February 26, 2020
The one certainty in equity investments is that if held long-term, they have never failed to provide a great return. Problems come and go but, inevitably, higher long-term corporate earnings push equity prices upward. Note the Ibbotson chart below for evidence. Look at the way our equity markets have ALWAYS climbed a wall of worry. Two steps forward one step back, three steps forward one step back. Note also that U.S. stocks, despite normal setbacks, significantly outperform, bonds, cash holdings and CD’s and international stocks.
The market’s past two days of declines were clearly an emotional overaction. They were driven by Coronavirus fears, elections result fears, and business slow down fear in general. Fear! Fear is a precursor to terrible decision making and here at Spectrum Financial Alliance we learned to leave fear out of your investment equation a long time ago. When we manage your precious investment funds, you’re depending on us to make appropriate and correct decisions. We know that fear-based reactions increase investment losses and have never, in my 33 years of experience, added one dime to our client’s net worth. The investment herds may run over that cliff – but not our valued clients. The Centers for Disease Control and Prevention (CDC) has established conclusively that Coronavirus transmission is tied to temperature and humidity and the warmer it gets the less of a threat Coronavirus transmission becomes. Folks, we’re almost done with winter and it’s getting warmer! This too will pass! Election fears are based on the irrational view that a socialist by the name of Bernie Sanders could be elected and throw our capitalist economy into decades of turmoil, negative growth, and pure taxation hell. It is our considered opinion that this outcome is theoretically impossible. When the American people spoke in 2016 by electing a pragmatic leader, with little or no political bias but conservative, faith-based views, they spoke loudly. Since that time 3+ years of incredible economic and social progress has taken place. We are in the strongest economy, not only in our lifetimes, but that I have ever studied throughout economic U.S. history. The momentum of that economy is high, and it can easily withstand the irrational fears discussed above. We are of the opinion that the Trump administration will continue into a second term (the electoral college helps assure this) which will allow the policies in place now to be continued and grow in strength at an even higher rate. The U.S. is, once again, the economic engine of the world. It drives what happens globally. This means that our economy’s strong growth will translate to Europe, Asia, etc. to help increase economic prosperity in those countries.
Fear in 2018
Huge down days occurred in December 2018 and they were based on what our firm asserted then were “irrational fears” of yield curve inversion. From December 1st, 2018 to December 24th, 2018 the S&P 500 was down -14.82%. However, the market pundits were wrong, and our firm was right! If we had left the equity markets after the market closed on December 24th, 2018 you would’ve lost more than 32.69% upside move since that date (data as if 2:04PM EST February 26, 2020). This is the reason we hold high quality positions, buy (if possible) on market dips with any available cash, and never allow fear of a short-term decline to interfere with your long-term investment plan. When do we allow declines to influence our thinking? When the evidence suggests that the economy is in recession, then we will eliminate the intermediate and long-term affects of that recession by strong hedging and high moves to cash. That is not the case now.
Coronavirus vs. Common Flu
Coronavirus is driving most of the market’s downside move at this point. According to the Centers for Disease Control and Prevention there are more than 80,000 cases of Coronavirus worldwide and at least 2,708 deaths worldwide as of February 25, 2020. Let’s contrast this with the CDC’s statistics on the common flu. The common flu, according to the CDC, normally sees between 9 and 45 million cases just in the U.S. each year! It results in approximately 12,000 to 61,000 deaths per year just in the U.S.! This puts it all into perspective. Yes, there can be some business interruption that could cause short-term declines but no, those fears should not continue and should, in fact, evaporate fairly rapidly. Every day is another day closer to spring, higher temperatures, and brings the relief that will allow our markets to return to normalcy. In closing, there have never, to my knowledge and experience, been any investors that, long-term or intermediate term, made money by running in and out of the market based on a fear-based reactions. But there are many, millions of investors, who by setting their investment course and maintaining it and utilizing our firms investment expertise, have retired comfortably, enjoyed a much higher lifestyle than those who reacted in a fear-based way, and had the opportunity to enjoy their families and leave a legacy. I’m asking you to please consider everything we’ve said above and understand it’s the culmination of 50 years of personal investment and 33 years of professional investment done at a successful level. We don’t stay in markets because we have to. We stay in markets because we should! Onward and Upward!
C.Kelly Buckley, MBA, CFP®
Managing Director for Asset Management
*All client performance data is calculated by Morningstar, Inc. and reported net of all client costs. Morningstar, Inc. is an independent company that provides investment research and data validation.
All performance results shown are net of Spectrum’s management fees, which vary from 0.9% – 1.50% per annum (as disclosed in Spectrum’s Form ADV Part 2). Fees may be negotiable based on many factors including potential referrals, relationship to a current Spectrum client, future likely additions to the account, etc. The performance results also reflect the reinvestment of any dividends, capital gains, other earnings, and the subtraction of applicable fees. Spectrum does not make any representation that client accounts will or are likely to achieve returns similar to those shown above. Clients and/or prospective clients should understand that PAST PERFORMANCE MAY NOT BE INDICATIVE OF FUTURE RESULTS. For additional information about Spectrum Financial Alliance, including fees and services, send us a request for our disclosure statement of Form ADV Part 2 or it can be found on our website free of charge at https://spectrumalliance.com/. Please read the disclosure statement carefully before you invest or send money.