| Never Leave the Game in the 8th | | Print | |
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Greetings,
Welcome to this month's issue of Financial Market Update. In this
issue, I'll tell why this is one of the greatest times to be invested. I
will also talk about the bond market's conflicting signals, and what that
might mean for you. Also, more in our recent series of articles about the
real estate market, that has been helpful to so many of you.
Never Leave the Game In The 8th
As a diehard sports fan, I don’t understand the crowds that pick up and leave a baseball game in the 7th or 8th inning. Some leave to avoid a little traffic, but I suspect some just give up, thinking their side will lose for sure. They certainly have never heard my wife say “the end of the game is the only part worth watching”. This reminds me of the current investment climate. Lots of folks are getting discouraged because of lackluster performance last year and so far this year too, in almost all stock indexes. With CD and T-bill rates inching back to respectability, people are tempted to “give up and go home”. But this is one of the absolute greatest times to be invested. The reason I say this is that the 4 year stock market cycle, sometimes called the Presidential cycle is approaching it’s normal bottom. At a market bottom successful investors should be welcoming the opportunity to buy low, right? Actually because buying low goes against human nature, most folks are so uncomfortable at market bottoms that they don’t recognize them for the golden opportunities they are. But investor psychology is the subject of another article.
There are several reasons for this 4 year cycle. First, Presidents try to
get the bad economic news out of the way early in their terms, so that by
the next Presidential election things are improving. Also, mid term politics
can get pretty nasty, and the mud slinging often causes investors to be
unwilling to invest because they are so unsure of what will become of
things. Everything else being the same, fewer buyers cause a market to
decline and mid term elections usually cause buyers to get hesitant.
Ignoring politics, the stock market gains from the low in the second year of a President’s term (this year) to the stock market high in year 3 (next year) have averaged more than 40% over the past 100 years. (source, Asset Management Research) This kind of return is well worth waiting for. The worse the market drops in the second year low the farther it tends to bounce back the next year. So, bad news this year translates into good news next year. It sounds wacky, but like many other things about my business the obvious is often wrong. This investing can be a crazy business! But the Wall Street trading firms know about this cycle too, and they often use their media connections and marketing muscle to make things sound worse than they are. Why? So there will be more sellers just when they want to be buying the most. Yep, they make a lot more money when 8th inning folks are bailing out. If more people get fearful and sell, that means Wall Street can buy more before share prices get pushed back up again. Never forget that most of those experts on the financial news channel work for someone who would like to own your money. For this reason, the financial media is filled with as much misinformation as good information. They will try to convince you that the financial sky is falling between now and the end of the year so that they can buy your investments at the cheapest possible price and sell them back to you next year after things have taken off again. Here at the firm, our fee-based Adaptive Strategies accounts are monitored on a daily basis and managed actively to try and be on the right side of these market changes. We are working to be in great position to buy low later this year and ride the strong wave into the third year of the Presidential cycle. If we don’t already actively manage your accounts, please call the office to discuss this exciting approach to investment management. 778-4000
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