Category: Finding Benjamin

 

As we hurtle through time towards September, I have a familiar sense of dread. Late summer and especially the fall, is historically a tough time for investors. I doubt this year will be an exception but the market’s “I don’t care about anything” mentality seems to be the only dominant trend. As such, it is clearly time to make a plan to capture some of the enormous gains generated since March with an eye towards the next set of developing opportunities. This is what we’re seeing and planning now.

COVID 19 – The Accelerator 

I’ve been thinking about the lasting impacts of COVID. Without knowing the end of the story, it’s pretty obvious that the global pandemic has served as an accelerant to trends that were already in place socially, politically, economically, and in the financial markets. I’ll give you a few examples but you probably already feel these yourself just through observation.

Our entire education system, both public and private, was not providing quality workers and employees with the skills necessary for the modern workplace. Since 2012, “Quality of Labor” has consistently been the highest concern for businesses of all sizes in surveys. In fact, this concern has routinely been listed above taxes, poor sales, and regulation. In the last two years, “labor costs” were the only category to challenge Quality of labor as a top concern for employers. Without pointing the finger at any specific educators, we need to do better. COVID is shaking the tree of our education system. They are being forced to take a critical look at what is being taught, how it is delivered, and the affordability for all. We’re already seeing costs come down in private schools and that will continue as families struggle to justify spending huge tuitions for anything other than full-service, in-person education. Public schools are finally stepping fully into higher-tech learning modules after dabbling for the last decade or so. This is not a bad thing as they will ultimately provide a better, more relevant education at a lower cost per pupil. These trends are accelerating. Good!

Related to the economy we’re seeing some companies accelerate toward their own demise, while others accelerate toward their full and best selves. For years, I’ve wondered how some companies, even industries, continued to stay alive (big box retail in Malls, Coal, Airlines, and even Non-Lending Banks). COVID is forcing some out of business or fold in with more progressive peers. Others are having to reinvent themselves. Certain companies are taking enormous market share, as their business models are tailor-made for this environment (Zoom, Amazon, renewable energy, cybersecurity, etc.). COVID is an obvious accelerant for both death and birth within the business world.

On the macro side of things, COVID is also accelerating the Fed’s response to the financial crisis in a way that is both unhealthy and unsustainable. The form of Federal stimulus during the economic crisis has evolved slowly since we left the gold standard in 1971 from a fiscal system that was supporting business and employment through public works, to a monetary form of injecting cash into the hands of investors, companies and bailing out those in debt. The printing press of US dollars has never really been idle since the late ’60s and now we consequently find that a basic home costs $500,000+ and interest rates have been pushed down to zero with the potential to go negative. Money is becoming worthless, thus the sharp rise in Gold, Silver, Bitcoin, hard assets, and other stores of wealth. Inflation is here (although wildly understated) and coming on strong. There is almost no way around it. Another $2 Trillion stimulus is coming as we accelerate toward some form of Debt Jubilee. I don’t have good feelings about the end of that story, but we’re getting there fast.

These are just a few examples. There are many others on the social and political side that are a little too hot to touch in a public blog.

The Plan 

We’re having a good year and our investment strategies are in great shape YTD both in relative and absolute terms. As promised and ordained, the market has become more difficult starting in the first week of August, as it prepares itself for the fall, election madness, and the inevitable profit-taking that comes after a 50% meteoric rise in prices off the lows in March…. during a global pandemic…. with negative GDP ?!??. Technology and growth sectors have been the source of most gains but are now seeing some early profit-taking and increased volatility. We are actively cutting exposure here. Other gains have come from the safety trades like precious metals, bonds, high yield corporates, and recession sectors like healthcare and consumer staples. As the impact of the pandemic on economic activity has become “less bad” in August, the market has shied away from the defensive trades a bit but not so much that we have triggered hard sells yet. Most of our defensive positions had grown beyond their target allocations, so we simply pared them back to a normal allocation size. Some call this rebalancing, we call it prudent and timely asset management. Internationals, specifically positions in Asia and emerging markets, continue to impress us buoyed by price trends, fundamental valuations, and the tailwind of the falling US dollar. Europe not so much. So, we’re holding tight with our non-Europe international exposure for now. Most of what we’ve done in the last two weeks ahead of the September deadline is to take profits leaving us with a larger than normal cash position. So where are we looking to deploy this cash? Great question.

The Next Set of Opportunities 

As usual, I’m going to get myself into trouble forecasting but we’ll do some now anyway because the set up seems obvious (Ha!).

There are three main opportunistic themes that we have discussed in the last several years:

1. The resurgence of “value” over “growth”
2. International stocks over domestic stocks
3. Going long inflation hedges like gold, silver, and commodities.

Today, trends in 2 of the 3 are already in place. They are the international trade and the inflation trade. Precious metals and inflation trades are in new bull markets– buy pullbacks! Internationals, especially emerging markets are a lower conviction trade for us, but the valuation and price trends are healthy. We are buying pullbacks and reaching for full exposure here after years of very light allocations. The Value trade remains elusive, but I think we’re getting close. Where do we find value you ask? Well, this is tricky. Everything that is still trading at its lows of the last 12 years might look like a “valuable” investment. You must look at this space with a very critical eye because some names, sectors, and industries are just on their way to zero (a.k.a. value traps). Others are truly undervalued, overlooked by a market that just can’t get enough Tesla at $1700/ share. There are some sectors that are starting to look attractive. One such sector is the REIT space. Mortgage, residential, and even some industrial REITS that own the telecom infrastructure needed to transition to 5G networking all look like good value here. We’re also seeing some bargains in select energy companies in the natural gas and midstream markets space paying 8-10% yields. Finally, there are quite a few traditional high yielding stocks like the wireless carriers and insurance companies, who are not going away anytime soon. These holdings dominate our fully invested and newest strategy called Multi-Asset Income (MASS income) which is yielding over 7% annually. Pretty attractive in a zero interest rate world.

Other areas that fall into the value camp are industrials, materials, and financials. These are typical go-to sectors coming out of a recession, but it seems too early to really embrace this trade despite some recent strength in August. We’ll keep an eye on these but not ready to hit the buy button just yet.

Note to ALL DIY investors 

This is not an easy market anymore. The easy money is behind us as the market has pushed prices up beyond full valuation for current earning and economic activity. As we climb the wall of worry, the market effectively forces you to either step aside and wait, or continue to embrace the risk-on world of the stock market. You really need to make a choice now. I’ve heard those frustrations, as you want your money to be invested productively, but don’t want to do it with stocks. I would strongly caution against piling into the technology winners of the last 6 months. There is a high chance of pain here for the late arrivals. I also wouldn’t give up on your bond and gold yet despite the recent correction in both. In fact, we added a small Silver position yesterday. I would suggest you pick through the REIT world and take a few positions in your favorites here. We’re happy to help our clients with their own DIY accounts if you have specific questions, but be aware that the environment for profitable investments is getting thin and selective so set your expectations accordingly.

That’s it for now – I hope everyone is enjoying the back end of Summer with friends and family. We’re firing up our communications again with Red Sky Reports, new webcasts, and podcasts after a bit of a break as our readers and viewers went on vacation. Please tune in!

Cheers

Sam Jones

As part of our 25^th year of offering trusted advice, we decided it was time to overhaul our website. A big thank you goes to Katie Henry at BluErth Design (bluerth.com) for helping us make it happen!

You will notice a totally new look and feel at allseasonfunds.com, but with the regular content that you have grown accustomed to.  Our goal—especially with these current market conditions—is to keep you informed. Both about what is going on inside the company as well as in the markets.

Let me walk you around the site.

Here are a couple of highlights:

 

Financial Efficiency

 

 

 

 

 

 

 

https://allseasonfunds.com/financial-efficiency/

We highlight our Wealth Management Packages under the Financial Efficiency Page. As you know, we think it is valuable to coordinate with our wealth management partners to ensure that we are meeting all of your financial needs. Financial, tax, and estate planning are key elements to secure one’s financial future.

 

Money Management Models

 

 

https://allseasonfunds.com/create-wealth-defend-it/

We review our full suite of our Money Management models under the Create Wealth, Defend It tab. Our goal is to have a wide range of model offerings so that we can put together the most effective asset allocation that we can. We have links to our Income, Blended Asset, and Tactical Equity models on that main page as well. We describe each strategy in greater detail on the successive pages. We want to make sure you understand the purpose for each strategy. At the bottom of that page, we also have a place to access our Risk Tolerance questionnaire.

 

Red Sky Blog

 

 

https://allseasonfunds.com/blog/

You can still find the Red Sky Reports under Blog. 

 

Solution Series

 

 

https://allseasonfunds.com/videos/

The Solution Series section houses our latest webinars along with our longer form educational presentations. Our goal is to continue to give you more video content as time goes on. We have been recording content every two weeks for the last couple of months.

 

Podcast

 

 

https://allseasonfunds.com/podcast/

We are starting to round our Podcast material. We have our first episode posted, a discussion on the current real estate market. You will start to see more episodes show up next month. We will have everything from interviews, policy discussions, and commentary on current market conditions. The goal is to offer you multiple ways and mediums to access our market views.

 

Research

 

 

https://allseasonfunds.com/research/        

We have also added a Research tab on our page as well. We will be populating that with various white papers on various and sundry investment topics.  Our first white paper—“The Hidden Costs Of Investing”—is currently posted.

 

Social Media

 

 

And, finally, we have a list of social media channels that we will be using to distribute our content. We will continue to build out our library over time, but if you’d like, feel free to follow and/or subscribe to any or all of the following All Season accounts:

LinkedIn: https://www.linkedin.com/company/all-season-financial-advisors-inc-/

Youtube: https://www.youtube.com/channel/UCBhyfJtimp9SVB6vqrNJtZw

Libsyn (Podcast Host): https://allseasonfunds.libsyn.com/

Vimeo: https://vimeo.com/allseason

Spotify: (Coming Soon)

Download “The Podcast Source” on the App store as well as the Google Play store and search: Create Wealth Defend It to follow us on your mobile device.

As always, we are always trying to improve our service offering and communication with clients. We think our new website and social media channels will help us do just that.

Go ahead. Have a look around.

Let us know what you think!

New Power Positive YTD and Still Charging

For those who attended our webcast https://www.youtube.com/watch?v=9-7wG9SPjMM&t=1s on April 29^th, you might recall our unbridled enthusiasm for the unrelenting wave of innovative companies that continue to push forward regardless of COVID-19.  New Power is the home of game-changers, disruptors, innovators, pioneers, facilitators, and integrators.  New Power just turned positive YTD and is tracking quickly to make another all-time new high.  Please excuse us while we beat our chest and SHOW you the power of selection and risk management by way of our New Power Strategy. https://allseasonfunds.com/impact-investing/

Welcome to the New Market Environment – Selectivity

We have said this time was coming for several years but we were admittedly early.  Now it’s here.  Investors must realize and understand that you can no longer simply own a broad market index or a standard 60/40 (stocks/bond) portfolio and expect to make a reasonable return from this day forward.  In our view, there is zero chance that the performance of the last 10 years generated by passive indexing will repeat in the next 10 years, perhaps not in our lifetimes.  There are just too many headwinds including extreme valuations, index concentration in a handful of overbought technology names, bond returns approaching zero or worse, and the realities of a deep global recession(s).  But smart investors deploying active, selective, and risk-managed strategies have the real potential to continue generating positive and consistent returns.  This is what we do.  We have entered the new market environment where selectivity is king.  Winners and losers are pronounced so you can begin to understand that a portfolio that owns winners AND losers (all indexed securities) will simply tread water.  This trend did not actually begin today, it began in early 2018 and is simply accelerating now as it becomes more and more obvious.

Our New Power strategy provides a classic case study.  Going into 2020, our New Power strategy was almost fully invested.  We owned many of the growth companies that were leading then, especially those in emerging tech and renewable energy.  As the impact of COVID-19 began to shake the markets in February, a new group of “virus” trades quickly assumed leadership including gaming companies like Electronic Arts (EA), Activision (ATVI), and NVIDIA (NVDA). We bought them.  We also saw select biotech companies like Gilead (GILD) and Regeneron (REGN) take the lead as they worked toward a vaccine.  Finally, we found new leadership in household technology tools like Zoom (ZM), DocuSign (DOCU), and Spotify (SPOT) that get a lot of daily attention while we collectively evolved toward a more remote workplace.  When the broad market was falling 5-8% a day, our New Power strategy did raise some cash but not more than 30% as we simply upgraded positions to the new leadership (aka selectivity).  Now, as the market has bottomed, we have more things to buy than cash.  We remain fully invested and have found even new leaders in companies like Beyond Meat (BYND), Fiverr International (FVRR), Twilio (TWLO), Redfin (RDFN) and Zillow (ZG).  From the beginning of the year to the final lows in March, our New Power model lost -18.8% compared to the broad market losing -30% plus.

Today, from the lows on March 23^rd, New Power has fully recovered losses (+22%), is positive YTD, and generating healthy gains daily and weekly.  Comparatively, as of the close yesterday, the S&P 500 is still down -13% from the highs in February, down -9% YTD, and has only recovered only 60% of the loss incurred in the first quarter. 

This is a story about how selectivity can serve as an excellent risk management tool.  If we are willing to put up some volatility, we can work to remain fully invested in all markets, stick with leadership, and watch our money limit downside losses and recover faster.  We don’t have to be market timers; we don’t have to make that call to sell all and subsequently wonder when it’s safe to get back in as so many try to do with repeat futility.  I have been in a market once or twice when cash was king but it didn’t last more than a couple weeks.  The financial markets are wonderful in the sense that something is always moving higher, we just need to find it.

Last week we loaded our fresh new website thanks to the work of Sean Powers and Aidan Cameron in our office. www.allseasonfunds.com  There you will find our library of Solution Series videos, links to our new and developing podcast “Create Wealth / Defend It” as well as downloadable research.  Our current piece of research is called “The Hidden Costs of Investing https://allseasonfunds.com/ (located in the middle of the page titled “READ THE WHITE PAPER”). This paper is worth your time because we illustrate again the merciless math behind losses.  I’ll provide a clip here.

Mitigating losses is obviously important because mathematically, we need to earn a higher return than our losses just to breakeven.  For instance, the S&P 500 lost over 33% recently right?  Find that number on the left-hand column.  The return needed to break even is pretty close to 50%.  If you lose 50%, you’ll need to make 100% just to break even.  The S&P 500 has gained 32% from the lows but still remains 13% from breakeven (aka the highs).  Case in point, it’s just math!  Historically, losses in excess of 30% take 4-6 years to recover and no one has time in our short investing careers, to waste 4-6 years going through loss and recovery.  Again, the point is that risk management serves a purpose however you do it.  Tactical investing is tough but worth the effort.  The selectivity method used in our New Power strategy is just a way that has a proven history but there are others.  In fact, we have nine strategies that approach risk management differently in our offering to clients.

New Power is open to any and all with a minimum investment of $100,000.  We would be happy to discuss the opportunity with you.

Onward

Sam Jones

Battleground

After a near-vertical rally in stocks since the lows on March 23rd, we have now entered the real battleground. This is the time and place where the ultimate “trend” of the markets will be determined.

Strongest Rallies Occur During Bear Markets

As a matter of simple fact and history, the strongest short-term rallies of all time occur during the worst secular bear markets in history. In the last week, we heard many times how last week’s gains were the strongest since 1974. This is true!  To be specific, the strong week of 1974 occurred on October 11th near the end of a decade long bear market. I use the word “near” because the US stock market went on to lose another 20{1de7caaf0b891e8de3ff5bef940389bb3ad66cfa642e6e11bdb96925e6e15654} after that date to a final low on Dec 6th, 1974. Bespoke pulled this handy table together last week to show the 10 largest weekly gains in history which now includes the most recent event last week.

You’ll notice a few things. Of the 10 events, all occurred somewhere during deep, lengthy, and painful bear markets in stocks. For those of us who study market history, you might also know that 5 of these events occurred very close to the end of each bear market.  However, in all but a couple of cases, prices made a new low after the BIG up week. You’ll also notice that 8 of the 10 events including last week, occurred during the Great Depression. Stats like these need to be taken within the context of the company they keep!

US Stock Market Retraced Exactly 50{1de7caaf0b891e8de3ff5bef940389bb3ad66cfa642e6e11bdb96925e6e15654} of Previous Losses

This is sort of a half-full/ half-empty thing. For market technicians who watch retracement patterns, there is some good news to take away from this. A 50{1de7caaf0b891e8de3ff5bef940389bb3ad66cfa642e6e11bdb96925e6e15654} retracement is pretty strong and could indicate that a bottom is in. A weak retracement of only 38{1de7caaf0b891e8de3ff5bef940389bb3ad66cfa642e6e11bdb96925e6e15654} is more consistent with a standard rebound within a larger downtrend. But 50{1de7caaf0b891e8de3ff5bef940389bb3ad66cfa642e6e11bdb96925e6e15654} is just like it sounds, only 50{1de7caaf0b891e8de3ff5bef940389bb3ad66cfa642e6e11bdb96925e6e15654}. Now stocks are tired, buyers are getting a little thin and we have pushed prices right up to the bottom side of the falling 50 day moving average which is now around 2876. Yesterday the market tried hard to break above the average but couldn’t do it. Today, stocks closed lower by 2.13{1de7caaf0b891e8de3ff5bef940389bb3ad66cfa642e6e11bdb96925e6e15654}. This is obviously an important place and time for stocks. They will either blast higher and move back above the averages or see another round of selling and profit-taking as the headlines start focusing on the real possibility of a retest of the March lows.

Bear Markets are Deceptive

One of the hardest parts of being a DIY investor is that the headlines tend to lead you to believe in a future outcome, only to find that reality does just the opposite. I pulled a few recent headlines from the last 6 months below just to give you an idea.

Before the top in February, you couldn’t find a headline that wasn’t talking about the good times ahead, the enormous gains from the likes of Tesla, or Beyond Meat or any of the other glamour stocks. All headlines spoke of NO SIGNS OF RECESSION. We were scratching our heads as far back as last fall with our many videos and Solution Series broadcasts showing the growing and prolific evidence that the US economy was tracking toward recession well before the Corona Virus hit. The markets were doing a nearly perfect job of forecasting the recession with the inverted yield curve, etc. months and months before the virus was even a thing. Remember the headlines saying the Inverted Yield Curve doesn’t matter this time. Well, apparently Forbes Magazine decided that it did matter after all with their headline on March 13th.   The market (stocks, bonds, and commodities) are very good predictors of recession if you just care to understand and believe what you are seeing. On Monday, Goldman Sachs released a big headline stating that the market is unlikely to make a new low because the Government is going to save us. I have no confidence in that reasoning. When was the last time we had a global pandemic and economic coma? Never? 1800’s? I suspect the Fed and Treasury will need to do two or three more $Trillion infusions to keep the life support going.    Nevertheless, they could be right. Again, this will be the battleground on which the US stock market will either experience a mild pullback that sets up a very strong move back to the old highs. Or, this will be the top of the first rebound in a long bear market that takes us to new lows. The headlines will drive you to drink, so it’s important to tune into your own system and process for guidance.

Stay Tuned, important days directly ahead.

These graphics are part of our Solution Series webcast which will be delivered in a few minutes and recorded for all. Please join us in two weeks for our next update as new risks and opportunities are developing.

Good luck to us all

Sam Jones

Someone important once said “Never Let a Crisis Go to Waste.” It seems to be especially appropriate now.  Let’s dive into that subject looking from the perspective of how and when we might look for the end of this bear market in stocks and how life might change or pivot coming out of this crisis.

Loading Up on Stocks?

I’m sort of amazed at how so many sound so confident in their determination that a bottom is in for this 4-week-old bear market.  In fact, it seems those who are hoping for some sort of “I told you so” notoriety in calling a bottom early, tend to be the loudest, youngest, and least experienced – or maybe just desperately hoping?   Meanwhile, those who are battle-worn, having been through one or maybe two multi-year bear market cycles in the past, seem to be quietly shaking their heads.

I’m Shaking My Head

In my experience as a professional asset manager since the mid-’90s, I have never seen a bear market end with investors wanting to buy stocks.  By the end, people are just emotionally and financially wiped out (we talked a lot about this in our webinar last week).  The very last thing they want to do, near the final lows, is to buy stocks.   At the bottom, we see capitulation and massive selling because it feels like there is no hope of higher prices.   In this cycle, we have a lot of hot money, with an artificial sense of optimism that they can nail the low just in time for a rocket ship ride back up and out to new highs.

Wouldn’t That Be Something!

Others have lost significantly and are desperately hoping their accounts will recover immediately. They hope that if the markets put in a low right here, losses will go away quickly and this whole thing will just be a dark memory without any lasting impact on financial wellbeing.

From our camp, it feels a bit delusional to be willing to say that a bottom is in now (whatever your reasoning) with literally zero evidence and a pile of negative data directly ahead.  Today, we have a near waterfall decline in stocks taking the market down 30{1de7caaf0b891e8de3ff5bef940389bb3ad66cfa642e6e11bdb96925e6e15654} in four weeks.  This has happened before but only in the worst of secular or structural bear markets like the Great Depression.  Gold and Bonds are the only things in the world in established uptrends.

I will say that another way for emphasis.  Every asset in the world is in a profound and obvious steep downtrend in price outside of gold and bonds.  That is the condition of the financial markets, end of story.

Furthermore, today is the 5^th of April.  In 10 days, we will see the first earnings reports reflecting the 1^st quarter.  Obviously, the first half of the quarter will look good and the second half will look horrible.  Is a 30{1de7caaf0b891e8de3ff5bef940389bb3ad66cfa642e6e11bdb96925e6e15654} decline in stocks enough to say that all shocks to earnings are priced in?   How about next July when we see the 2^nd quarter (April – June) earnings?  Has our express bear market of a mere 30{1de7caaf0b891e8de3ff5bef940389bb3ad66cfa642e6e11bdb96925e6e15654} priced that in?

Wow, it seems reckless to even talk about a bottom now, let alone actually buying anything with more than a quick trade in mind.

Don’t get me wrong, there are some things that are trading at 15-year lows, that have been thrown out for dead, paying extraordinary dividends and may be showing some signs of bottoming now.  We are aware of a few opportunities like these and may start to pick them up VERY slowly and only with more evidence that sellers are gone.   But these opportunities are few and far between.

What we see today is that the problem areas of the financial markets are still a problem and may even be getting worse considering the price action last week.  These are critically important cogs in the wheel of the financial markets.  I’m talking about the credit markets where corporations have accumulated a generations’ worth of debt to fund buybacks and growth plans.  This debt lives in the Investment Grade universe of BBB rated corporate bonds as well as junk bonds (High Yield) with lower ratings.  Today, the rating agencies like S&P, Moody’s, and Fitch are reluctantly downgrading the bond issuers, forcing sales of corporate bonds, then margin calls, then selling of anything just to cover.  Default rates are now on the rise in the High Yield space pushing prices down and yield up toward double digits.  The stock market was down a little over 2{1de7caaf0b891e8de3ff5bef940389bb3ad66cfa642e6e11bdb96925e6e15654} last week again, but high yield bonds were down almost 5{1de7caaf0b891e8de3ff5bef940389bb3ad66cfa642e6e11bdb96925e6e15654}.  No Bueno.  The stock market will not bottom until I see an uptrend in high yield bonds.  Others must be smarter than I am because I just don’t see an uptrend yet.

 

Another less known area of trouble in the markets lies in the world of Non-Agency Mortgage REITs.  These represent the very large pool of lenders that are not backed by the Fed essentially.  Agency mortgage REITs are in the bailout package already and those securities are already trading at all-time new highs.   Today, we own MBB as an ETF that owns Agency mortgage-backed securities.   But the real risk is in the Non-Agency mortgage securities which just made a new low last week like Invesco Mortgage Capital (IVR).  The chart below shows an MBB bar chart versus IVR in Yellow.  The 800 lb gorilla in the space, Annaly Capital Management (NLY), only has a small portion of their portfolio in Non-Agency mortgages and they are in a world of trouble (down another 12{1de7caaf0b891e8de3ff5bef940389bb3ad66cfa642e6e11bdb96925e6e15654} on Friday alone).  These are weapons of mass destruction if they are not controlled quickly.  Once again, unless we see the Fed step in to backstop Non-Agency mortgage securities and REITS, we’re going to see some serious problems develop in our banking system and we’ve already been down that road in 2008, right?

 

The good news is that this crisis will end, the bear market will end, prices will be at very attractive levels and we’ll have years of opportunity to make big double-digit gains in the markets.  But that day will be in the future.   Valuations have returned to “fair value” now if we assume that earnings are not going to be surprisingly bad.  I suspect, like the jobless claims’ numbers, they are going to surprise us.  During bear markets, prices normally overshoot “fair value” by 20-30{1de7caaf0b891e8de3ff5bef940389bb3ad66cfa642e6e11bdb96925e6e15654} to the downside.  Our estimates show that 1850 (ish) on the S&P 500 would satisfy a normal bear market decline.  1850 on the S&P 500, not coincidentally, marks the price level where current earnings and price will finally come back together after 5 years of share buyback nonsense (chart below).  For now, 1850 seems to be a rational expectation for a final low but we’ll be pleasantly surprised, and remain open to possibility, if this bear market manages to bottom at a higher level.  For all those who are saying a bottom is in, 1850 is -26{1de7caaf0b891e8de3ff5bef940389bb3ad66cfa642e6e11bdb96925e6e15654} lower than the close on Friday.   Not a forecast, just doing a little math.

 

Today, we are positioned well, with most household portfolios down 10{1de7caaf0b891e8de3ff5bef940389bb3ad66cfa642e6e11bdb96925e6e15654} or less YTD.  The markets are down more than twice that amount YTD (-22.97{1de7caaf0b891e8de3ff5bef940389bb3ad66cfa642e6e11bdb96925e6e15654} as of Friday’s close).   As we compile our own first-quarter results, we intend to share those in the coming weeks showing the relative performance of all strategies compared to the markets over several time periods.   What you will see is that the market’s performance advantage over our risk-managed strategies over 1 and 3 years is now closing, or entirely gone.  Passive indexing is giving ground to active, selection-oriented methodologies every day.    If history repeats, our strategies will ultimately outperform the broad stock markets on a 5-7-year time frame before the market finds a final low.  We see the developing opportunity and we’ll be there ready to be aggressively reinvested in stocks.  But we also want to see more evidence, beyond a sensational guess, that prices are done falling and a new sustainable uptrend has emerged. There is no evidence of that condition now.

Can We Use This Crisis to Pivot?

Now, on a more philosophical level, I am wondering about a lot of things.  I am wondering how this crisis may alter how we live, our standards, our preparedness for future pandemics.  I’m wondering if we might use this crisis to pivot culturally to literally avoid returning to the status quo.  What was so bad about yesterday?  Well, there was a lot of good, but there is still that massive wealth inequality thing that seems to be shaping our politics and ripping our country into two warring camps of haves and have nots.  Consumerism and excess driven by social media reached levels that some would consider grotesque.  We are hearing with a little bird song of joy how China’s air and the world’s pollution content are now the best we have seen in decades with the literal shutdown of the world’s business activity.  I’m seeing families gather, bond, and almost get to know each other again.   There have been more laughter in our house in the last three weeks than any time in the last decade, and I think we’re not alone.

I’m also hoping that we might recognize this global pandemic as a strong reminder that we cannot exist alone in the world.  We need other countries to move gracefully forward through good times and bad, including shared knowledge, shared resources and maybe even shared aid.  No country is an island on this globe and now we have a global purpose that can unify our goals, rather than building walls.

I’m thinking about climate change and wondering if COVID-19 might pave the way for all countries to finally pivot away from a carbon fossil fuel world to a clean energy world?  The next main event for our government will be a New Deal type package that gets America back to work.  Today we are keeping the economy and financial markets on life support by spraying the system with cash.  But this does not, will not, solve sustained unemployment, bankruptcies, and foreclosures that inevitably come out of every deep recession.  We will need serious and massive jobs to act from Congress, a real one, not a corporate tax cut called a jobs act.  I hope we can recognize that the Green economy is shovel ready with $Trillions of projects sitting on the shelf waiting for the right leadership and will of the people to emerge.  I remain hopeful.

Finally, we can safely say that life will be different after this crisis and maybe in good ways.  I see remote working and learning sticking to some degree.  Do we really need so much office space?  I suspect the bubble in higher education costs has probably burst, thankfully. I see a world that will be better ready to act, earlier and more strictly when future pandemics become known.  Life is never the same after a crisis of this magnitude.   Let’s not let this opportunity go to waste.

Keep Calm and Carry On… cause we’re not done yet.

 

Sam Jones

Outraged

Okay, so the current administration and the Federal Reserve is now the lender, buyer, and soon to be employer of last resort for the United States of America.  This is now my third tour in 20 years of this crap, and I’m outraged!

My Rant

Please excuse the rant in this episode but I’m going to say what must be said. Our entire economic system is based on capitalism which is a form of meritocracy. You do good things; money comes to you. You do bad things; money moves away from you very generally speaking. I know there is privilege and social mobility issues but by and large, the system has those roots, right? Well, we are now witnessing the third period in 20 years where our fearful leaders and the Fed are working hard to poison the very roots of capitalism. Larry Kudlow, who is a TV personality, and Trump, yes man on all things economic inside the White House, pounds the table about the merits of capitalism. He says that the markets and the economy will find sustainable pricing, will work toward full employment, and business growth will eventually lift the economic tide carrying everyone in their little ships higher and higher. Maybe he’s right, maybe not. But capitalism also has a darker side that is seen in Mother Nature. It is the death and Darwinian side that culls out the weak (bad businesses, bad people, bad behavior) and ultimately makes the herd stronger. Today, we are watching the Fed come to the rescue again and in doing so, they are attempting to eliminate the dark and necessary side of Capitalism. They are rewarding rampant speculation, they are rewarding those who use massive leverage, they are rewarding bad behavior and conditioning (again) us that they will backstop all forms of risk. In doing so, the risk becomes a thing we talk about but don’t really experience in its full form. Larry must be freaking out in a wave of a personal identity crisis. We haven’t heard from Larry in a while, have we? That’s because he’s under the bed in a fetal position wishing he had another job.

Trump doesn’t want anything bad to happen to the economy as we head straight toward elections.  If elections were held today, he would be done and he knows that. Very suddenly, Trump has become the Bernie Sanders of the financial world, effectively putting control of the entire bond and credit markets in the hands of the US government all in the name of “providing liquidity”. What they are really doing is bailing out leveraged hedge funds and private equity firms who are under forced liquidation and need the bond markets to cover their asses. Bernie wants the government to provide the same sort of massive support and control but just aimed at the humanitarian side of the ledger. They are both socialists of the first degree now, make no mistake. It’s so painfully obvious to me that Trump will sacrifice the human condition in favor of the financial world. He wants us all to get back to work on April 12th to get the economy going again and give him a chance at reelection. But Mr. President, the Virus doesn’t care about April 12th. Shall we all follow your “decree” and spread the infectious disease more, just to pump the stock market another 1000 points?

We get what we deserve. In the last twenty years, we have experienced two bear markets in stocks of 50{1de7caaf0b891e8de3ff5bef940389bb3ad66cfa642e6e11bdb96925e6e15654} each and we’re probably on our way to a third. These are events that don’t typically happen in this magnitude more than once in a generation. But they are happening with high frequency now as a byproduct of a Fed and administration that do not allow the dark side of capitalism to truly feel the pain of risk. If we do not let our kids fail, they never learn. Hedge funds and leveraged speculators should be wiped out permanently. Companies that should die, should be allowed to die. Fraud should be exposed and purged from the system. Nothing is too big to fail, nothing. In the end, we all suffer. Take a look at the twenty-year returns for various asset classes now.

Gold is the best performer by a long shot. What does that tell you? It tells you that the Federal Reserve is destroying the value of the US dollar with all this stimulus. Stocks are barely up 4{1de7caaf0b891e8de3ff5bef940389bb3ad66cfa642e6e11bdb96925e6e15654} as an average annual return. When we attempt to cover up risk, we ultimately create massive cycles of price destruction as we reward speculation. Returns over time suffer folks. We are doing ourselves no favors by relying on the Fed to save the day.

Looking back over the last twenty years to date, I am pleased to report that our All Season investment strategy has performed admirably compared to the S&P 500 with a healthy return advantage on an average annual basis net of fees with real client accounts. But more importantly, we have never experienced bear market losses and operated regularly with approximately 1/3 of the risk of owning your basic S&P 500 stock index fund. We have done so by following our time-tested process of dynamic asset allocation across multiple asset classes, avoiding huge bear market losses, and seeking compounding consistent positive returns wherever we can find them. 20 years is a long time and all the proof we need to say that our system is truly better. All Season in Red, the S&P 500 in Green.

If we want to see stocks generate higher returns over time and not see three-generational bear markets occur within every 20 years, we should all be OUTRAGED! Let capitalism do its thing, let it fail. Maybe then we’ll really get back to making good choices, respecting risk for what it is, and build a sustainable financial system.

Sorry for the rant, back to business

Sam Jones

What You Need to Know Now 

Things are moving fast in the financial markets. This is what you need to know right now in brief. 

The Federal Reserve Has Stepped Up to Support Bonds 

After taking interest rates to zero, and recognizing the ineffectiveness of that move, the Federal Reserve is turning to QE to infinity. They are becoming the buyer (lender) of last resort in a market that only knows sellers. They are now staging outright purchases of their own Treasury bonds, state muni bonds, mortgage-backed securities, and as of this am, Investment Grade bonds. They are not (yet) doing so with High yield corporates – the risk is assumed for those who play in that game, or in anything leveraged like REITs. As a result, we are witnessing the Fed playing God with who will survive (Treasuries and investment-grade stuff) and who will die (junk corporate bonds, REITs, and other devices of leverage or poor quality). I have mixed emotions about all of this. I see their move as necessary but ultimately yielding out of control Federal debt with another possible downgrade. I see inflation, both real and persistent, and I see an environment of higher taxes for years to cover all of this spending regardless of who is in office. Short term gain for long term pain. Maybe that phrase should be printed on every US dollar from here as a reminder. Anyway, for those of us who took profits in bonds several weeks ago before they fell 10-15%, we have bought back knowing that the Fed has the firehose on full blast. 

Stock Markets Look Poised to Move Higher Now 

I like to think of myself as calm under pressure. I will admit that March 16th was a very high-pressure day for me. That was the worst of this decline. Since then, we’re seeing new pockets of strength and quiet accumulation. Despite the moves to new lows in the Dow and the S&P 500 in recent days, many things have stopped falling and we’re starting to see big green volume bars of buyers. This is how a short-term low develops and we are operating on the premise that this level will market a short-term low in stocks with a possible 15-20% retracement higher from here. I know you need to know why so I’ll tell you because there are more buyers than sellers at this moment in time. That’s all that really matters. These are the ways that we are adding exposure to all portfolios now.  

• Slowly – Seriously. Trying to anticipate the low with a big bet is a game in losing more capital very quickly. Any purchase now should be done methodically and following a well-tested system. This is what we’re doing now. If you don’t have a system, you’re guessing and probably going to lose a lot more money before this is over. 

• Trading positions  

These are just pure index exposure and directional bets. Again, we are looking for some signs that selling is done and buyers are back in charge with the right types of price patterns. Honestly, there is not much to find here with prices still in a near waterfall decline but there are some indices showing strength.  We like the Nasdaq 100 (QQQ) as the best behaving of the index bunch and have begun building a position there in Worldwide Sectors. We also like parts of Asia and emerging markets that are holding up incredibly well in the last week. Europe, especially Germany, actually showed up on our radar today as well.   

• Investing positions  

These are stock investments in the fallen angels’ category. These might be stocks or sectors that are still driving the US economy, embedded in our everyday life but now trading at deep discounts. They might also be sectors that have been thrown out for dead. In the left for a dead category, we have a long watch list ready including Energy MLPs paying north of 10% interest, infrastructure ETFs and other equity income options trading at deep discounts. We have not entered any trades here yet. 

• Thematic positions  

These are mostly our COVID-19 positions which now dominate the New Power strategy for over 40% of assets.  Yes, we own Zoom (ZM) after buying it a few weeks ago. Clients can look at their New Power holdings for more examples. Today, we bought Electronic Arts (EA) and Activision Blizzard (ATVI), both are bouncing nicely off of long-term support. 

• Building on non-Stock Asset Classes 

Today offered investors an opportunity to buy gold or add to gold in our case. Gold is in a new bull market interrupted by hedge fund forced selling to cover their margin calls. Silver may be tomorrows’ trade, we’ll see. As I mentioned above, we have rebuilt our bond positions in all strategies now – thank you Fed. We are also maintaining a position in the rising US Dollar as dollar-denominated debt held by foreign entities is in short supply. Our cash position is still absurdly high but we’re deploying some of that daily now as our options to do so expand. 

Something Nasty in Real Estate 

I couldn’t tell you more than I see with my eyeballs. Homebuilders, REITS, and all real estate funds are falling dramatically, every day, relentlessly regardless of what happens in the broad market. Today the S&P closed down almost 3%, home builders and real estate funds lost another 5-6%! Most people I talk to aren’t money people, but they do own real estate or have incomes tied to that industry in one form or another. The common question is what will happen to Real-Estate now? Using only the market and the real estate sectors as a clue, I can only say, it will not stand tall in the face of this. Again, I don’t know why and it doesn’t make sense but the markets are telling us that real estate will track with the financial markets – as they always do with the normal 3-6 month lag. This time is not different. 

Stay tuned and stay strong because sellers may be washed out for now with buyers waiting to push prices higher, potentially much higher. A final word of warning. This market will make a new low before this is all over. The bear market pattern of this cycle is no different than bear markets of the past. We’ll unpack this pattern and what to expect in our next Solution Series Webcast on April 1st.  Any and all are welcome to join us.   

That’s it for now. 

Sam Jones 

 

As we alluded to last week, we are constantly looking to balance the risk and reward in our investment programs. We want to use volatility in our favor, especially where we are fairly hedged (Tailwind Equity) and/or holding cash (currently all other models).  

More often than not, cash is a weigh station for us—a temporary place to park capital. 

We rarely move from cash to fully invested position all at once, especially during this type of volatility. We enter and exit positions based on the risk management of our process. Most times it is incremental. That said, we are seeing some evidence in our sentiment indicators that current moves are getting overdone (needless to say, a 20{1de7caaf0b891e8de3ff5bef940389bb3ad66cfa642e6e11bdb96925e6e15654} overnight decline in oil doesn’t happen every day …).  

Here is what we are looking to do over the next few weeks:  

1. Tax Loss Harvesting. We are taking the opportunity to review tax-loss harvesting in our Tailwind Equity program. Large moves down afford the opportunity to replace portions of our long dividend ETF positions. We want to take the tax loss when we can.   

2. Adjusting hedges in Tailwind Equity. We utilize option collars in Tailwind Equity to help manage risk. Large downdrafts like we have seen the last couple of weeks sometimes give us chances to monetize the short call part of our hedging program. We plan to carefully fish some bids on these positions to see if we can get this done.   

3. Preparing to unwind high-quality bonds. Yields on US government bonds have collapsed. The entire US Treasury yield curve was trading below 1{1de7caaf0b891e8de3ff5bef940389bb3ad66cfa642e6e11bdb96925e6e15654} this morning. While we don’t expect a huge backup from here, we think now is the time to close some of our US Treasury and US Investment Grade bond positions.   

4. Preparing to buy US High Yield bonds. For the first time in a long time, we are seeing the chance to add US High Yield bonds to our Blended Asset and Income models. Spreads have been too narrow for too long, so we haven’t used them much in our portfolios. That looks like it is about to change for the foreseeable future. This entry will take some care, but US High Yield is back on our potential buy list. 

5. Preparing re-allocation changes. We have several clients lined up to add to their Tactical Equity and Blended Asset exposures. While our system to time those entries hasn’t triggered a buy yet, it does appear a lot closer to doing so. We try to take advantage of market discounts to make these changes whenever possible. 

The key to making volatility work for you is having cash, hedging, and a plan. One has to load the Ark before the flood (which always hurts when markets are galloping higher).   

As always, we continue to lean on our investment process, especially in these difficult markets. Our approach has been vetted through a multitude of market cycles. We rarely catch THE low, but we will be able to take advantage of the (further) upcoming market discounts, if and when we see things stabilize.  

Please let us know if you have any questions. 

Sean Powers

Managing Director, All Season Financial Advisors  

Hansel and Gretel are one of the classic fairytales from the Brothers Grimm.

We all know the story— children, neglectful parents, witch, oven … a trail of rocks (and to the children’s downfall, breadcrumbs).

It has to be said—the stock market is the real-life Witch of the current narrative ….

We always lean on our process during markets such as these. We started reducing risk to the stock market about a month ago and continue to remain on the defensive until we see things have settled down a bit.

Here is what our risk management process has dictated:

1. Raise Cash. During the first bout of volatility, our risk management process has us raise cash in our equity models. The same goes for our Blended Asset portfolios but to a smaller degree (if we have other things to buy).  That happened last month. Current cash levels are between 18{1de7caaf0b891e8de3ff5bef940389bb3ad66cfa642e6e11bdb96925e6e15654} and 40{1de7caaf0b891e8de3ff5bef940389bb3ad66cfa642e6e11bdb96925e6e15654} depending upon the stock model. As an aside, we’ve also raised cash on the Income models as several of our positions have hit our targets (High Yield Munis and some US Treasury positions). We are always eager and willing to put cash back to work; we just need to see more evidence of a “durable” low and have things to buy in order to do that.
2. Buy Non-correlated and Lower Beta Assets. We are always on the lookout to buy assets that don’t necessarily move with the stock market—or at a minimum, move less (lower beta). Things like real estate, convertible bonds, gold, silver, preferred, etc. We’ve added these assets to our Blended Asset models and in our High Dividend model.
3. Buy Hedges. When there is little to no opportunity in the stock market, as has been the case the last month, we will use hedging. We currently have a hedge on small-cap US equities to help soften some of the volatility in your portfolios. Most times, these positions are short-lived but in extreme cases, it makes sense to use them in order to bridge the gap to getting to better value.
4. Sell Low-Quality Bonds and Buy High-Quality Bonds. This means avoiding US high yield corporate bonds. We reduced this weighting last year (early) but are glad to be in investment-grade, US government bonds, and cash during these types of moves.
5. Look for Relative Strength to Buy. This is always the final swing for us. Ultimately, we want to be invested in earning excess returns above cash. We screen our investible universe every day. Not there yet, but hopeful we reach that point sometime in the 2^nd quarter.  Patience is key.

These bouts of selling create opportunities. The key is preserving as much capital as possible until value starts to show up. If we can preserve capital during these selloffs we don’t fall prey to the ill effects of negative compounding—i.e. having to dig out of a very large hole.

As always, we are following our process, and we are on the lookout for the trail of rocks to lead us back home to be fully invested (before this witch of a market throws us in the oven!).

We just aren’t quite there yet.

We’ve managed markets like this before and are confident that our process will win out in the end. Patience is generally required, but when we get the go-ahead, we will actively deploy cash at presumably much better prices.

If you have any questions/comments, please feel free to reach out to us.

 

Enjoy your weekend!

The Durable Investment Portfolio – Investing 101 

Sometimes it takes a waterfall, flash crash, stock market event like this to begin to appreciate what we mean by a “durable” portfolio.  Our clients know that we have a unique method to our investment approach.  As a quick update, I’ll illustrate what we’re doing inside our flagship All Season strategy which houses the majority of our client’s assets.  My hope is that you’ll begin to understand what goes into a portfolio that is designed to survive and thrive in all markets… or create wealth and defend it as we like to say in our shop. 

What does durable mean? 

We all know what durable means but I’m going to answer this question in financially relevant terms for this discussion.  A durable investment portfolio is one that is constructed such that the owner (investor) feels no need to panic and sell all after devastating losses.  The durable portfolio is not free of losses, but it does keep them to a tolerable and easily recoverable level.  The durable portfolio will not impress your friends or be the subject of a cocktail party banter.  It is purposely constructed to avoid high volatility either up or down so you will never feel extremely happy nor extremely sad.  What you will do is give yourself a place to put your hard–earned capital knowing that the returns will be consistent, stable, and positive in almost all market conditions.  Others, meaning most investors, have very little discipline.  They need to win, and they need to put their money into non-durable investment portfolios.  They believe that they will be able to “buy and hold” through tough markets but find themselves selling in wholesale fashion after losses become unbearable.  In fact, the sheer act of selling out of an investment strategy is an admission that you are investing in something that can break or is not durable.   

All Season – A Durable investment strategy 

For those who attended our last Solution Series in January, or viewed the video broadcast https://allseasonfunds.com/events-and-resources/solution-series, you know that we have been reiterating the value of owning a non-conventional portfolio, especially now.   Let me explain with a few examples. 

The All-Season strategy operates with six investment sleeves.  A sleeve is functionally an asset class, but can also serve as a unique driver of returns.  I will describe each of them and provide our current exposure to each sleeve ({1de7caaf0b891e8de3ff5bef940389bb3ad66cfa642e6e11bdb96925e6e15654}) so you get an idea of how we are invested today. 

#1   13{1de7caaf0b891e8de3ff5bef940389bb3ad66cfa642e6e11bdb96925e6e15654} Domestic Stock Index ETFs – just like it sounds, domestic stock ETF index funds 

#2   12{1de7caaf0b891e8de3ff5bef940389bb3ad66cfa642e6e11bdb96925e6e15654} International Stock index ETFs – Again, cheap international stock exposure 

#3   15{1de7caaf0b891e8de3ff5bef940389bb3ad66cfa642e6e11bdb96925e6e15654} BOC Managers – Best of Class fund managers.  We own Berkshire Hathaway as an example. 

#4    6{1de7caaf0b891e8de3ff5bef940389bb3ad66cfa642e6e11bdb96925e6e15654} Alternatives – These are things like Real estate or funds that use trading strategies 

#5   12{1de7caaf0b891e8de3ff5bef940389bb3ad66cfa642e6e11bdb96925e6e15654} Gold and Hard Assets – Here we can own gold, silver or commodities 

#6   11{1de7caaf0b891e8de3ff5bef940389bb3ad66cfa642e6e11bdb96925e6e15654} Bonds – Treasury bonds, corporate bonds, emerging market bonds, and many more 

Cash –  26{1de7caaf0b891e8de3ff5bef940389bb3ad66cfa642e6e11bdb96925e6e15654} Cash held in money market funds yielding about 1.2{1de7caaf0b891e8de3ff5bef940389bb3ad66cfa642e6e11bdb96925e6e15654} annually. 

This is what a durable investment portfolio looks like.   

How Does All Season Respond During a Market Meltdown? 

First of all, let me be clear.  This is not a static portfolio.  Each sleeve has an allocation parameter shown as a percentage of total assets.  For instance, our Gold and Hard Assets sleeve have a guideline allocation of up to 10{1de7caaf0b891e8de3ff5bef940389bb3ad66cfa642e6e11bdb96925e6e15654} of assets in the strategy.  Today we have 11{1de7caaf0b891e8de3ff5bef940389bb3ad66cfa642e6e11bdb96925e6e15654} allocated there so we’re close but a little overweight.  Here’s an example of one of our gold and hard asset investments;  The Permanent Fund (PRPFX).  You can see how this fund (in Red) marches to its own beat but is still in a nice steady uptrend.  We can only hope that it does again what it did in the early part of the decade relative to the market (S&P 500 in Green) 

 

When we design our durable portfolio, we set our desired size of the various sleeves based on our perceptions about risk and return for that group.  These changes over time but very slowly.  However, under the hood of each sleeve, we try to maintain the target allocation but importantly give ourselves the latitude to cut exposure and upgrade positions as needed. Ultimately, we want to keep those sleeves full! But, in times like these, we can help ourselves and control our volatility even further by turning the dial a bit (cutting some exposure).  Our #6 sleeve is specifically a trading strategy where we move between quality US treasury bonds where we are invested today or swing all the way out to high yield corporate bonds.  The #6 sleeve target allocation is 20{1de7caaf0b891e8de3ff5bef940389bb3ad66cfa642e6e11bdb96925e6e15654} so we are currently about half invested there.   

When the markets do the free fall thing, we will often use that event as an opportunity to cut exposure in some under-performers in each sleeve and begin scanning for new leadership to replace those holdings.  While most of our non–stock allocations haven’t changed, we have eliminated several positions and plan to upgrade them to new holdings once the selling ends.   

Again, it is our goal to keep each sleeve fully invested up to its target allocation but there is the flexibility to make adjustments as conditions warrant and new leadership emerges.   

What’s in Your Wallet? 

To borrow from the Capital One credit card ad, it’s important to know where your money is invested.  We look at 401k and outside account statement every day now.  Most have the same market exposure which from our view is far too heavy in stocks (75-80{1de7caaf0b891e8de3ff5bef940389bb3ad66cfa642e6e11bdb96925e6e15654} stock funds).    What we don’t usually see are portfolios that have durability as described above.  Building in that durability can and should happen at any time.  We can help you build it yourself or do it for you in our All Season strategy.   

Let us help you. 

 

Sam Jones 

What Does Risk Management Look Like When Markets Fail?

I used to watch a lot of Star Trek in my teen days. Maybe it was an escape of sorts; To go where no man has gone before!   Captain Kirk was awesome. Occasionally, the starship Enterprise would get hammered by alien “torpedoes” and Kirk would just take it in stride, bouncing around in his captain’s chair for a minute, no emotion, no screaming, no fear. Finally, he would calmly say, “Scotty, damage report please”. This morning I asked our own Scotty (John Burkholder) to run a performance report on our investment strategies from the top of the market 2/14 through yesterday’s close which should serve as a very short-term bottom. I was pleased to see our risk controls working quite well during the market’s mini-crash of the last 7 trading days.

Risk Management in Real-Time

These are the unofficial results of our various investment strategies from 2/14 through the close of 2/25 (yesterday). This is just a quick look at performance using a sampling of real accounts over the last 11 days. The point is to show you what a risk-managed investment strategy does when the markets experience rounds of high volatility. The big unanswerable question is how far will the market fall from here. Is this the bottom of this correction or is it the beginning of our next bear market? I can honestly make a case either way and many can. But I won’t because our system follows the evidence and eliminates guessing (aka gambling). Anyway, here are the results of our investment strategies (in Green) versus various market indices (in Red)

As always, investors make judgments based on what they think will happen to some degree in the future. These assessments are murky, and they only get more unclear as we try to guess into the distant future. We can also look backward at current trends to help guide our allocations but again, if we look too far back, we can find our judgment is skewed. Beyond trends, we can look at valuations as a guide as well. From this perspective, we can do some reasonable forecasting. As we have said many times in the last few months, the US stock and bond markets will not produce the types of returns we have seen in the past (from here). We are projecting less than 4{1de7caaf0b891e8de3ff5bef940389bb3ad66cfa642e6e11bdb96925e6e15654} total returns for a portfolio of US stock and US bonds in any combination for the next 3-5 years. That number may be high in the end. This is how you will survive and thrive in the next market cycle.

• Smart investors will fully embrace risk management now and avoid the temptation to chase yesterday’s winners like large-cap technology stocks.
• Smart investors will build and manage an unconventional portfolio that includes trading strategies, alternatives, commodities (like gold and silver), income streams, and growth, both domestic and international.
• Smart investors will dynamically allocate assets according to current trends.
• Smart investors will pay attention to their current income, spending behavior versus current assets always returns, and real inflation to stay solvent and cash flow positive.

We work with our clients to make them “Smart” investors.

Thank you, Scotty!   Back to fighting the aliens.

 

Captain Sam Jones

As the firm celebrates its 25th year in business, I wanted to talk about the new set of investment strategies that we launched in the fourth quarter of 2018.   

When coming up with new strategies we wanted to add complementary approaches to our arsenal, while sticking to our philosophy—Create Wealth. Defend It. The missive this week is a re-print of the announcement for our new Tailwind Equity strategy (see below), which has been running for a little over a year with our own corporate money. At the end of last year, several clients took advantage of investing in the strategy as well. The next window for client investment will be June 2020.   

We are encouraged by the early results and believe it could be a valuable addition to your asset allocation. While past performance is no guarantee of future results, Tailwind Equity has held up extremely well amidst the volatility last month.  

If you have an interest in Tailwind Equity or would like us to determine whether you might be a candidate, please reach out to us via email or phone. Some of you have already expressed interest. We will be reaching out to you over the next several months for the June 2020 investment period. 

As always, thank you for putting your trust in us! 

=====================================================================================  

** Reprint of our Tailwind Equity announcement from September 2019. 

Introduction 

Over the last several months, and at our last Solution Series, we introduced a new set of strategies that are designed to go after the higher returns of equities without as much risk. Dubbed, Tailwind Strategies, there are two approaches– one is Tailwind Equity; the other is Tailwind Blended Asset. 

I’m going to touch on Tailwind Equity in this letter. 

Why the name Tailwind Equity? This strategy is so named because the tailwind of not having to climb back from large draw-downs and managing investments more tax efficiently results in much higher wealth accumulation over time. Keeping taxes in check (long term vs. short term) is a critical component to compounding your money. 

Tailwind Equity is only for taxable money and for households with over $1mm to invest. These approaches should only represent one part of your portfolio. They aren’t designed to be your only exposure to the stock market. Just part of a diversified mix of strategies. The strategy will be run at a new custodian for us, Interactive Brokers, in a margin account (since there is leverage through the use of options). 

As always, we are looking to use our expertise—in this case, our vast experience in the options markets—to roll out new investment solutions that you can’t find elsewhere, or you can’t re-create on your own. 

Same Philosophy, Slightly Different Approach 

All Season Financial Advisors has always tried to deliver as close to market returns as possible with a smoother ride. Our Tailwind Equity strategy is another method of trying to earn stock market returns with lower volatility and smaller drawdowns. Over time—and especially over long stretches—equities have delivered higher returns than the bond market and cash. A long-term chart shows a gently sloped line traveling from left to right up the page. It all appears so easy.   

But real life doesn’t happen on a chart. Long time frames mask the volatility of achieving those passive returns. The angst that comes along with it is also absent from the page. 

We want to earn you higher returns, BUT we also want to take away some of your anxiety. 

So, we have structured Tailwind Equity to do just that. 

Let’s fill in some of the details. 

Here is what you would own in the Tailwind Equity strategy: 

1. A slate of stock ETFs with a focus on generating both dividends and growth. The core strategy holds 3-7 ETF’s for some diversification and yield.

2. An options collar against those holdings. What is a collar? It is a set of options positions that take out the large losses (and large gains) that come from the equity market. We are aiming to capture the middle. Our goal is to earn as close to a market return as possible with drawdowns inside 10% in any given year. We want to capture a larger share of the gains compared to the losses we would take in a down year.   

That’s it. Other than resetting the options and re-balancing the ETF’s (usually) once a year, we don’t really trade this model very much.   

This strategy is striving for tax efficiency. Because the risk management of the portfolio is happening through the option positions, we can hang on to the core holdings through all kinds of markets. In other words, there shouldn’t be any short-term gains on the dividend ETFs held in your portfolio. Plus, we set the options out a year, so any gains there would be long term in nature as well.   

We have put our money where our mouth is. We have been running the strategy in our corporate accounts since December 2018 and feel confident it could be a valuable addition to your portfolio mix. 

Making the Turn 

“Making the Turn” is our company name for any household typically falling in the age range of 61-70.  It’s an important time in life as households are 3-5 years either side of retirement.  This is a confusing and anxious transition along a lot of fronts. 

 Many questions come up. 

Do you have enough to retire and not outlive your money? 

What is a reasonable withdrawal rate against your savings and retirement accounts? 

When is the right time to take social security and how do you sign up for Medicare? 

While having to make all these decisions, our Making the Turn clients are also helping both elderly parents and adult children.  Business succession, vacation properties, etc. and planning for the future are all on the radar—at the same time!  We’re here to help.  

This blog is for YOU!  

The most important and popular question for those approaching retirement 

As we approach retirement, there is really one dominant question on everyone’s mind—do I have enough to retire?  It’s not an easy one to answer.  Furthermore, life continues to change even after retirement—bobbing and weaving, sometimes quite erratically.  Today, we highlight some of the issues, planning considerations, and current realities associated with this important question.  

Do I have enough to retire? 

While unpacking this primary and popular question, we must investigate the individual pieces of the puzzle first.  The real concern from retirees is about outliving your financial resources forcing you into some unsavory situation like moving in with adult children, not being able to afford basic healthcare, or living well below your desired standard of living. 

This is the stuff of night sweats. 

Retirement has a strange fantasy to it.  Many think that the event of retiring is like finishing a race.  It marks the end of a period of “work” and the beginning of the golden years when we reap what we sow, harvest the fruits of our labor, and reach the promised land.  For some that may be the case.  For most, I would advise another philosophical stance. 

Specifically, look at retirement as just another life transition where we need to make some decisions, make adjustments, measure results, and carry on.  Life will continue moving forward with changes and surprises along the way.  Financial planning software, like our new Advizr platform on Orion, is helpful for sure.  We can use it to paint a picture of the future, even to our projected death, making many assumptions about rates of return, inflation, spending (withdrawal rates), etc.  While we can view our net worth over time, nothing about life is static.  Returns change, inflation changes, costs rise, emergencies happen, and/or our spending changes. Just to name a few. 

Look at retirement as the time to spend more time—at least initially– measuring, planning, and projecting for your post-retirement years. Fail to plan, plan to fail, as they say. 

Necessary planning occurs both before AND after retirement. 

Let’s look at a few examples of how we determine an appropriate investment allocation against several different withdrawal rates.  Again, our goal here is to make sure that our investment allocations are appropriate to meet our withdrawal needs and avoid eating cat food in retirement. 

A big thanks to JP Morgan’s 2019 Guide to Retirement (which you can search and download for free) for providing several of the following graphics and data. 

First, let’s look at some realities regarding spending patterns pre and post-retirement factoring in some important inflation figures by spending category. 

As you can see, retirees spend more on healthcare, “other” (which is code word for eating out and trips), housing, and charitable giving than those in pre-retirement.  Now, look at the inflation rates in the lower table.  Inflation is disproportionately affecting older Americans based on their spending behavior!  

 

This is a planning moment.  For instance, as retirees, we need to plan to spend more on healthcare and expect that cost to rise at nearly 5{1de7caaf0b891e8de3ff5bef940389bb3ad66cfa642e6e11bdb96925e6e15654} annually.  The real number is closer to 10{1de7caaf0b891e8de3ff5bef940389bb3ad66cfa642e6e11bdb96925e6e15654} but who’s counting.   

Now let’s shift gears to withdrawal rates against a few theoretical portfolio allocation mixes of stocks and bonds.   

 

This illustration shows a theoretical net worth line of a household starting at $1M. 

On the left side, we see that a portfolio of 40{1de7caaf0b891e8de3ff5bef940389bb3ad66cfa642e6e11bdb96925e6e15654} stocks and 60{1de7caaf0b891e8de3ff5bef940389bb3ad66cfa642e6e11bdb96925e6e15654} bonds against a 4{1de7caaf0b891e8de3ff5bef940389bb3ad66cfa642e6e11bdb96925e6e15654} withdrawal rate will generally hold its value over a 30–year period (assumptions are made in this math).  The same portfolio with a 5{1de7caaf0b891e8de3ff5bef940389bb3ad66cfa642e6e11bdb96925e6e15654} annual withdrawal rate will almost deplete after 30 years and a 6{1de7caaf0b891e8de3ff5bef940389bb3ad66cfa642e6e11bdb96925e6e15654} rate goes to zero in year 25 (cat food at age 90 – yuck). Looking at the right side, if we can successfully keep our withdrawals to 4{1de7caaf0b891e8de3ff5bef940389bb3ad66cfa642e6e11bdb96925e6e15654} annually but never invest (100{1de7caaf0b891e8de3ff5bef940389bb3ad66cfa642e6e11bdb96925e6e15654} cash) we can also run out of money too early.   

But there are some amazing assumptions built in here that I must call out.  This analysis assumes that a 40{1de7caaf0b891e8de3ff5bef940389bb3ad66cfa642e6e11bdb96925e6e15654} (stock)/60{1de7caaf0b891e8de3ff5bef940389bb3ad66cfa642e6e11bdb96925e6e15654} (bond) portfolio will produce 6{1de7caaf0b891e8de3ff5bef940389bb3ad66cfa642e6e11bdb96925e6e15654} average annual returns for the next 30 years in a virtuous straight line.  With high confidence, I will tell you that assumption is unlikely to happen.   

Based on the current setup, bonds will not likely produce more than 2{1de7caaf0b891e8de3ff5bef940389bb3ad66cfa642e6e11bdb96925e6e15654} annually and stocks are unlikely to generate more than 4{1de7caaf0b891e8de3ff5bef940389bb3ad66cfa642e6e11bdb96925e6e15654} annually from here until we experience a severe bear market.   

Any combination of US stocks and US bonds is likely to fall in the range of 2-4{1de7caaf0b891e8de3ff5bef940389bb3ad66cfa642e6e11bdb96925e6e15654} average annual returns.   6{1de7caaf0b891e8de3ff5bef940389bb3ad66cfa642e6e11bdb96925e6e15654} is no longer available from here given valuations and the current interest rate environment if you are only looking at stocks and bonds. 

I’ll pick on the US Treasury bond market for a minute to make a point. 

 

As of this week, the 10 year US Treasury bond is now offering negative interest net of inflation shown as the green line above.  This condition has happened in the past but only during periods of very high inflation or in the case of 2008 when the Fed dropped rates to zero following the real estate and stock market bust. 

Today, we have negative rates because, because, …. Ummmm because the economy is so strong?  Just kidding.  The economy is not strong, and inflation (red line) has been rising gradually since 2015 generating a negative net yield on Treasury bonds.      

Back to our analysis.  As a retiree, you might think of putting most of your net worth into the safety of US Treasury bonds as many do.  However, US bonds will produce nothing more than the current yield (1.51{1de7caaf0b891e8de3ff5bef940389bb3ad66cfa642e6e11bdb96925e6e15654} and falling) while inflation and your cost of living are rising above 2{1de7caaf0b891e8de3ff5bef940389bb3ad66cfa642e6e11bdb96925e6e15654} annually (that number is artificially low).  Remember, the analysis requires that we make 6{1de7caaf0b891e8de3ff5bef940389bb3ad66cfa642e6e11bdb96925e6e15654} on all assets in order to afford a 4-6{1de7caaf0b891e8de3ff5bef940389bb3ad66cfa642e6e11bdb96925e6e15654} withdrawal rate to cover our living expenses.  Like cash, a portfolio that is heavy in US bonds will not work.  Some are migrating more to US stocks in order to adapt to the current interest rate environment.   

That looks like a risky maneuver at this stage. 

US stocks are now in the 2nd most overvalued position in modern history.  Expected returns for US stocks are likely to fall to less than 4{1de7caaf0b891e8de3ff5bef940389bb3ad66cfa642e6e11bdb96925e6e15654} annualized for the next 5-7 years (or until we see our next bear market).  Again, literally any blend of US stocks and US bonds is not going to generate an adequate return.  

So, what is a retiree supposed to do?  I’m glad you asked. 

Introducing the Unconventional Portfolio 

There are many ways to continue making 6{1de7caaf0b891e8de3ff5bef940389bb3ad66cfa642e6e11bdb96925e6e15654} + average annual returns on your money but you’ll have to do things differently.  This is our forte as a firm.  This is that time and place when an experienced manager of your assets knows where to look to find growth in a marketplace that seemingly has no opportunity left. 

Here are a few examples: 

• International stocks specifically emerging markets and China (after the virus crisis) 
• Gold and silver – now 
• Hard asset investments like real estate – now 
• Oversold value sectors and value stocks – not yet in full swing but developing 
• Emerging market bonds – now 

• Trading strategies and alternatives – now 
• Hybrid options like preferred securities, mortgage REITS and convertible securities – now 

Our flagship All Season strategy, which has been in existence with real returns since the mid ’90s, has six investment sleeves.  All sleeves are currently filled, and we remain fully invested.  One of them is US stocks. Another is US bonds. But, there are four more that offer compelling growth opportunities with non-conventional drivers of returns. These various sleeves of investments have been engaged since early 2016. Over the last four years to date, the All Season Strategy has generated…. 6.03{1de7caaf0b891e8de3ff5bef940389bb3ad66cfa642e6e11bdb96925e6e15654} net of all fees with a fraction of the market’s risk! (please see our composite performance disclosures).  Clearly, the stock market has done better in absolute terms over this same time period.  But the real test will come in the next couple of years.   Our bet is that we’ll continue to generate consistent returns of this nature with an unconventional portfolio while the US stock market does not.  

Retirees are going to have to build and maintain an unconventional investment portfolio looking forward if they want to— or need to— generate returns that will enable a financially secure retirement. 

US stock/ bond blends are not going to cut it. 

Retirees obviously have other concerns and questions beyond – Do I Have Enough to Retire?  It’s a complicated and confusing time to be sure.  Hopefully, some of these ideas will help you dive into the issue with your eyes wide open.  We’ll cover other issues facing our Making the Turn client profile in future updates to help navigate these waters. 

We’re here to help.   

Cheers 

The All Season Financial Wealth Management Team 

As you may or may not know, All Season Financial Advisors is celebrating its 25th year in business.  

Even after 25 years, the company continues to evolve. As Sam alluded to in his letter, the company continues to add staff, technology, and new tools to offer you a more well-rounded wealth management experience. 

In that vein, I wanted to review one of our new tools today.  

It is called Riskalyze (www.riskalyze.com).  

This award-winning platform is designed to gather data to start assessing the risk tolerance of a certain individual. It accomplishes this feat through a series of questions surrounding gains and losses. We like their philosophy because it addresses the concept of potential losses (hard to envision in this market …). In other words, the questions don’t just focus on gains—i.e., how much do you want to make over the next 6 months—but, it also addresses how much would you be willing to lose.  

 

 

The goal is to quantify your risk tolerance in a 0 – 100-point scoring framework (what you would be willing to risk for a certain amount of gain). Zero means a willingness to take no risk, while 100 means you are willing to take a lot of risk. 

 

 

There is no “right” answer.  

This is not a final exam either. Your answers could change because your circumstance might change (job change, retirement, inheritance, etc.).  

It’s just a starting point.  

After getting your risk tolerance score (for example, my score was 55) we assess what All Season models we ought to use in your asset allocation. Each of our models has been scored according to the Riskalyze methodology which focuses on return, volatility, and drawdowns. Below is an example of how our Freeway High-Income model scores: 

  

 

A score of 22 indicates a lower risk which is about right since this model focuses on bonds.  

The goal is to combine lower risk models (Bonds) with higher risk strategies (Equity) to match your risk score. Our aim is to construct a more customized asset allocation for you that you can stick within good markets and bad.    

In the past, we’ve allocated assets based on Client Profiles https://allseasonfunds.com/getting-started/how-to-start which were geared towards age and life circumstances. With this tool, we are trying to get more refined inputting your overall portfolio together. We will still review your cash flow, retirement goals, other financial goals, etc. in determining your investment mix, but the risk tolerance score from Riskalyze will be added to our analysis.  

Over the next six months, we will be reaching out via email to have you fill out a Riskalyze questionnaire. It will arrive via email and take 5 minutes. We don’t expect a ton of changes in most cases, but we want to use this additional measurement to make sure we have you in a portfolio that will meet your financial goals and you can stick with.     

Please reach out with any questions that you may have.  

Thanks again for your confidence in us!  

What is Driving This Market?

I wish I could say it was a strong economy– or strong earnings– but I can’t.  Those who made our Solution Series last week in the Denver office got a chance to see and understand what’s really driving the US financial markets now.  We are finalizing the video edits to that presentation now and will deliver it to you all shortly.  But for this update, I’ll provide a sneak peek into this issue as it seemed to be the most captivating subject.

It’s Not Earnings

Let’s start with this simple fact.   Prices of stocks have a long history of moving in sync with the trend of corporate profits.  Despite that being the case, there are lengthy periods of time, when the two worlds become untethered.  This is one of those times.  Stock prices have been moving higher (albeit erratically) since 2016 without a commensurate rise in earnings.  We can forgive a quarter or two of such behavior, but nearly 4 years ….?

Now the keen market guru will notice several things from the chart above.  First, we notice the enormous current gap between the blue line (S&P 500 price index) versus the Red line which represents aggregate corporate profits (aka real operating earnings). You might also notice that in the last 30 years, this has happened before, and lasted for nearly 5 years.   It occurred during the run-up in stocks from 1995-2000.  The year 2000 proved to be the final top of an 18-year long bull market and for the next three years, prices fell BACK down toward the red corporate profits line.   Today’s market feels, looks, and is empirically in the same situation.  In fact, one could argue that corporate profits have really been very flat since 2012.  Stocks prices then were undervalued relative to profits, now they are extremely overvalued according to that scale.  We can only surmise two outcomes to the current situation.  Prices will work their way back to profits over the course of the next several years, or profits will rocket higher with prices staying steady. To our eye, the former seems far more likely than the latter, unfortunately.

It’s Not the Economy (stupid)

The Recession Watch Dashboard below, provided by Guggenheim, was also an eye-opener.  For as much as certain people would like to justify stock market gains in recent years to the strength in the economy, we are clearly still on the path to a recession that would formally present itself in the next 6-12 months.  The bond market is confirming a recession is not far away.  If not for the Fed sitting on short term rates like the 800lb gorilla that it is, we would likely see short term rates far above long term rates – a condition that undeniably leads to recession.  Will the Fed get off the scale?  Not while Trump is still in office.  Here’s a snapshot of the “dashboard”.  The blue lines are historical patterns in pre-recessionary environments.  The purple lines are the current conditions of all variables shown.   We’re obviously tracking very closely with historical precedents 6-9 months prior to a recession.

But It Is Financial Engineering!

Stocks are going higher (without the economy and without a rise in corporate profits) for one very large and very simple reason– financial engineering.  In plain-speak, this means prices are going up on the back of temporary and non-fundamental based drivers.    I’ll explain some of these factors in very basic terms.

Share Buybacks – There are things like corporate share buybacks, where a company decides to use borrowed money to buy back their own shares. If you think about it, companies are effectively reducing the supply of available stock that the public can purchase.  When a company is buying back its own shares, there are fewer outstanding shares to buy, right? Just like anything in economics, lower supply leads to higher prices—all else equal. Voila!

Low-Interest Rates– Companies have embarked on share buybacks in the past, but often in the final years of an aging bull market when board members can’t remember the days when their own company shares were down and out.  Just like all investors, corporations tend to buy back their own shares at highs, and in fact, they tend to issue more shares to the public at lows (effectively selling low).  The Federal Reserve and central banks around the world have artificially made money cheap to borrow with rates at nearly zero or even negative rates (I’ll pay you to lend you money!).  The Fed’s easy money policy has been the fuel for driving share buybacks.

Momentum – When prices go up, investors chase returns.  Take a look at the share price of Tesla (TSLA), if you need an example.   Higher prices lead to even higher prices.  Today, with the popularity of index funds and ETFs, every dollar that goes into the market is piling into the same few stocks that dominate those indexes.  And, these again, are the very same companies doing the largest amount of share buybacks.   This is the momentum trade of the decade with free money enabling share buybacks, driving investors into indexes, and ultimately, leading to more price appreciation from the same companies.  Momentum based stock markets are fun…. While they last… and then they are not fun…. At all.

The point of this entire update is to call out a few realities in today’s market, to provide some context and background.  Investors need to understand the risks they are taking by blindly owning a pool of stock indexes with a loose pinky promise to buy and hold.  Our Solution Series Investment Forecast showed clearly that there are some enormous understated and structurally problematic issues with today’s stock market.  We can’t and won’t say when it all ends as much as point to the obvious accumulation of categorical and unsustainable problems.

Again, we must reiterate that this is a critical time for all investors to make sure they have a risk mitigation system firmly in place.  Market declines are not events to be feared if an investor has a process and knows where they are going when times get tough.  This is what we do for our clients. 

Create Wealth – Protect It

We hope you enjoy the entire video of last week’s Solutions Series coming soon.

PS:  Our deepest condolences to Kris Dickey’s entire family.   Kris lost her mother over the weekend and will be out of the office this week.  Please allow us a little more time to serve you in her absence.  Thank you.

Sincerely,

Sam Jones

President, All Season Financial Advisors

Who is a Builder? 

“The Builder” is our company name for any household that typically falls in the age range of 40-60.  Typically, these households are in their highest earning years and are focused on building assets as they approach retirement, helping to pay for educational costs, early support for aging parents, and accumulating wealth.  Tax efficiency is important to this group of high-income earners as well as adequate insurance and early structuring of estate plans.  The Builder is on a plan and working hard to stick to it.  The Builder likes the idea of vacation homes, personal health, wellness, and enjoying experiences with growing family.  They might also be considering a second career.  There is a growth orientation to Builder investments but an equal interest in capital protection understanding they have a lot more to lose now and many who depend on them financially. 

This blog is for YOU! 

The Real Reasons Most Households Don’t Have Enough Saved for Retirement 

For any who browse financial media regularly, it’s hard to go a day without seeing one of those scary stats about how little Americans have saved for Retirement.  We all get a little nauseous either thinking about the future societal implications of under-saving generations or even admitting that we are part of that statistic.  But rarely do the financial media actually address the source of the problem or offer effective solutions for those who are still at an age where they can transform and alter their own end game.  Let’s dive in. 

The Problem 

I’ll structure this blog post as a Source and a Solution, effectively identifying the real causes and solutions to not having saved enough for retirement.  First, let’s look at some ugly data.  I say ugly because we know several things.  We know that people live a long time now, like well into your late 80’s and 90’s.  Many many people in our country are going to outlive their current net worth.   Looking at the chart below, I am most concerned about the 50-59 age group.  86{1de7caaf0b891e8de3ff5bef940389bb3ad66cfa642e6e11bdb96925e6e15654} of this age group has less than $500k in total assets saved.  For some living on very little, that might be fine.  It all depends on your lifestyle.  But a full 53{1de7caaf0b891e8de3ff5bef940389bb3ad66cfa642e6e11bdb96925e6e15654} have less than $100k saved.  That is not enough by a long shot.  This is the group that is fast approaching retirement.  Those in retirement age 60-69 are not much better off if you look at the numbers.  We also know that living costs in retirement are not really that much different than the few years prior to retirement.   Finally, we know that the cost of living is going up (I don’t care what the Fed tells us about No inflation).  So this is a problem.  If Niall Ferguson is right in his book “The Ascent of Money”, our aging country may be entering the final phase of empire in which the general population becomes highly dependent on its own government for its livelihood and basic survival.  Warren, Sanders, Universal Basic Income, free healthcare, free education?  Maybe we shouldn’t be surprised at the popularity of these folks and ideas.   

Realities of current savings by age group.  

  

Ok, here we go… 

Source of the Problem:  Not Saving Enough   

Ha, of course, that’s the source of the problem of not having enough saved.  We don’t save enough!  But let’s dig deeper into that and identify WHY we don’t save enough.  The real answer is that we’re human beings with precious egos and we tend to protect ourselves by providing excuses.  Let me give you a few examples.  

1. I don’t make enough money to save 

2. I’ll don’t have time to save now, I’ll do it later because I’m only (x years old). 

3. Everything costs too much and I don’t have anything left over … to save for my future. 

Indeed, these are real emotions that we either verbalize to others or say to ourselves.  Our egos want to blame external situations or conditions for our own shortcomings.  Saving is hard, saving a lot is even harder but I will tell you that the hardest thing ever is to save when you have no income (aka retired).    

Solution:  Engage with planning, measuring, budgeting, controlling costs, controlling spending, and creating some discipline in your financial life.  Do it while you’re young! 

I will say this flatly with a 100{1de7caaf0b891e8de3ff5bef940389bb3ad66cfa642e6e11bdb96925e6e15654} guarantee.  Everyone can save.  Everyone.  I would also argue that to various degrees, Income and personal expenses are also under your control.   The first steps are really about planning.  If you want to control something, start by measuring it first.  In this case, we measure all sources of current and potential income.  We also measure and categorize all expenses into fixed and variable types.  Soon, you will find the reason why saving seems so difficult.  Most households need to add a huge dose of discipline in their spending habits.  This is true for low- and high-income earners.  Inherent to this is all the not so fun realities of deferring self–indulgence, saying no, maintaining something before buying new, buying used, and all the stuff that falls into the box of self–sacrifice. It’s hard, especially when you don’t have much income but even that much more necessary.  I will also say that the whole project is much easier if you have someone in your corner (planner, spouse, friend) who is holding you accountable or better yet doing it with you.  I hired a personal weight trainer way back when I lived in the city. I wanted to get strong.  I fired him 30 days later because he was too easy (on me).  I wasn’t going to get stronger anytime soon.  Our in-house financial planner, Lauren Sigman CFP is tough, but in a nice way.  I’ve seen her put households onto healthy and sustainable financial tracks with spending, debt, asset restructuring changes, and help solve very complex financial issues.   Engaging with a good financial planner is a great step. 

Source of the Problem:  Carrying too much cash over time 

We see this a lot.  Saving is happening, but most of these savings go directly into a bank, CD, or money market of some sort.  We have our own cash proxy strategy called Holding Tank for those who are in transition, need money in the short term, or waiting for a good buying opportunity in one of our investment strategies.  We use T-bills here paying a little over 1.5{1de7caaf0b891e8de3ff5bef940389bb3ad66cfa642e6e11bdb96925e6e15654} but I’ll say that’s about the highest interest rate you’ll find in the risk-free, liquid cash market these days.  Saving to any cash instrument offers a risk-free return but also eliminates any opportunity to make a return that beats real inflation (2-4{1de7caaf0b891e8de3ff5bef940389bb3ad66cfa642e6e11bdb96925e6e15654}) or gets you where you want to be financially.  No risk, no return, check.  There are many emotional reasons why investors save to bank accounts instead of saving to an investment account.  Here are a few: 

1. I want to have cash in case something happens 

2. I don’t have much confidence in… the markets, politics, economy, etc. 

3. I don’t know what to invest in 

4. I usually add money to my investments at the worst possible times 

The reasoning here is largely fear-based. 

Solution: You need a system to identify when to add money to productive investments AND a system to manage downside risk through all market conditions. 

Unlike, most in our industry, we have a dual mandate – Create AND protect wealth.  This is a system and a process that allocates investment capital to markets based on trends, leadership, and our Net Exposure model.  When conditions are not favorable, we reduce our exposure to the stock market and increase our exposure to the bond market for instance.  Our system inherently gives our investors confidence to save to their investments, rather than a bank, because we handle the timing, confusion, and fear–based arguments.  Even if you added money to your investments at exactly the wrong time, a well-executed system would limit any losses to something tolerable.  But when you add money at a great time, your “system” will have you fully invested, and you’ll see those savings yield a very healthy return.  So, timing matters, but it’s almost more important to have an investment system that adjusts your exposure and follows trends appropriately.  Fear is a natural part of putting your money to work but a solid process behind your investment strategy should make that problem go away. 

Source of the Problem: Piling on to a Non-Diversified Portfolio of investments 

Again, we’re talking about reasons why investors ultimately do not have enough saved or accumulated for retirement.  The real problem here is that investor portfolios experience a bias and strong lean toward the asset classes that perform best and lose critical diversification in the process.  It’s very natural and tends to be most extreme at the long bull markets in stocks.  Today, the stock market is 11 years off the 2009 bear market lows.  That’s a long time and investors have long forgotten that bear markets happen (40-50{1de7caaf0b891e8de3ff5bef940389bb3ad66cfa642e6e11bdb96925e6e15654} declines), or that stocks can go down for more than a few days or weeks.  During these long bull markets, investor portfolios gravitate toward a massive overweight position in stocks (in this example) while their exposure to the diversified assets classes like bonds, commodities, or real estate investments almost dries up.  These are the reasons why portfolios get badly out of balance. 

1. Investors find reasons to add only to their stock holdings based on past performance 

2. Investors rarely rebalance their portfolios from stocks to bonds or other asset classes 

3. Investors experience some risk tolerance shifting convincing themselves that they can handle more risk than they should.  When real sustained risk doesn’t seem possible (in stocks), it’s easy to justify. 

In the end, as we are seeing in full-color today, investors have way too much stock in their portfolios, are not allocated properly to bonds or non-correlated holdings, and will very likely sell only after they feel the pain of not being properly diversified.  Savers find that they make a lot of money on the way up and then lose more than they expect on the way down.  Returns through a full cycle can be negative over a long period of time.  We saw this happen in the early 2000’s when the dot com bubble burst or again in 2007 when the real estate bubble burst.   Not having enough saved for retirement is often a function of being wildly imbalanced in your investment portfolio including hard assets like real estate at the wrong times. 

Solution: Need a System or Process to maintain a balanced and diversified portfolio or regularly adjust your portfolio according to market trends. 

A system or process to keep your portfolio structured properly is again critically important.  If you are a passive investor, hoping to own a set diversified mix of investments across multiple asset classes (stocks, bonds, international, commodities, etc.), you must rebalance your mix at a minimum of once per year.  There are challenges beyond just rebalancing your portfolio.  You will need to accept the realities that returns for some of your diversified holdings can be very poor for a very long time.  Commodities for instance have generated a negative annualized loss of -13{1de7caaf0b891e8de3ff5bef940389bb3ad66cfa642e6e11bdb96925e6e15654} since July of 2008.  That’s a very long time of negative returns for some portion of your “diversified” portfolio.  It’s hard to own commodities after such abysmal performance but a passive diversified portfolio would need to carry this position over time, even adding to it.  The same would hold true for international investments, especially emerging markets in the last seven years.   

Alternatively, you might choose, as we do, to underweight and overweight your asset classes based on current strength and weakness, you must remain diligent in your daily assessments and make changes as needed on a very timely basis.  This is called dynamic asset allocation.  For instance, commodities have not been part of our dynamic asset allocation mix for years because the trends are down.  When the trend turns up, we will be ready to allocate assets there.  A dynamic approach gives an investor the latitude to overweight productive investments but it’s a lot of work and generally not a good idea for the armchair investor. 

Meet Regularly with Your Financial Professional and Avoid Fear 

As always, a regular check-up with your financial advisor is a great way to keep tabs on your situation, make sure you are following a well-defined process, make sure you are saving enough to your investments (not just a bank) and regularly measure your mix of assets and exposures to the market.  We work closely with our clients to make sure they have the right mix of our investment strategies but also to measure their cash flow, debt, income, savings, expenses, liabilities, etc.  These are the important sessions that help you avoid the risk of outliving your money.  Managing your investments and your net worth should not be an exercise in fear.  Personally, when I see the current numbers behind retirement savings across most age groups, I fear that many have not done the regular work to get where they need to be financially.   

Sam Jones 

President, All Season Financial Advisors, Inc. 

At some point in time, investors ask themselves this tough question. It’s understandable considering how much emotional currency we place on our own perceived success or failure with investing. Did I have a good year with my investment? Tough question. Relative to what? The markets? My own goals or design of my portfolio? My expectations? What my friends say? What CNBC says? No wonder, we all feel that sense of anxiety about how we’re doing and whether we should change investment strategies. There are clear answers to these questions for mature investors who understand markets and themselves. Let’s dive in.

What do we mean by investment strategies?

In our shop, we actually tag our individual investment portfolios as “Strategies” because that’s what they are. Each offers our clients a different approach or driver of return among the available market of securities. Some are focused on stock only strategies, others are bond or income only, others are diversified blends. Others might define a “strategy” as a passive approach, effectively buying and holding a blend of free-to-own index funds. Different investors might stick with a more active “strategy” like traders, stock pickers, or those who dynamically allocate their investments depending on market conditions.

The Rules for Strategy Changes

1. Never, Never, Never

…. Chase returns. Without a doubt, this is the most common, most frequent, and most devastating type of strategy change that I see among investors. The drive to chase returns comes from our very human, emotional need to be all that we can be and associate with winners, not losers. I’ve heard investors ask why a diversified portfolio of bonds is not keeping up with a single stock like Google or Netflix? The “strategy” change for the return chaser is the moment when the investor finally capitulates and sells all things that have underperformed and then compounds the error by putting the proceeds into things that have already experienced enormous gains. We call this selling low and buying high, the number one error in behavioral economics. Rarely does this type of change work out for the chaser.

2. Change strategies as your life changes, not because of market expectations

• Again, we would urge every investor to build the right portfolio of investments and appropriate asset allocation based on the financial status and emotional temperament of you and where you are in your life. Variables that influence your portfolio construction are as follows:
• Your risk capacity – how much volatility can you handle (really)
• Your income versus debt – How much can you save every month?
• Your current wealth and assets – more than you need or living hand to mouth?
• Your age or time horizon – Are you living off your accounts now or don’t need the money for 20 years?
• Life Transitions – Retirement, inheritance, divorce, and death

These are the big ones, and these are the only inputs that you should consider in your current investment “strategy”. When a 75-year-old, retiree comes to me and says, I want to be more aggressive after a year like 2019 and asks what changes we should make? I ask a common question in response;

What has changed in your life that would allow you to become more aggressive now?

I would pose the same question to any and all really. What life change have you experienced that suggests a strategy change is in order. Of course, life does change, and we do have good reason to increase our risk and return prospects like a new high paying job, or you just received an inheritance. At other times, we have good life reasons to cut our risk exposure, like you are retiring, getting divorced, or planning to make a big purchase soon. But, let’s be clear that one of those reasons for strategy changes is not because the markets went up big or down big. Those are past events that are out of your control and we don’t know the future.

3. Changing your investment strategy (approach/method) according to markets

Now I’m going to get into hot water. The financial planning world would fry me for saying this, but I think there is a legitimate time and place to adjust your approach to investing based on observable market conditions. I chose my words very carefully with that sentence so please pay attention.

When I’m talking about your approach to investing in this context, I am referring to your method and process, or effectively your “strategy” to investing rather than your current portfolio of holdings per se. There are many ways to skin the cat in the investing world but let’s just focus for now on the passive versus the active approaches as different strategies. Is there a time and place to switch between a passive approach (buying and holding a mix of indexes through all market conditions) and a more active approach (dynamically shifting assets according to market conditions, leadership, risks, and opportunities)? My answer is YES! Shots fired! But we can only make such a strategy change based on observable conditions that might justify such a change.

What are the observable market conditions? Glad you asked.

Observable means data-driven, empirical, or evidence-based. We cannot allow ourselves to speculate here about what might be. We must only look at what is. One observable condition that might justify a move between passive and active strategies is the current valuation of the stock market. Is the market cheap or expensive by historical standards? This is an observable bit of information with very solid historical precedent and outcomes to help us make this judgment. When the US stock market is cheap, after lengthy periods of price deterioration (aka bear markets) and earnings are beginning to rise, we can empirically observe that downside risk is limited, and upside return potential is wide. During these periods, we would want to adopt a passive buy and hold index approach with some portion of our money, perhaps a lot of our portfolio, as these are the best environments for low-cost indexing.

Now, the opposite is also true which is what we observe in today’s market conditions.

 Today’s stock market is now either the 2nd or 3rd most overvalued stock market of all time including the years just prior to the last two bear markets and the Great Depression. 

Wise investors will observe this condition and consider more active strategies that allow for selection and risk mitigation to help avoid losses. It is impossible for me to say when the current bull market in stocks will end, but we can observe with perfect clarity that stocks in the aggregate are now wildly overbought and in most cased overvalued for their current state of earnings. 2019 was an explosive year for stock prices but corporate earnings continue to fall month over month, quarter after quarter. Share prices are rising on the back of financial engineering (share buybacks) and multiple expansion (prices just go up without earnings). My bias is going to show through here. Active management strategies have the best chance of putting your money in the right asset classes, stocks, sectors or countries that still offer value while avoiding those segments that are almost insanely priced. When you own an index, you mostly own the overpriced stuff as most indices are driven by stocks with the highest market capitalization (S&P 500) or price (the Dow). Active strategies will lag any passive index approach in a year like 2019 but they will outperform in years when prices fall. So, there is a solid case to be made right here and right now, to consider a strategy shift from a passive strategy to an active strategy.

We are specialists in active, risk-managed and tax-efficient strategies

This is what we do, and we have a long 25-year history of success. This is not our first rodeo. I expect exactly no one to call us right now and consider a shift from a passive index approach to an active strategy but this is the time to do it with plenty of observable market evidence to back that claim. We are here to guide our clients within our managed accounts but also to help non-clients work through tough decisions. Should you make a strategy change? Call us to discuss your personal situation.

Following these rules will dictate your success or failure as an investor

Following the rules, we outlined above takes a lot of discipline, emotional strength, and a healthy amount of market experience. Inexperienced investors just make the same mistakes repeatedly yielding big wins and losses, ultimately buying high, selling low, and repeating this devasting cycle over and over again. Those who have the discipline to make strategy changes only when it’s appropriate can do quite well, preserve their capital during tough markets, make consistent returns year over year, retire earlier than they thought and enjoy spending time with family, friends, etc. instead of fretting about their portfolios.

Just a gentle reminder to any and all

 

Sam Jones

Three Days to Get These Done 

My desk is full of “to-do” lists.  As I crossed off my final item, I thought I would share these with you all while we still have 3 business days left in the year, the decade, to help with your personal finances.  The point of these “to-dos” is simple.  It about exercising our financial discipline, saving for our future, and reducing our taxes.  Today, I see far too many folks out there looking for a quick buck, a short cut, or a fast track to financial independence.  There is no such thing. There are other things you can do right up until the tax deadline, but these must be done before the year-end.  This is going to a brief update with the intention of pushing you to get these done.  I’m not going to go into all the details of income limits, amounts, etc. because I think it’s important that everyone works to improve their financial literacy.  You can find a ton of information with simple google searches and we’re happy to help in person, but I’ll provide links to some good information below for your researching pleasure. 

Max Out Your Active Retirement Plan Contributions: 

This is obvious advice and seldom followed.  We know the average good American over the age of 60 has a total of $56,000 in retirement assets.  I won’t comment on what that means because you already know, and it would make me sound callous and insensitive.   

Active retirement plans are those available through your work, like the typical 401k, Roth 401k, Solo 401k, etc.  These elective contributions must be made by the year-end.  If you have the means, you can send your entire last paycheck to your 401k in order to increase your contribution up to the max. 

Here is a link to the Motley Fool which covers all the details of what you can and can’t do for 2019 

https://www.fool.com/retirement/what-are-the-2019-401k-contribution-limits.aspx 

 Make Those 529 Contributions: 

529 plans are state-sponsored education plans that function on a calendar year basis.  Contributions are deductible against state income taxes if made to the state plan of the contributor. Gains and principal grow tax-FREE if used for education.    I live in Colorado, so I contribute to the Colorado plan in order to get a dollar for dollar deduction against my CO state income tax.  Contribution limits are not complex but there are some rules from the venerable Nerd Wallet. 

https://www.nerdwallet.com/blog/investing/529-plan-rules/ 

This year, we did not have any really oversold market opportunities to issue our “Calling All Cars” instructions to add new money to 529 plans.  At this point, we would recommend just making the annual contribution to the plan and either invest it according to your current allocation or just send it to cash and wait for a healthy discount in 2020,  because we will have a healthy discount in 2020.  Please contact us if you would like our 529 plan investment strategy guide. 

Health Savings Account Contributions: 

Most have probably already done this for 2019, and maybe even spent the money in the plan on healthcare-related expenses.  We would strongly recommend the following with regards to HSA plans, again if you have the means and the cash flow to do it.  Make the annual contribution to your HSA plan. 

Here’s a good Kiplinger article with the details and rules 

https://www.kiplinger.com/article/insurance/T027-C001-S003-health-savings-account-limits-for-2019.html 

The dollars inside your HSA plans should remain invested in the plan until you are much older and have much higher healthcare bills.  HSA accounts are the least used or talked about the venue for triple tax benefits.  Let me explain.  First, the contribution goes into the plan on a deductible basis against your Federal Income taxes.  Second, you can invest these dollars inside the plan.  Third, these investment gains over time are tax-free if used for any healthcare purpose.  It’s like a deductible Roth IRA for health care.  The trick is to pay for out of pocket healthcare expenses with money out of your pocket, rather than drain your HSA every year.  Think of it as a healthcare retirement plan.  Get er done! 

 Last one 

Roth IRA Conversions must be done by 12/31: 

If you plan to convert any IRA money to a Roth, it must be done by the end of each calendar year.  Most people miss this one because IRA contributions can be made for the current year, right up to the tax filing deadline (April 15th of the next year).  Conversion rules are tricky and situational, and you can find the details here. 

https://www.goodfinancialcents.com/roth-ira-conversion-tax-rules/ 

I do like the “backdoor “ Roth IRA contribution trick for those who have incomes that disallow direct Roth IRA contributions.  While the backdoor is still open, let’s use it. 

https://www.nerdwallet.com/blog/investing/backdoor-roth-ira-high-income-how-to-guide/ 

It takes a bit of work but this is about your future.  Most households do very little of this.  Most households in our country don’t have enough for retirement, college or to cover their healthcare-related expenses.   Do what you can do to help yourself. 

We have an enormous pile of announcements coming as we roll into the new year.  Our company is turning an important corner and we’re excited to finally make these changes public.  Get ready, get set… 

I hope everyone is enjoying the holidays with friends and family this season.  We are always grateful to our many clients for their loyalty and trust over the years.  It’s been an incredible 25-year ride (hint) and we’re excited to serve you in the years to come.   

Cheers 

Sam Jones – President, All Season Financial Advisors, Inc. 

Unconventional Thinking – Future Return Expectations 

We are going to break our rules a bit with this update and do some forecasting as we head toward the end of the decade.  We’ll highlight some good evidence suggesting that the winners of the last decade (or two) are not likely to be the winners of the next decade.  60/ 40 investors should read this carefully as there are some dire looking outcomes for this widely held stock/ bond blend.  Today, we are seeing the potential next generation of leadership in sectors and asset classes develop.  As we cross into the next decade, it may be just that time. 

Beware of Consensus 

Sean Powers, our Managing Director sent these charts to me this week.  They are worth your time.  This chart showing the top ten holdings among different generations was created recently by Schwab who looked through some absurd number of portfolios by age to come up with these findings.  Their message was directed in a different direction pointing to the fact that Millennials own the same things compared to Gen X or the “Ok Boomer” Generation.  There are obviously a few differences but not many.  This survey was done considering individual stock holdings only, not complete portfolios which include index funds and ETFs to be clear.   

I found this shocking not because one generation owned the same things as another but rather than all three generations owned a very similar list of top ten names.  Clearly these have been the big winners of the last decade since the market bottomed in 2009, ten years ago.  Did everyone have the foresight to know these would be the winners a decade later?  Did they all buy in 2009 at the lows?  Of course not.  Most investors chase returns in a wild frenzy of bad behavior, meaning they probably bought these names in the last 12-24 months because the past returns of these same names were so large (most cases).  Note- Alibaba (BABA) only went public in 2014.  Millennials were still in their teens in 2009.  Anyway, for a variety of reasons, this list of top ten has become the consensus portfolio.  Now let’s look at past periods where EVERYONE owns the same set of securities.  I’ve been managing money long enough to have witnessed each of these personally. 

  

This chart of consensus holdings was provided by B of A Global Research, not Schwab, further validating that everyone does indeed own the same top ten list of stocks now.  At the bottom of the chart, you can see that future returns for Benchmarks, closely connected to these portfolios, have not been very good on a 2 year look forward.  I’ve said many times in the last year that the current market has many similarities to the year 2000 in terms of concentrated Technology names dominating the markets.  Indeed, Microsoft is again on the list today as it was in 2000.    

I ran my own stats on the 2000 list and discovered that an equally weighted portfolio of those holdings peaked in September of 2000, lost 42{1de7caaf0b891e8de3ff5bef940389bb3ad66cfa642e6e11bdb96925e6e15654} at its worst, and never made a new high until January of 2011, 2,845 market days later (11.29 years).  

Not so good.   

The pattern of these top ten consensus stock lists losing substantially and not recovering for years is well worn.  Again, this occurs when everyone piles into the same names as they are doing now.  Strangely, the turn in fortunes seems to coincide with a new decade.  Tick Tock 

Looking forward 

Here’s a little more shameless forecasting.  I ran the average annual performance numbers for stocks, bonds, and commodities, over the last 20 years to date, using the S&P 500, Pimco Total Return bond fund, and the Commodities CRB total return index relatively as proxies.  These numbers include all income and dividends on a total return basis. 

 These are the returns from 9/1/2000 to present: 

Stocks (SPY)+5.81{1de7caaf0b891e8de3ff5bef940389bb3ad66cfa642e6e11bdb96925e6e15654} 

Bonds (Pimco Bond)+5.72{1de7caaf0b891e8de3ff5bef940389bb3ad66cfa642e6e11bdb96925e6e15654} 

Commodities (CRB)+1.16{1de7caaf0b891e8de3ff5bef940389bb3ad66cfa642e6e11bdb96925e6e15654} 

 Here’s my shameless forecast for the next decade, while being as unspecific as possible.  Stocks will not earn anything close to 6{1de7caaf0b891e8de3ff5bef940389bb3ad66cfa642e6e11bdb96925e6e15654}, probably closer to 3-4{1de7caaf0b891e8de3ff5bef940389bb3ad66cfa642e6e11bdb96925e6e15654}.  Bond total returns will taper to 2-3{1de7caaf0b891e8de3ff5bef940389bb3ad66cfa642e6e11bdb96925e6e15654} and commodities will generate high single-digit returns 7-9{1de7caaf0b891e8de3ff5bef940389bb3ad66cfa642e6e11bdb96925e6e15654}.  These are wildly different returns than you see above or of those generated historically.  Investors don’t own much in the way of commodities.  In fact, ownership of commodities is at a historical low speaking of consensus.   Expected returns for stocks and bonds are now lower in the next decade than they have been in the past. 

Meanwhile, today, we are seeing pieces of the commodities complex like Gold and Silver starting new bull markets (+17{1de7caaf0b891e8de3ff5bef940389bb3ad66cfa642e6e11bdb96925e6e15654} average returns for the last two years).  They are the early warning indicators that inflation is coming.  Now energy looks to be putting on a bottom and energy represents over 50{1de7caaf0b891e8de3ff5bef940389bb3ad66cfa642e6e11bdb96925e6e15654} of the commodities index world.  No one would be so foolish as to own energy, oil, gas, or energy services right?  We bought all this week. Industrial metals like copper have started new long term uptrends.  We took a few positions in base metals this week. Agriculture and soft commodities are not yet in gear but looking constructive.   

Meanwhile, stocks and bonds are tired, tired, tired.  Investors owning the classic 60{1de7caaf0b891e8de3ff5bef940389bb3ad66cfa642e6e11bdb96925e6e15654} stock/ 40{1de7caaf0b891e8de3ff5bef940389bb3ad66cfa642e6e11bdb96925e6e15654} bond portfolio might do some math.  Your portfolio in aggregate is not likely to make 4{1de7caaf0b891e8de3ff5bef940389bb3ad66cfa642e6e11bdb96925e6e15654}, probably closer to 3{1de7caaf0b891e8de3ff5bef940389bb3ad66cfa642e6e11bdb96925e6e15654} and it will take a lot of Ant–acid to earn it. 

In short, we believe investors should be prepared to think and act unconventionally as we move into the next decade.  Yesterday’s winners could easily become tomorrow’s losers on a long term basis, same for asset class returns.   

Getting to Why 

As a reminder for all our clients and regular readers, we like to reiterate WHY we do what we do.  Why do we manage risk?  Why do we seek stable compounding returns rather than higher volatility return streams? Why do we look for unconventional places to invest and avoid consensus portfolios?  

The answer is that Life is Short!   

Very few investors have the time or financial anchoring to lose great portions of your net worth in a bear market and wait for years just to get back to even.  Compounded positive returns in all markets should be every investors’ singular goal because there is nothing that beats that.  Buffett understands this basic principle and he is the best that ever lived. Life is Short, don’t blow it by chasing yesterday’s winners. 

There will be more rubbing of the crystal in the near future.  Stay tuned 

 

Sam Jones