The Legacy Perspective - October 2023
by Steve Wachs, CFP®
“People think I’m crazy when I say the stock market will go down 86% on the S&P — the worst case but also my most likely case,” Harry Dent Jr., the candid, controversial strategist, argues in an interview with ThinkAdvisor. For several years now, Dent has been forecasting “the crash of a lifetime.” Now, he says, 2024 will be the year it hits — “two years later than it should have,” according to his calculations. But “it’s starting now,” he insists.
These are the headlines that get clicks. In our soundbite, limited attention span social media world, these types of predictions spark our interest. Saying the stock market will fluctuate in the short term and provide good returns over the long term sounds boring. Diversify your portfolio based on your ability to tolerate risk and your timeframe probably doesn’t elicit much excitement either.
Our role in providing investment advice is not to provide excitement or to be entertaining. It is to function as a fiduciary using a disciplined, proven process that will provide long-term returns to help you maintain your financial independence. It is not based on our “guess” on what will happen in the financial markets in the next couple of months. If Mr. Dent is wrong (which he has been many times), you cancel your subscription to his monthly newsletter. If we made portfolio changes using some magic formula and we were wrong, your financial independence suffers.
Let’s look at how difficult it is to predict what the equity markets will do in the short term. The following was written on 9/26/23 by Blaine Rollins, a successful investment strategist.
““Stock investors have gone on strike and shutdown. Fed up with the line of dominoes being laid out, the CBOE S&P 500 Volatility Index popped from an ultra-low handle of 12 to 16-18 in just 8 days. You know the dominoes: government shutdown, UAW strike, rising Treasury yields, climbing oil prices, resumption of student loan payments, September seasonality and the N.Y. Yankees missing the playoffs. So, stock investors have retreated to their cup of joe until the risks are removed or the dominoes fall creating lower prices. The good news is that credit quality remains solid, credit spreads have stayed tight, and the U.S. economy continues to create many jobs. So, if you are invested in a company, the business is likely doing well right now. If it has a stock price, you might want to ignore it for the time being and pour yourself another cup.””
The 3rd quarter this year was a difficult one for the financial markets. The month of September was particularly bad. As Matt and I discussed, it seemed good economic news, was bad news and bad economic news, was bad news. Rollins outlines many of the concerns. Not sure about the Yankees missing the playoffs as that seems like a good thing. Anyway, stock investors were on “strike.” What happened a little over a week later? Hamas attacked Israel. We all have seen pictures of the horrible atrocities that confirm evil exists in this world. U.S. battleships have moved into the area as countries choose sides and make threats. If we were clairvoyant and would have predicted this event, the natural response would have been to sell equities and move to the safety of cash. We would have been wrong and missed a 2.5% increase in the equity markets. Even knowing what is going to happen with events that are headline worthy may often lead to wrong investment actions.
If we are not making predictions, where do we spend our time? One area Matt is focused on right now is reviewing companies’ earnings reports. Are they meeting expectations? What are they projecting? Has something changed in their business strategy? These are just a few of the questions he considers. Ultimately a decision will be made to continue to hold the company, possibly add to it, or sell it. It is not a perfect science, but it is an analytical, disciplined approach that has provided value to our clients.
We thank you for reading another “boring” Perspective. In our world, boring is OK. Our excitement comes in watching long-term investment performance help provide you the ability to achieve your precious goals.
Disclosures
Legacy Consulting Group is registered as an investment adviser with the SEC and only conducts business in states where it is properly registered or is excluded from registration requirements. Registration is not an endorsement of the firm by securities regulators and does not mean the adviser has achieved a specific level of skill or ability.
Information presented is believed to be current. It should not be viewed as personalized investment advice. All expressions of opinion reflect the judgment of the authors on the date of publication and may change in response to market conditions. You should consult with a professional advisor before implementing any strategies discussed.
All investments and strategies have the potential for profit or loss. Different types of investments involve higher and lower levels of risk. There is no guarantee that a specific investment or strategy will be suitable or profitable for an investor’s portfolio. There are no assurances that an investor’s portfolio will match or exceed any particular benchmark.