From: Dale Beals <email@example.com>Subject: My thoughts on the markets…Date: October 9, 2010 10:07:23 AM CDT
To help you stay well-informed, I thought I’d send along a recap of the key events that influenced U.S. and global financial markets during this past week.
Feel free to e-mail or call me after you’ve had a chance to review it.http://www.mfs.com/wirMy Own Thoughts…A few months ago, I suggested that the doomsayers and the wild optimists might both be frustrated for awhile and the market might just bounce up and down in a sideways range for several months. That scenario played out exactly. Just a short time ago, we were told that September was historically the worst month for the market, and we were in for big trouble. Everyone who believed that history would repeat sold in August and Sep 2010 turned out to be very good for those with a disciplined approach (or those who were lucky).In fact, the US stock markets broke upward out of the range they traded in over the last few months during September, although we still haven’t matched the highs of earlier this year. Now what?I expect more sideways, up and down trading ahead, with some big moves related to the upcoming elections. I could be wrong, but I’ll be surprised if stock go straight up from here. Short term equity market moves seem to be dominated by investor emotion, while the longer trends seem to relate to expected profits over time. The elections will affect how investors feel short-term and their perception of future market opportunities long term. Look out for a bumpy ride.Cautions:1. Don’t chase gold by over-allocating to the precious metal because of how it has done over the last 10 years.2. Don’t give up on equities and load up on bonds because bonds have done so well over the last 5 years. Remember the last 3 quarters of 2009. Very few (including me) predicted that rebound in stocks.3. Don’t stay trapped in a “strategic” asset allocation that someone recommended at some time in the past. Markets change. Rebalancing to a specific allocation without looking at how markets (and risks) have changed can be dangerous. Just look at 2008. A “safe” 50% stock/ 50% bond allocation got hammered when markets changed.4. Don’t fall for those who say that because they have smart people, they can predict the future and therefore make you a lot of money (either by picking stocks or by picking asset classes). Many brilliant hedge fund managers have suffered this year in 2010 making those types of bets. I had a subpar first quarter this year because I bet against big US banks.5. Don’t fall for sales pitches that would have you buy some fund or manger based on a stunning track record. Often that record is too good for anyone to achieve consistently over time. There aren’t many Warren Buffetts, and he has some pretty big advantages.Recommendation:Stay disciplined. Stay diversified. Stay flexible. Stay with an advisor or asset manager who is in constant communication with you and who spends more time thinking about your account risk-adjusted performance, as it relates to your life, than about getting their next client.Please call me at 615-414-1942 with any questions or comments.Best Regards,
From: Dale Beals <firstname.lastname@example.org>Subject: Dale’s Market Commentary 🙂Date: July 27, 2010 6:59:45 PM CDT
Hi everyone,As you know, I don’t write many market commentaries, since there are many good ones out there, but I thought it would be useful to step back from the last month or two and take a look at the big picture.Back in April, 2010, all was well and any stock market pessimist was booed offstage, or off CNBC, or anywhere else for that matter. Then, after a nasty market drop in May and June, the New York Times featured an interview with Robert Prechter, a man who has been foretelling doom since the late ’90s. “Everyone” wondered if he could finally be right. Now, at the end of July, the Dow Jones and the S&P500 have come all the way back to break-even for the year, and everyone is congratulating themselves on how well the European banks passed their easy “stress” tests.There is a lesson in here for all of us… actually several lessons.1. Permanent Bulls and Permanent Bears are both right, eventually… just like a stopped clock is right twice a day.2. Public sentiment about the market is usually greatly influenced by the media reporting of the recent past, and therefore is often wrong… especially when everyone seems to agree.3. There is plenty of bad news still out there waiting to be blamed for the next market pullback; and there is plenty of positive news still out there to be credited with the next market rally, but you should not believe the causative links market commentators propose. (stocks rose because of good earnings, or stocks fell because of credit woes)4. There will be many industry experts who will have amnesia and claim they called the recent tops and bottoms, even when you can google what they actually said for yourself.When times appear uncertain, people look to those who claim to have the answers, even if they don’t have a great track record. Even now, some boldly predict a big rally up from here. Others equally boldly predict that the bottom will fall out of the market any day.I will not claim to know the future myself, but I will ask the question: “What if the market just meanders up and down in an 8-10% range for awhile and frustrates all the market timers and buy-and-holders? Or, what if the market does go to the moon from here?Either way, we’ll be OK. Our methodology for asset allocation and risk management (finally completed in January 2010) handled the 2nd quarter roller-coaster quite well (up, down, and sideways), and if we stick to a disciplined approach,we will continue to be OK.For those of you who are not my clients today, I would appreciate the chance to provide you a portfolio analysis and review. I believe my investment methodology is better and less costly than any you may be using today. I recently contracted with Morningstar to provide portfolio performance reporting and research services. You might be surprised at how my portfolios compare to yours when looking at advanced portfolio metrics like Sharpe ratios. You might even be more surprised at how much less expensive our portfolios are for the same general portfolio profile.Finally, let me express my deepest gratitude to my existing clients for the fact that Dale Beals Financial Wisdom LLC just celebrated its first anniversary in June, and we are doing well.Please call with any questions or comments.Best Regards,Dale
From: Dale Beals <email@example.com>Subject: Today’s market insanity … what I did and why…Date: May 6, 2010 4:20:24 PM CDT
Dear clients and friends. After returning from a client lunch appointment today, I saw that the US stock markets had gone from -1% (before lunch) to -4% in just an hour or two. Then the market went into free fall and I decided to begin selling most of your stocks in case this was a 1987-style one day crash (that day was -25%). There was a point when many equity or commodity markets were down 7% or more before we found a bottom for today.The good news is that because we were well diversified, the Gold, IEF and TLT, and the TIPS (US Treasuries) were all sharply higher as people fled from stocks, so your accounts did not suffer anywhere near the market losses. I’ll get you interim balances over the next few days, but just wanted you not to worry. Our proprietary asset allocation methodology worked very well today against the unexpected.The bad news is that the US stock markets finished “only” down -3.2% or so, so some of the securities we sold finished today at higher prices than where we sold (of course nobody knows where they will open tomorrow morning). One promise I made you when you became my clients, is that I would not let you take big losses if I could possibly help it, so I made a “safety first” decision today. If the market goes straight up from here, we will have missed an opportunity, but I prefer to play it safe when dealing with your money. Hey, just think about those who never heard from their traditional brokers or advisors today. Even if those brokers wanted to act for their clients, they would have been restrained by regulations because they don’t have discretionary authority to act quickly on your behalf. Also, those brokers do not have the same fiduciary responsibility to their clients that I have to mine.Now for the future. I’ve never seen a day like the last few followed immediately by a happy return to normal. A spike in volatility usually produces more volatility. While the press may blame a “trader error” or a “technical pullback” for the selloff today, they can’t explain the last week’s decline like that, nor can they explain why so many people were sitting with their “hand on the button” to sell. People are getting scared, and I expect more volatility.Many of these scared people are professional mutual fund and hedge fund money managers. Even though many professionals have been uneasy, they felt like they “had to” stay invested as long as the markets were going up, or risk losing clients who feared “falling behind” or “missing an opportunity”. We could even see another big down day in the next 2-3 days.Whatever happens, I’m going to take the increased market volatility into consideration when rebalancing your accounts after I have a day or two to reflect on the markets.Safety first.Thanks for your trust,Dale
From: Dale Beals <firstname.lastname@example.org>Subject: Just a quick update on my thinking … please call with any questionsDate: February 3, 2010 7:16:09 PM CST
Dear Clients,First, thanks for hanging in there with me when I was so timid from September on. The dip I was concerned about finally arrived, and I was able to dollar-cost average some money into the market this Monday morning, Feb 1 at a good time. Last Friday and Monday, the S&P 500 was back down around the levels from last September and October…. Amazing how the market can give back several months of gains in less than 2 weeks.I don’t know if there is more downside after the bounce of Monday and Tuesday. If the market goes lower after today, I’ll plan on more downside and may hedge a little. Either way, the plan remains the same…. dollar-cost-average into the market, based on our models, at the rate of 10-20% more each month.For those of you who are watching your holdings and comparing to the Asset Allocation Sheets from Appendix A of your Investment Strategy documents,I’m going to use EWJ – the ETF for Japan’s Nikkei index instead of EFA – the ETF for Europe’s developed markets, for the non-US developed markets.I’m going to use GAZ – the ETF for US Natural Gas instead of USO – the ETF for US Oil as part of the allocation in the Satellite portfolio.You may also notice the symbol UUP – the ETF that tracks the movement of the US Dollar against a basket of other currencies. Right now, believe it or not, the US $ has begun an uptrend which we will opportunistically follow until it ends.Don’t put too much stock in what they say on CNBC every day about why the market went up (or down). What years of study have shown me is that every day there is plenty of bad news and there is plenty of good news about the markets or the economy. If the markets go down, then the pundits link that to fear of unemployment, or fear the stimulus will stop… or any of the bad news of the day. Their reasons may have nothing to do with what actually tipped the scales.Similarly, when the market is up, the pundits will say “Intel had great earnings” or “Manufacturing index rose over 50.0”. They don’t know what really tipped the scales any more than you and I. They are like sportscasters who have to keep talking about the action, so folks will stay interested and keep watching their commercials. Making investment decisions on what pundits say is extremely hazardous to your savings.What does matter, and what can be used, is an understanding of the emotion or sentiment of the “Big” investors and the “Little” investors. Like you and me, our overall view causes us to filter the news and focus more on the good news or the bad news, depending on how we feel. The “Big” investors are not immune to this, but they are aware of it and try to compensate. The “Little” investors are usually wrong when they all agree.That is why asset diversification is so critical. That is why allocation of your money to each asset class, based on its volatility and direction is so key to managing risks. That’s why a steady discipline has kept us from big losses during the 2008 crash.Let’s look at our scenarios again:1. Inflation, leading to higher interest rates and devaluation of the dollar.2. Recovery, where we keep reasonable interest rates and gradually return to prosperity.3. Recession / Depression, where economies turn down and stock markets drop.A month ago the inflation and recovery scenarios were about even, and the recession/depression scenario was in 3rd place.Now, in my view Inflation and Recession are tied in 1st, with Recovery in third.I’ll keep watching and positioning with an eye to 1. Risk Management, 2. Disciplined asset allocation, 3. Averaging back into the market, and 4. Opportunistic trades when I think reward outweighs risk.I appreciate each of you so much.Thanks for everything.Dale
From: Dale Beals <email@example.com>Subject: Strategy for entering the marketDate: January 19, 2010 10:13:46 AM CST
Dear Clients,As you know, I’ve been viewing the market with much skepticism for the last half of 2009. If you haven’t done so, please take a look at the email comparing the S&P 500 over the last 3 years with the Justin Mamis diagram of market sentiment-driven cycles. That will show you why I’ve been concerned.But, it’s time to fish. So, you will see me invest around 10-20% of your portfolio each month, thus dollar cost averaging into the market during 2010. If we have a big drop, we’ll take advantage of that through dollar cost averaging. If the market keeps going straight up, we’ll have some money invested.If you have any questions, please give me a call.Dale
From: Dale Beals Financial Wisdom
Subject: Seasons Greetings
Date: December 17, 2009
Dear Clients and Friends,
From: Dale BEALS Financial Wisdom LLC <firstname.lastname@example.org>Subject: Fwd: bloomberg articleDate: November 18, 2009 4:02:54 PM CST
Dear client and friends,I thought you would enjoy the attached article from Bloomberg Magazine talking about the changes in the financial industry. Investors are leaving traditional banks and brokerages in droves for independent Registered Investment Advisors…. like us!Thanks,Dale
As you know, we use Morningstar to produce our client performance reports. Until now, you needed to remember a separate web address to reach the web portal for a look at your current portfolios. You also needed to store performance reports as you received them for later reference.
No longer. Now, just go to www.portfoliowisdom.com and look at the menu line across the top of the page. At the left is a link directly to the Morningstar web site. From now on, your performance reports will be available there also, archived for your convenience and later reference.
Thanks again for your business.
For the life of me, the markets seem to be holding their collective breath. I really do not believe that anyone who really knows what happens behind the scenes is going to say anything on the news. So, I advise you to ignore most of what we are seeing and hearing on CNBC and Bloomberg. I doubt that any market movement is truly attributable to the after-the-fact “causes” and “reasons” they give each day for why the market went up or down.
We continue to be very cautious, currently holding a lot of cash, which we will move gently in to the market between now and year-end, unless one of these fiscal problems explodes.
You may notice some other posts to our web site. I’m creating a free section of the web site called portfolio wisdom to help individual investors who do not have financial advisors. I’m actually going to make available a limited but very useful version of the methodology to anyone who wants to learn from it. So, those posts you see may not apply to you, but if you have friends who need help with their 401k’s or IRA’s, send them our way.