Storytelling is for bedtime: A reminder to stay focused.
Jason De Thomasis, BMOS, CFP®[email protected] 905 731 9800 ext 229
Tony De Thomasis, BSc, CFP®
T 905 731 9800 ext 225
Highlights include:
BusinessWeek August 13, 2019: The Death of Equities
"Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves.” – Peter Lynch
40 years ago , the most infamous edition of BusinessWeek was published. “Death of Equities” it declared, with a subhead read, “
How inflation is destroying the stock market
.” The "signal" was a few years early - where the US stock market did not hit bottom until 1982 and then began a remarkable resurgence. If you rather than sell you invested on this "signal" from BusinessWeek, you did pretty well: The total return (in US$ and dividends reinvested) of the S&P 500 index from the date of the infamous publication has been nearly 7,000%. Not bad for a corpse. (source Bloomberg Aug 2019).
A stark reminder to ignore the headlines and stay focused on your personalized financial plan and investment portfolio.
So what should Investors do?!
1 If you are anxious and worried about the markets, give us a call anytime. We are always available to speak and review your portfolio.
2. This is a good lesson in risk definitions. Up until the past 9-12 months, Investors were treated to a "free lunch" with riskier assets. We can help ensure you have the right asset mix to meet your goals and objectives.
3. If you have cash available.....this may soon turn into a buying opportunity.
4. If none of the above. Turn off the news, read a book or get outside and enjoy summer.
To read the FULL original article click the link below
The Yield Curve has Inverted. So What?
Wall Street’s most widely watched gauge of the yield curve’s slope, the spread between the 2-year Treasury note yield and the 10-year inverted Wednesday morning, flashing the clearest signal to date that the U.S. is set to face an economic recession, but does this really mean doom and gloom for long-term stock investors?
Let me first provide a simple explanation of what is meant by an inverted yield curve. An inverted yield curve is when the yields on bonds with a shorter term are higher than the yields on bonds that have a longer term. In a normal yield curve, the short-term bills yield less than the long-term bonds. Investors expect a lower return when their money is tied up for a shorter period. They require a higher yield to give them more return on a long-term investment. When a yield curve inverts, it's because investors have little confidence in the near-term economy. They demand more yield for a short-term investment than for a long-term one. They perceive the near-term as riskier than the distant future. They would prefer to buy long-term bonds and tie up their money for years even though they receive lower yields. They would only do this if they think the economy is getting worse in the near-term.
Recession is a normal, albeit unpleasant, part of the normal business cycled. Following expansion there is a recession which then leads to another expansions. In the short-term the market will without a doubt decline, but if you are an
i
n
vestor and not a speculator and have a suitable investment asset allocation, this will help control your emotions and to not cause you to panic - which will help you will reap the rewards as per below.
The Risks and Rewards of Investing:
▪ This chart represents the bull and bear markets in the S&P 500 Total Return since 1956. All bars above the line are bull markets; all bars below are bear markets.
▪ For the purposes of this illustration, a bull (bear) market is defined as a positive (negative) move greater than 15% that lasts at least 3 months
Summary
▪ Markets spend more time in positive territory (bull) than negative (bear).
▪ Bull markets are, on average, longer and more intense, providing a more significant percentage change.
▪ On average bear markets are more brief, and yet engender fear. It is during these periods that there are significant investment ‘bargains’ to
be found.
▪ Investor discipline during bear markets is critical.
source: Bloomberg CDN$ (2019)
The more frequently you monitor your portfolio, the more likely you are to observe a loss.
This is likely to cause short-sighted decisions and could hurt your investment performance.
If you are checking your portfolio more than once per quarter (when your statement is generated), you’re doing it too much.
Investing is a rare case of generally earning more by working and stressing less. Our advice? Take a vacation from monitoring your returns.
The more frequently you check on your investments, the worse it will likely seem they are performing. So the more frequently you monitor, the less likely you are to be investing correctly for the long term. And it’s getting harder not to look—we are prone to look at our smartphones, home to your money and finance apps, up to 150 times a day.
source: http://www.kpcb.com/insights/2013-internet-trend
s
Source:Bloomberg LP. As at June 30, 2018. Rolling total returns in US$
Individuals who log in often may counter that they are systematically improving their performance by being more active and diligent. Unfortunately, this is rarely the case. Log-in rate is usually associated with a higher behavior gap, i.e., lower investor returns compared to a passive approach. As evidenced by the chart below, within any given day there is a 50/50 chance, a coin flip, that the market may have a negative return. If we can control our emotions and truly take a long-term disciplined approach, we would be much more successful. As per above, the longer the period the greater percentage chance of having a positive return. If we can allow our investments to actually"work", history shows that we will be rewarded. For example, over a 2 year period we have over an 80% chance that the market will be positive - and the longer our outlook the greater our chances of success. This seems like a much better alternative than flipping a coin day to day.
Don't Stand In Your Own Way
Some of the top causes of poor investment results for the average investor include panic selling, exuberant buying and attempts at market timing. The chart below provides further evidence that investor behaviour is detrimental to their long-term success. The chart below show cash flows into equity funds (the bars) relative to the performance of the MSCI All Country World Index (the line). Most investors
chase performance
when the market is on the rise and start selling when it’s lagging. This is proof of the proverbial
“buy high and sell low”
scenario that plagues many investors and results in the behaviour gap.
Source: Investment Company Institute, Morgan Stanley Capital International and Bloomberg LP. Average monthly rolling six month net new cash flow to global equity funds offered in the U.S. (as defined by the Investment Company Institute).Total equity return based on one yea r moving average of the MSCI All Country World Daily Gross Total Return Index. The MSCI All Country World Daily Gross Total Return Index captures large and mid cap companies across 23 developed market and 24 emerging market countries, approximately 85% of the global investable equity opportunity set.
The graph below shows the outcome of investing $1,000 into the TSX, comparing the best market timer in Canada (ie. investing at only the lowest points in the market each year) vs. the worst market timer in Canada (i.e. investing at only the highest market points each year) every year for 30 years.
As you can see, the difference between the best and worst market timer is not as large as one might think. This graph demonstrates how insignificant market timing is in the long-term outcome of your investment portfolio, yet this is usually the main focus of investors - when is the "best time to invest" and when is "the best time to sell".
Rather, Investors should focus on consistent investments and worrying about things that we can control - such as diversification, taxes and fees.
Data: Refinitiv, CDN$ from Jan 1, 1989 to Dec 31, 2018
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