Stock Market

View Item

Nightmare On Wall Street 

There is compelling evidence that the current secular bear market is still early in its course. This bear will have another decade or longer to run, unless there is a dramatic change in the inflation rate over the next few years that decreases P/E substantially. The preceding secular bull ended with the market valuation (P/E) at levels twice as high as all previous secular bulls. That meant that this secular bear had twice as much ground to cover. The last twelve and a half years have deflated the bubble, but the market still remains at levels consistent with secular bear starts.

View Item

Secular Stock Market P/E 

The preceding secular bull ended with the market valuation (P/E) at levels twice as high as all previous secular bulls. That meant that this secular bear had twice as much ground to cover. The last twelve and a half years have deflated the bubble, but the market still remains at levels consistent with secular bear starts.

View Item

The P/E Report 

There are numerous versions of the price/earnings ratio (“P/E”), yet there are very few of them that can be appropriately compared to the recognized long-term average of 15. The objectives of this report are to detail the current level of the P/E ratio, to answer frequent questions about it, and to address the status of the current stock market cycle.

The Report may be updated intra-quarter due to the significant changes in the stock market and the related impact on its previous comments.

View Item

Game Changer 

MARKET BEWARE SLOWER ECONOMIC GROWTH

There are numerous perspectives about future economic growth. The latest tally includes about 1.5 opinions per economist (reflecting economists’ penchant for the phrase “on the other hand”). Some economists are more optimistic, others more pessimistic, and more than a handful are on both sides of the fence. This article discusses the long-term implications for the stock market of slower growth. Whether your preferred economist advocates 2%, 1%, or 0% long-term growth, the outcome is similar in direction though varying in magnitude. The impact will lie somewhere between bad and worse. Historically, the prospect of slower economic growth had not often been considered by economists and analysts, but it is now mainstream thinking. The implications of slower growth on stock market returns would be dramatic for investors.

View Item

Stock Market Matrix 

Returns depend upon the starting and ending point. This series of charts presents the compounded annual returns for an investor that began investing during any start year since 1900 and ending with any subsequent year. The versions presented reflect those for taxpayers and for tax exempt or deferred investors, as well as returns on a nominal and real (after inflation) basis. The charts are scaled for printing on a single sheet of 11×17 paper or on two 8 1/2 x 11 pages for subsequent alignment. See the assumptions and legends for important details.

View Item

Secular Cycles Explained 

The long-term view of the stock market reflects extended periods of surge and stall. These periods, known as secular bull markets and secular bear markets are not optical illusions; rather they are extended periods when market valuations (i.e. price/earnings ratios: P/Es) are either multiplying the effect of rising earnings or mitigating them. Secular bull market periods have always started when P/Es were below average, and secular bear markets have never ended when P/Es were above average.

View Item

Secular Cycles 

The stock market has demonstrated longer-term secular bull and bear cycles. Secular cycles are extended periods with a common trend. In the stock market, these secular cycles are driven by trends in the P/E ratio. This chart presents the secular stock market cycles since 1900 based upon Crestmont’s research and analysis of P/E ratios, inflation, and other factors. The cycles correspond with peaks and troughs in P/E ratios, often over extended periods of years. The P/E ratio cycle corresponds with inflation rate cycles as they move toward and away from periods of price stability (low inflation). A version of the secular chart overlaid with detailed explanations of its key features is also available: Annotated Chart.

View Item

Living Through The Last Secular Bear 

In 1972, P/Es were almost 18, the market was approaching and exceeding new highs, volatility was low, and the market was in the first half of a secular bear market…what happened next is now history–if it happens again, it won’t surprise the old sages… This presentation is a self-explanatory look at the last secular bear market cycle and a similarly optimistic period during the first half of that cycle.

View Item

Secular Bear Example 

The swings during secular bear markets are much more dramatic than most investors realize… Although secular bull markets have similar swings, they are upward-sloping and often ignored. The last full secular bear market period delivered 16 years of annual changes; 343% cumulative peak-to-trough movements; thus over 21% per year…

View Item

This Secular Bear…So Far 

This secular bear began in 2000 and has lasted well more than a decade. The surges and falls are relatively consistent in both magnitude and duration to past secular bear market cycles. With valuation levels still relatively high, as measured by normalized P/E, this secular bear has quite a way to go.

View Item

Deja Vu 

History provides insights when observed in the appropriate perspective. The most recent secular cycle, a bull, ran from 1982 through 1999. It was preceded by a secular bear starting in 1965 and ending in 1981. The characteristics of each secular period are reflected in the general direction of the markets and the frequency of positive returns. As this presentation shows, secular bull periods have generally upward trending markets and predominately positive (green) annual returns. Secular bear periods are erratic and present a significant number of negative (red) annual returns. The net effect is substantially muted returns due to offsetting positive and negative years. So where are we today? The last secular bear cycle started when the P/E ratio was 23 and inflation was 2%. The current market conditions reflect the same vital signs. Deja Vu?

View Item

Groundhog Decade For Stocks 

Can anyone predict the future? Probably not, but it is possible to analyze the range of potential outcomes. A forecast is a prediction that does not allow for real world variances. They can be entertaining, yet rarely insightful. Every forecast begs questions about its assumptions. Invariably, most people disagree with enough components to discredit even a wise sage into a soothsayer.

An analysis takes a range of assumptions and lays out the realities that generally encompass almost all reasonable scenarios. Analysis frames the scope of potential outcomes and is less singularly biased than a simple forecast. Analysis provides the field for planning.

Groundhog decade summarizes some of the key messages of Probable Outcomes. Just as Bill Murray woke up to the same thing day after day in the movie ‘Groundhog Day,’ it’s likely that your outlook foretells a groundhog decade for the stock market that will repeat its near-breakeven returns from the past decade!

View Item

Waiting For Average 

The long-term average return from the stock market is 9.75%. As the elder baby boomers are now beginning to retire, they will be relying upon their investments and pensions for income. The youngest boomers have less than two decades to compound their savings into a retirement payload. Many boomers young and old—so to speak—have a vested interest in stock market returns for a secure retirement. So, from 2010, what length of time is needed to assure the long-term average return?

NEVER—investors from today will never achieve the long-term average return. Not in ten years, twenty years, fifty years, or the eighty-four years that represent the most recognized long-term average return.

View Item

Gazing at the Future 

The starting valuation matters! When P/Es start at relatively lower levels, higher returns follow–paying less yields more. When investors have P/Es that start higher, subsequent returns are lower. This graphical analysis presets the compounded returns that follow over the subsequent ten years based upon the starting P/E ratio. It’s compelling, primarily because it’s fundamental–starting valuations directly impact subsequent returns. From the current above-average valuations, below-average returns are likely to follow for the next decade or longer.

View Item

Components of Return 

There are only three components (excluding transaction costs and expenses) to the total return from the stock market: dividend yield, earnings growth, and the change in the level of valuation (P/E ratio). To assess the potential returns from stocks for the next decade, this analysis presents the total return and its components for every ten-year period since 1900.

View Item

Distorted Averages 

Investors only can spend compounded returns, not average returns. This chart presents the difference between average returns and compounded returns for investors. The two issues assessed are the impact of negative numbers and the impact of volatility, as measured by the variability within a sequence of returns. Both issues can devastate the actual returns realized by investors compared to the average. The first issue-negative numbers-is demonstrated by this example: an increase of +20% and a decrease of -20% may average zero, yet the net result is a loss regardless of the order in which they occur. The second dynamic-volatility-is illustrated by another example: the compounded return from three periods of 5% returns is greater than any other sequence that averages 5%.

View Item

Generation Returns 

Even an extended period of 20 years does not ensure positive cumulative returns in the stock market. Returns appear to be dependent upon the starting level of P/E ratios. When P/E’s are relatively high and above the average, investors’ returns over the subsequent 20 years have been below average or negative. When P/E’s are relatively low and below the average, investors’ returns have been above average and rewarding.

View Item

Must Be Present to Win (Or Lose?) 

Participants in our website have raised numerous times the appearance that the market’s gains are limited to a small number of days. It has raised questions about the value of trying to time the market. Although it is technically true that a few days provide the full year’s return, it is a bit misleading and seems to be a biased use of statistics. Since almost half of the days or weeks are positive (and thus half or so are negative), the majority offset each other. The result is that a few good days or few bad days ‘make’ the year. Of course, this completely ignores the fact that certain periods have favorable financial potential (secular bull markets) and certain periods have unfavorable financial potential (secular bear markets). The same logic that encourages investors to stay in the market seeking gains also subject them to the adversity of down markets.

View Item

Stock Market Yo-Yo 

Up today and down tomorrow. The stock market seems to be constantly reacting to good news and bad news….sometimes “because of” the news and other times “despite” the news. In this research, we explore the portion of days that the market is up compared to the number of days it is down. Over the past five decades, through secular cycles, decades, and individual years, the range of up-days versus down-days is relatively close to 50%. However, a few extra up-days generally make for a positive period. Interestingly, as the second page will show, the average net day (average up day offset by average down day) declines during positive return periods.

View Item

Shiller’s Shortfall 

Shiller’s shortfall is its strength. The shortfall relates to the results for 2003 from using the stock market index methodology employed by Professor Robert J. Shiller (Yale University; Irrational Exuberance) and many other sophisticated experts. The “index value” of the S&P 500 for each year is based upon the average daily index throughout the entire year rather than using only one point at year-end. The average of each day across the year better reflects the market level and change than a single point and is used by many financial market analysts. The strength of the methodology is that it mitigates the “single-point risks” of using one arbitrary value for each year (i.e. year-end); the average of all days across the year better reflects stock market’s level for that year. Although the annual return for the average index varies from the return using year-end indexes, the results over multi-year periods will be more accurate and valid by using the average index. As a result of the market movements and timing over the past two years, the average index reflects a decline for 2003 rather than the gains that occurred in the year-end values. Even though the index increased by +26% from December 2002 to December 2003, the average index for 2003 was -6% lower than 2002. The good news is that the lackluster 2004 will likely reflect a solid gain over 2003.

View Item

Financial Physics 

This presentation introduces the core “Financial Physics” model. The key factors include Real GDP, Inflation, Nominal GDP, Earnings Per Share (EPS), and P/E Ratio. Since Real GDP has been relatively constant over extended periods of time and all other factors are driven by inflation, a primary driver of the stock market is inflation-as it trends toward or away from price stability. Given the current state of low inflation and the likelihood of it either rising (inflation) or declining (deflation), P/E ratios are expected to generally decline for a number of years. As P/E ratios decline and EPS grows, the result will be another relatively non-directional secular bear market.

View Item

Crestmont’s Research: Putting It Together 

Guests and clients often ask for a succinct explanation about how to tie together the various elements of research and perspective that are presented within Crestmont’s website. This executive summary represents an initial draft toward explaining, through a series of steps, the relationships of some of the research. Several of the charts within this website are referenced.

View Item

Dissecting Returns 

Financial Physics presents the interconnected relationships between certain factors in the economy and the environment in the financial markets. This analysis dissects the components of Total Return and looks at the potential returns available for the rest of the decade. Without further, unsustainable increases in valuation (P/E ratios), returns will likely be less than the historical average. If inflation remains below the historical average (near 3.5%), economic growth (GDP) and earnings growth (EPS) also will be below historical average. Future returns from the stock market are likely to be muted if (1) inflation remains stable and earnings grow slowly or (2) if inflation increases and drives P/E ratios lower. Strong stock market returns over the rest of the decade only can occur if P/Es expand further against the laws of Financial Physics.

View Item

Nightmare On Wall Street 

There is compelling evidence that the current secular bear market is still early in its course. This bear will have another decade or longer to run, unless there is a dramatic change in the inflation rate over the next few years that decreases P/E substantially. The preceding secular bull ended with the market valuation (P/E) at levels twice as high as all previous secular bulls. That meant that this secular bear had twice as much ground to cover. The last twelve and a half years have deflated the bubble, but the market still remains at levels consistent with secular bear starts.

View Item

Secular Stock Market P/E 

The preceding secular bull ended with the market valuation (P/E) at levels twice as high as all previous secular bulls. That meant that this secular bear had twice as much ground to cover. The last twelve and a half years have deflated the bubble, but the market still remains at levels consistent with secular bear starts.

View Item

The P/E Report 

There are numerous versions of the price/earnings ratio (“P/E”), yet there are very few of them that can be appropriately compared to the recognized long-term average of 15. The objectives of this report are to detail the current level of the P/E ratio, to answer frequent questions about it, and to address the status of the current stock market cycle.

The Report may be updated intra-quarter due to the significant changes in the stock market and the related impact on its previous comments.

View Item

The Truth About P/Es 

There has been no greater factor to the variability of investors’ returns over decade-long periods than the impact of the trend in the market P/E ratio. History shows that the change in the market P/E ratio over a decade often doubles or halves investor returns. This article and its graphs explain P/E, explore its history, and detail its implications. An addendum titled “About Every Five Years…” has been added to discuss periodic distortions in the P/E ratio (including the significant distortion in 2006 and 2007).

View Item

P/E Ratios & Inflation 

Conventional stock market wisdom has promoted a fundamental relationship between P/E ratios and interest rates. It relied upon a key assumption that inflation was positive. As reflected in this chart, P/E ratios increase when the inflation rate trends toward price stability (near 1% inflation) and P/E ratios decline when the inflation rate trends away from price stability. The result is a “Y Curve” effect; where P/E decline into deflation despite low interest rates. This is consistent with the modern ‘dividend discount model’ since earnings and dividends would be expected to decline during deflation and therefore would result in lower valuations.

View Item

P/E Ratio vs. Dividend Yield 

The dividend yield of the stock market is relatively low by historical standards. Why? There are two reasons. Many studies present the first reason: corporations are paying a smaller percent of earnings in dividends. Historically, over the past century, the dividend payout ratio has averaged 35% to 60% of earnings. Today, the average payout ratio is near the low end of the range. The second reason, explored by this analysis, is that valuation directly affects dividend yields. As the price-to-earnings ratio (P/E) rises, the price-to-dividends ratio rises as well {thus lowering the dividend yield}. This presents another view of the market’s relatively high valuation.

View Item

Natural Pinnacle To P/Es 

Four reasonable inflation scenarios, a pragmatic analysis, and the standard Dividend Discount Model explain why there is a natural (rational) limit to Price/Earnings ratios in the stock market. These scenarios reinforce the empirical evidence graphically presented in the “Y Curve Effect.” Inflation leads its way through the credit markets into expected stock market returns. As well, inflation determines nominal growth in the economy, which in turn drives future earnings growth. The combination provides the essential variables to predict P/E ratios using the Dividend Discount Model. This analysis is complemented by “Financial Physics” and “The Yield Curve, The Fed, & P/Es.”

View Item

Siegel’s Shortfall 

Jeremy Siegel has criticized the validity of Robert Shiller’s version of the cyclically adjusted price/earnings ratio (aka CAPE and P/E10), especially following the earnings plunge in 2008.

While P/E & EPS may be distorted due to the 2008 earnings decline, the effect is no more than the offsetting distortion from the periods of above-average profits on both sides of 2008. Recent record profit margins, coupled with the high profit margins before 2008, have fully restored CAPE EPS back to its long-term trend line.

Siegel can now start planning his future criticism of P/E10, for 2015 to 2018, when the Shiller EPS will experience a hiccup as the 2006-2008 period leaves the ten-year average…

View Item

Converging on the Horizon 

Beware: there are two series of short-term trends that are converging on their limits. Stock market history and earnings cycle history are converging. As a result, the market was likely to be down for the year 2011 or 2012. The goals of this updated article are (1) to dispel the notion that P/E is low today and (2) to highlight the risks of a decline in 2013 or shortly thereafter.

View Item

Beyond The Horizon: Redux 2011 

Currently (May 2011), profit margins are cyclically high, near historical highs, and already at unsustainable levels with projected further increases over the next two years. Beware. Rather than rehash old ground, this article will provide a speed-round of charts and limited commentary to explain the current conditions and the expectation for an earnings decline within the next few years. For the full explanation of the concepts relating to this article, please see “Beyond The Horizon: The EPS Cycle” and “Back To The Horizon: EPS Cycles Again” immediately below. Once again, since the fundamental principles of the business cycle cause history to repeat itself, a decline in EPS should not be beyond your horizon!

View Item

Beyond the Horizon 

Earnings have increased at double-digit growth rates for five consecutive years–it’s beyond almost everyone’s foreseeable horizon that earnings might soon experience a decline. Despite the statistics about average earnings growth, the business cycle drives periods of surge and stall. This analysis explores the earnings growth cycle, the profit margin cycle, and then translates the outlook into specific implications for returns over the next decade. As an analogy, winter is not a time for farmers to hibernate; rather it’s a period to approach crops differently. Today’s investors have so many tools and techniques available to them to actively “row” and invest like institutions, thereby seeking relatively consistent returns with a lot less disappointment risk.

View Item

Back to the Horizon 

Earnings had been increasing at double-digit growth rates for five consecutive years from 2002 through 2006-although many agreed that earnings growth might be slowing, it was beyond almost everyone’s foreseeable horizon that earnings might actually experience a decline. Yet, before anyone knew it, the end of the cycle was in the rear-view mirror rather than beyond the distant horizon. This article is a follow-up to “Beyond The Horizon: The EPS Cycle” (located above). Has the forward P/E, which was recently an inviting 16, suddenly become a much richer valuation near 20?

View Item

It’s Not the Economy 

Despite the general contention that the economy and the stock market are inexorably connected, the facts get in the way of confirming common wisdom. This chart presents the average stock market return and average GDP growth by decade and by secular bull/bear market cycle. Economic growth is not the primary driver of stock market returns; stock market returns are driven primarily by a cycle in the P/E ratio (see the Secular Cycles chart above). Although economic growth does increase the denominator in the P/E (earnings), actual returns are generally the result of trends in the P/E ratio. This and other research that Crestmont has conducted dispels this conventional notion.

View Item

EPS Reality 

The reality is that the business cycle is different than the economic cycle–GDP growth is much more consistent than EPS growth. It may surprise some to know that EPS declines can occur during periods of economic growth. Across the 57 years since 1950, earnings declined during 19 of them despite positive economic growth in all of those years…33%! Real GDP growth (excluding inflation) has lagged the historical 3% average thus far in the 2000s. To get to average, it will require above average growth for the next three years. But even if the economy looks solid for the next few years, history highlights that EPS is not immune to decline—especially from such a currently high level of profit margins.

View Item

Significant Swings 

Although the compounded average annual change in the stock market is near 5% over the past century, the range of dispersion in annual returns is dramatic. This chart presents the distribution of yearly index changes within the single digit range of -10% to +10% during the past century overall and during the secular bull and bear cycles. In addition, a second range was determined to include half of the years within the range and half of the years outside of the range. More than 50% of the years ended with changes in the index exceeding +/-16%, either less than -16% or greater than +16%.

View Item

Volatility in Perspective 

Who or what is rocking the boat? Market volatility has recently surged; investors have had to hold on and try to figure out what this means. Is the current level of volatility “normal” or is it extreme? The purpose of this presentation is to graphically put volatility into historical perspective. This will be updated every other month or so until volatility again falls to levels of investor disinterest-which could be a while if history is a guide for what can be expected.

View Item

A Minsky Review 

Judging from the level of complacency in the stock market, some of you may not care to make it to the second paragraph of this article—Hyman Minsky warned us about times like this! Those of you that stay until the end will find a compelling case that four indicators portend a significant decline in the stock market and a rise in volatility before the end of next year (2006). For those with financial exposure to the stock market today, you may be compelled to act. For those of you that have already hedged your positions, this article will provide the insights to know when to increase your exposure again. And for the complacent readers, save this for later reference to explain “why.”

View Item

Calm Before the Storm 

In April 2005, “A Minsky Review” explored the risks and implications of low volatility in the markets. That analysis predicted an increase in market volatility by the end of 2006. One year later, April 2006, volatility has plunged further and is now in the lowest five percent of all periods since 1950. With numerous new and updated charts and graphs, this article explains that “the tectonic plates of the markets are intensely balanced in an edgy state of latent eruption.” Beyond presenting an assessment of current conditions, this analysis discusses the timing and implications of a reversal to rising volatility based upon the lessons of history.

View Item

Stock Market Returns & Volatility 

This analysis presents an uncanny relationship between stock market performance and the volatility of the market. We do not assert a causal relationship; rather, the coexistence of the relationship implies that many measures of risk actually compound in declining markets. As well, the reward-to-risk relationship significantly improves in strong markets. In the context of secular bull and bear markets, this relationship further emphasizes the need to consider risk as well as reward in an investor’s investment decisions.

View Item

Game Changer 

MARKET BEWARE SLOWER ECONOMIC GROWTH

There are numerous perspectives about future economic growth. The latest tally includes about 1.5 opinions per economist (reflecting economists’ penchant for the phrase “on the other hand”). Some economists are more optimistic, others more pessimistic, and more than a handful are on both sides of the fence. This article discusses the long-term implications for the stock market of slower growth. Whether your preferred economist advocates 2%, 1%, or 0% long-term growth, the outcome is similar in direction though varying in magnitude. The impact will lie somewhere between bad and worse. Historically, the prospect of slower economic growth had not often been considered by economists and analysts, but it is now mainstream thinking. The implications of slower growth on stock market returns would be dramatic for investors.

View Item

Looming Crisis 

LOOMING CRISIS: STATE BUDGETS SOON TO BE UNDER SIEGE

Public employee retirement systems across the nation have a major problem. Almost all of these pension plans are assuming investment returns that are well beyond levels that are reasonably achievable. The result is that they appear better funded than in reality. Ultimately, the shortfalls are the responsibility of taxpayers.

The current shortfalls are not, as conventional wisdom asserts, the one-time result of a stock market decline in 2008. The shortfalls are the result of the gap between assumptions and actual returns, which will continue as an ever-widening shortfall. Most policy makers assume that their recent provisions to address the shortfall will cure the problem over upcoming decades. Instead, the hole is many times larger than they believe. Some policy makers have even started advocating “reforms” that will burden the pension plans in order to fund programs outside of the plans.

There are significant implications for investors, taxpayers, plan beneficiaries, and other constituents. A wrongly-assessed problem leads to ineffective solutions or worsened conditions.

View Item

Row, Not Sail 

For boatsmen, the history of rowing started more than 8,000 years ago; sailing is a relative newcomer about 3,000 years later. Likewise, for investors, the rowing approach to investing precedes the more modern approach of passively buying and holding securities to realize the returns provided by the market. Crestmont Research and Ed Easterling brought together the two concepts as chapter 10 in Unexpected Returns and created the analogy that contrasts two vastly different investment approaches. The current secular bear market has driven investors and financial advisors to seek progressive skill-based absolute return investments, rather than the more passive and traditional relative return investments. This excerpt from the beginning of the chapter summarizes the contrast. Investors, financial advisors, and money managers are welcomed to use this analogy and this excerpt to foster a broader appreciation for the need to adjust investment strategy to the market environment (of course, we hope that you’ll remember and recognize Crestmont Research in the process…).

View Item

The Impact of Losses 

There is a very important reason that the ‘first rule of investing’ is also the second rule…it takes a lot of gain to make up for losses. This graphic highlights a key lesson of investing.

View Item

Markowitz Misunderstood 

Harry Markowitz published his research titled “Portfolio Selection” in The Journal of Finance during 1952. He led with: “The process of selecting a portfolio may be divided into two stages. The first stage starts with observation and experience and ends with beliefs about the future performances of available securities. The second stage starts with the relevant beliefs about future performances and ends with the choice of the portfolio. This paper is concerned with the second stage.” In this article, we’ll consider the implications of the first stage.

View Item

Portfolio Mismanagement 

If the first rule of portfolio management is diversification, why do most investors unwittingly concentrate their risks? Many investors believe that a portfolio constructed with numerous stocks and bonds is diversified. That approach has its roots in the principles of Modern Portfolio Theory (MPT). Yet when MPT is misapplied, it does not provide the roadmap to secure investing and leaves investors vulnerable to substantial risk. This article explores why diversification in a portfolio should apply to risks rather than to securities, and most investors unknowingly have a significant concentration of risk in their investment portfolios.

View Item

Up & Down Capture Graph 

The simple analysis–graphed. Many “rowing” strategies are criticized for not achieving returns during market declines and then not being able to beat the stock market on the upside. The answer: if an investor can avoid the losses, it takes only a fraction of the positive gains to match (or beat!) the market. So the main objective of “rowing” is to avoid the losses…and the gains will seem to take care of themselves.

View Item

Up & Down Capture 

A simple analysis–a powerful statement. What percent of the gains during positive months is needed to get stock market returns if an investor avoids the declines? Many “rowing” strategies, including hedge funds, are criticized for not getting much return during market declines and then not being able to beat the stock market on the upside. The answer: if an investor can avoid the losses, it takes only 26% of the positive gains to match the market. And, if losses are contained to 50% of the market drop, it takes only 63% of the gains to achieve market returns. So the main objective of “rowing” is to avoid the losses…and the gains will seem to take care of themselves.

View Item

Destitute At 80: Retiring In Secular Cycles 

There has never been a thirty-year period for the stock market when investors have lost money; yet there have quite a few thirty-year periods that have bankrupted senior citizens who were relying upon their stock portfolios for retirement income. Although history provides an average outcome across a wide variety of market conditions, it is only relevant today to consider periods with characteristics similar to today. Given the significant impact of valuation on returns, that factor will be a major driver for today’s investors and retirees.

View Item

Impact of Rebalancing 

“Row, Not Sail.” In strong trending markets, like secular bull markets, the best strategy is to get fully invested and remain so. Let the profits and over allocation in equities compound to your benefit. In choppy and volatile markets, a more frequent rebalancing approach can add significant additional return to an investor’s portfolio. Based upon recent secular market history, the risk (cost) of more frequent rebalancing in secular bull markets is far less than the opportunity from more frequent rebalancing in secular bear markets. Rebalancing is the active management technique that capitalizes on market cycles. Over-performance in one category (asset class) is shifted to another category to benefit from the second category’s later good performance.

View Item

Rowing vs. the Rollercoaster 

Why are so many of the most knowledgeable institutions and individuals shifting away from investment portfolios that have been concentrated in stocks and bonds toward a more diversified and risk-managed profile? The tools and resources are now available to permit investors of all sizes to use this enhanced approach and be successful. This article describes the dynamics and benefits of seeking more consistent, absolute returns rather than investing simply for the relative returns of the stock market.