*Safe Harbor Asset Management, Inc. is not affiliated with American Portfolios Financial Services, Inc.
It’s 5 pm in the dead of winter, completely dark and very depressing. I get home and check the mail. As I sort through the junk I pick out a gardeners catalog. Those guys are smart sending their brochure now. It brings sunlight to an otherwise dreary day. I flip through the pages and my mind turns to warm days, deep brown loamy soil and beautiful tomatoes and zucchinis and other delightful vegetables. And I don’t even garden!!