From: Dale Beals <email@example.com>Subject: UpdateDate: August 1, 2011 11:26:33 AM CDT
Well, surprise, surprise… the announcement of a “deal” between the President and the leaders of both parties only boosted the markets for about 30 minutes after today’s opening trades in the stock market. By about 10:00 AM Eastern, the stock markets were flat and now they are down more than 1.5%. Equity markets have now fallen approximately 4-5% since we moved almost all positions to cash last week.So, for the younger, growth-oriented clients, I am investing about half of the cash back into our growth model portfolio. You have plenty of time to ride out an additional dip, and, if there is a sudden upward reversal, you will benefit by being partially invested.I am waiting for further developments for the older and/or more conservative clients who would normally be invested in the Conservative, Balanced Conservative, or Balanced Model.As I’ve said before, my primary goal is to avoid big losses in your accounts. Over time, I’m very confident that our methodology will make money so, if we avoid big losses, we’ll hopefully be like the turtle that beat the hare.Please let me know if you have any questions.Dale
From: Dale Beals <firstname.lastname@example.org>Subject: We’re getting out for awhileDate: July 27, 2011 11:34:54 AM CDT
Hi everyone,We’ve had some nice gains since the beginning of July, and we’ve done well vs. the S&P500 since the beginning of April.However…The U.S. debt ceiling discussion in the news is a situation that I can’t properly assess for risk to your savings. It certainly does not have a precedent that I can go back to, in my judgement. I have watched interviews with some very smart people who I respect and, underneath the fancy words, they don’t seem to know what will happen, or even what would result from different scenarios like an increase in the debt ceiling followed by a downgrade of the US bond rating (AAA) from the rating companies.I believe most of what we see is political theater which will lead to a last second compromise followed by a relief rally in the equity and bond markets. If that occurs, we’ll miss the initial rally.However, there is a small probability that there will not be a compromise and that the debt ceiling will not be raised. That small probability entails potentially huge risk, since the United States is at the center of the very complex global financial system. In this case, there could be a really big sell-off of both bonds and stocks around the world as people react to the disappointment and uncertainty this would cause. Diversification would probably not protect you much in that scenario.I’ve always managed your money with the philosophy of eliminating or mitigating the worst case scenario so, even though the probability of a default or a downgrade seems small, the potential consequences to your life savings are too big to risk, in my professional judgement.So, I’m moving almost all accounts to cash for a while. Some kids accounts and mutual fund holdings in small accounts will remain as they are. We’ll go back to the normal investment models when I perceive that the dust has settled.Please feel free to call with any questions or comments.Thanks for your trust and your business,Dale
From: Dale Beals <email@example.com>Subject: Fwd: Your question about bond principal lossesDate: June 22, 2011 11:48:07 AM CDT
Dear clients and friends. Near the end of April, I cautioned everyone that we might be due for a period of sideways movement or even a bear market in stocks. The timing was a little lucky, but I’ll take full credit! Only time will tell if this pullback is minor or major, but I continue to recommend you keep an eye on your overall portfolio risk.The real reason for this email is that I had a great question from a client about bonds in a rising interest rate environment, so I thought I’d share my answer to him with you.Best Regards,DaleDear C——-,One of the most difficult things for folks following the conventional wisdom is to get past the fear of bonds in a rising interest rate environment. So, your question is a very good one. I thought a picture might be worth a thousand words, so I plotted the percent changes in price in IEF ( the 7-10 year US Treasuries) versus the change in value of the Balanced Model portfolio over the years from 12/31/2003 – 6/2/2011.Intuitively, you would think that, since a “big” percentage of the portfolio is in bonds, the portfolio is vulnerable if bonds take a tumble. However, only 4 of the 12 asset classes are in the bond category, and the financial risk is balanced equally across the 12 asset classes (remember risk is measured by volatility). Therefore, the movement of the overall portfolio is not necessarily driven by the movement in the bonds, as the graph below clearly shows. To my eye, there is no apparent consistent correlation between how the US Treasuries move (up or down) and how the overall portfolio moves. Look closely at periods where Treasuries rapidly dropped or rallied … and see how the overall portfolio performed.Why does this happen this way? Because the different asset classes are not all correlated… they don’t move together, except in times of great fear or great optimism. During those times, when the overall volatility of the entire portfolio increases, the methodology keeps a lid on risk by raising cash from all asset classes. During “normal” times, when only bonds become very “risky”, the methodology reduces bond exposure and moves the money to other, less “risky” asset classes. In a sense, we don’t care if we suffer losses in bonds (or any other asset class) over a short period, as long as the other asset classes are not all going down at the same time.I hope this helps with your question.Just a closing thought… when you actually apply the math and look at the real data, conventional wisdom is wrong a surprising amount of the time.Thanks,Dale
From: Dale Beals <firstname.lastname@example.org>Subject: The MarketsDate: April 25, 2011 10:09:03 AM CDT
Hi Everyone,I just finished reading an interesting book on the financial markets… “Super Boom” by Jeffrey Hirsch. As many of you know, I like to read a lot, and like to get the perspectives of people who have very diverse opinions… from wildly optimistic to predicting doomsday. This author, Jeffrey A Hirsch, was slightly on the negative side short-term and very positive long-term. Here are some interesting facts from his book:The Average Bull Market (Dow Jones Industrial Average going up) since 1900 has lasted 755 days and moved up 85.7%.Our current Bull Market, which began on March 9, 2009 has moved up approximately 91% (on the Dow) and lasted 774 days or so as of this morning.The last three Bull Markets ran for 501 days (starting 8/31/98), 179 days (starting 9/21/01) and 1826 days (starting 10/9/02), so there is a lot of variation, especially after big stimulus by the Federal Reserve.The Average Bear Market (Dow Jones Industrial Average going down) has lasted 410 days and dropped -31.5%. Keep in mind that if you have a -31.5% drop you need a 41.9% gain to break even.Don’t be surprised if we level out or even have a bear market beginning in the next few weeks. We’ve learned that sometimes stocks don’t need an obvious reason to go up… or to go down at any specific time. We’ve also seen long periods when the U.S. economy did well but stocks did poorly, and vice versa. So, be prepared for more volatility.Can we make money in a Bear Market? Yes. How? By being diversified among multiple asset classes and managing our risk. However, risk management is key, because there will be periods when investment accounts drop.Accordingly, I recommend you review your portfolio risk in the light of your financial situation and investment goals, considering how comfortable you would be with your current portfolio if the stock markets take a dip.Please call if you have any questions. Also, please know that I would really enjoy just getting caught up with you on your life in general. Feel free to call me at 615-414-1942.Best Regards,Dale
From: Dale Beals <email@example.com>Subject: UpdateDate: February 7, 2011 10:20:07 AM CSTSeveral things have changed my view for the better…1. Egypt seems to be settling down.2. The stock markets are today trading at new highs, overcoming the resistance of the last couple of weeks.3. The state financial troubles would seem to primarily affect municipal bonds and, perhaps other bonds, but not the stock markets right now.4. My models have flipped back toward stocks and real assets and away from bonds.While some things I perceive as problems still haven’t changed, the market psychology stays positive.So, today, I am going back to normal allocation for the younger and more aggressive clients. I will wait awhile longer for the retired and more conservative clients.Thanks again,Dale
From: Dale Beals <firstname.lastname@example.org>Subject: Market Thoughts and your portfolioDate: February 3, 2011 10:21:03 AM CST
I just wanted you to know that I have essentially moved to cash for awhile to see how the markets absorb the global news as well as the potential municipal bond crisis. I believe the risk outweighs the probable profit opportunities for the next few days or even the rest of February. As you know, my view can change, but I wanted you to know what my thoughts are.Here are my reasons:1. My portfolio model (see the web site for more info) has been giving me many conflicting signals during the month of January. We have received an overweight (or buy) signal only to have the model immediately reverse itself several times in January.2. Egypt’s unrest could spread to other Arab countries and eventually disrupt the flow of oil and the normal flow of global business… hurting corporate profits which could then cause stocks to fall.3. The U.S budget issues combined with our rapid approach to our spending/debt ceiling will probably cause a lot of politicking and possibly change the psychology of the market participants.4. Several U.S States are in big financial trouble, and there are rumors that Congress may pass legislation allowing states to default on their debts in some fashion, thus affecting business profits and affecting those who bought state and local bonds.On the other hand, the stock and commodity markets have recently powered higher in spite of all the bad news out there, due to Bernanke and his gang, and that might possibly continue.So, I’ll begin moving back in when the risks seem balanced by the opportunities… especially for the younger clients who are still working. It may take a little longer to get back into things for the retired clients…. I’ll be calling you to chat about your individual situation soon.ALSO, you should have recently received a Quarterly Report from Scottrade and/ or Interactive Brokers. Several people have been confused by those reports, so please call me if you have any questions. I’ll be happy to sit down with you and review them line by line and show how they reconcile to the Morningstar reports I send you each Quarter.Thanks again for your relationship.Dale
From: Dale Beals <email@example.com>Subject: Hedges coming offDate: November 4, 2010 3:53:14 PM CDT
Hey everyone… yesterday’s move by the Fed started a tidal wave today that may run for awhile… good for stock holders… so this morning, when it was clear the market would be strong, I removed most of the hedges, which reduce both up and down movement in portfolios. Unless there’s a big reversal, I plan to remove the rest of the hedges by the end of next week.Then we’ll be back to your normal portfolio allocation. Those of you who watch the markets closely may realize how close we came to another “flash crash” yesterday. Initially, just after the Fed announcement, the market went up, then plunged nearly 1.5% in 5-10 minutes before reversing in the next 30 minutes or so to eventually show a modest gain for the day. I was very happy the hedged were in place.Folks who don’t watch the markets closely may wonder why I’m so cautious around big events like the elections or this particular Fed announcement. The reason is that we are in uncharted skies as far as the financial markets are concerned. Autopilot is fine for flying in clear weather, but you want a pilot at the controls when the air gets turbulent. In a week, you may (hopefully) unbuckle your seat-belts and feel free to move about the cabin.Thanks for letting me serve you,Dale
From: Dale Beals <firstname.lastname@example.org>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 <email@example.com>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 <firstname.lastname@example.org>
Date: May 9, 2010 8:39:45 PM CDT
Just wanted you to know that I bought some (but not all) of the stock funds back on Friday that I sold on Thursday. My recollection is that all purchases were below the closing prices of Thursday (good for us), although some were still above the sale prices of Thursday. Why?
1. Methodology – the asset allocation discipline we follow is superior over the long run to anyone’s attempt (even mine… especially mine?) to outguess the market direction from week to week. Once I knew the immediate “crash” would not continue, there was no reason to continue overriding the methodology. I’m confident the methodology (and we) will handle a decline just fine, and make good money over the long run.
2. Stock Market/ Investor Behavior – Stocks rarely go in the same direction every day for very long. Since last week was so brutal, the probability is high for a bounce sometime early this week, especially if the Financial Leaders in Europe come up with a “solution” for the Greek debt crisis over the weekend. (Remember when the US Government announced the 1st and the 2nd bailout packages? There were always bounces, even if they were temporary.)
I want to emphasize my belief that we will make money over time by following a discipline, not by trading in and out of the markets. Thursday’s market behavior involved the biggest one day point drop in the history of the Dow Jones industrial average, so, it made sense to play it safer with your money until things stabilized somewhat. Volatility will probably continue… up as well as down… for a while, but our methodology compensates for that, and manages risk accordingly.
Thanks for your trust. I fully intend to profit from the expected market rushes of greed and fear by following our discipline.