Trade Storm and Volatility

Posted on by

These have been stormy days…U.S. and global equity markets are in turmoil because of factors related to U.S. – China trade tensions. The current market sell-off has punished U.S. equity stocks driving them to levels well below recent highs and has driven many domestic stocks to 52-week records low prices.

Although most observers continue to forecast that a trade deal will be reached between the two trading partners and two largest global economies since successfully negotiating a trade agreement would be in each nation’s best long-term political and economic interest. However, in the short term, global equity markets are in a tizzy due to the break down in trade talks and the tit-for-tat increase in trade tariffs that went into effect over the weekend effecting Chinese imported goods into the U.S., and China’s announced retaliation to increase tariffs of U.S. goods coming into China.

Currently, neither the U.S. nor China wants to appear weak and to give into the demands of the other. Additionally, the U.S. has accused China of backtracking on prior negotiated and agreed to key trade commitments. In a recent NYTimes article, they reported that POTUS is betting on the strength of the U.S. economy to withstand the impact of the escalating trade tensions and increasing tariffs.

Let’s not overlook the fact that China with respect to global trade has been a serial bad actor for many decades. In fact, the Chinese coerce foreign companies wanting to provide goods and services in China to partner with and transfer intellectual property to a domestic Chinese company; they run roughshod over WTO rules by erecting barriers and rules to create a non-level playing field for foreign companies to provide financial and other services inside their economy; and, they encourage their business and governmental organizations to acquire western intellectual property through cyber theft and commercial espionage. Since stepping onto the global stage for trade, they have ignored world trading rules and acted ruthlessly in their own best interest.

Given current global trade turmoil, how should the long-term investor react to short-term market selloff and volatility.

Most financial analyst look at the strong fundamentals in the U.S. economy citing growing first quarter GDP, robust job numbers, and low inflation. Their belief is the economy can weather the current trade tensions in the short term. Although, they agree that there will be headwinds to the economy both domestically and globally if this trade tiff drags on for an extended period of time. Thus, given the strong economy and even stronger belief that there will be a trade deal sometime in the future, long term investors should stick to their long-term financial plan, tune out the over excited financial entertainment media pundits and take the opportunity while stocks are on sale to buy low.

Financial Growth Mindset — Reboot

Posted on by

“I’ve wrestled with alligators. I’ve tussled with a whale. I done handcuffed lightning, and throw thunder in jail. You know I’m bad. Just last week, I murdered a rock, injured a stone, hospitalized a brick. I’m so mean, I make medicine sick.” — Muhammad Ali

“I am the greatest, I said that even before I knew”. — Muhammad Ali

To achieve financial freedom, it’s imperative to develop an aversion to the word “can’t”, that you can’t achieve financial freedom,…instead, it is imperative to believe that “…you can do whatever you want in life”. Individuals, who want to have a Financial Growth Mindset, must believe they can and be willing to work hard and smart, and become financially literate.

It is hard and takes effort to reach one’s goals of financial freedom and literacy. It takes never giving up to do apparently amazing things in spite of seemingly gigantic odds. But, if an individual really put effort into something, they can accomplish more than they ever thought was possible.

To put in that kind of effort, to persevere even when times are rough, an individual must first believe that success is possible. This belief that success is possible is the magic of mindset. It is the scientifically-proven phenomenon that believing in something actually makes it more likely to be true.

A large amount of research has been conducted showing that believing in one’s continued ability to learn, grow and improve in any endeavor, including financially, really does make it more likely that an individual will succeed.

Want to live a happier, a more fulfilled life? Change your mindset to one of continued financial growth, learning, and improvement.

There once was a brash young heavy weight boxer from Louisville, Kentucky, who had the ultimate Growth Mindset and proclaimed it loudly to the world, “I’m the Greatest of All Time”. The result, three time world heavy weight boxing champion Muhammad Ali would over a boxing career transcend the sport and become a legend.

Step One to Financial Independence: Mindset

Posted on by

apple.news/A-GJEr2UMTrm0_rriI_Knlw

The first step to becoming financially independent starts with the mind. Before starting your debt free plan, be real with yourself about money.

Why do you want to be debt free?

What does financial independence mean to you?

What will you be able to accomplish once you are debt free?

What would you do with your life?

How will this journey impact you, your family and generations to come?

Thought-provoking questions can reshape years of negative thoughts, intentions, and bad habits with money.

Before I started my debt free journey, I allowed myself to dig deep into the plans that I had for my future. I wrote down goals (several times), dreamt about the future, practice gratitude and got excited about the result. With my new plan in place, I felt determined and even more disciplined to see the journey through.

10 Best Ideas | MINDSET | Carol Dweck | Book Summary

Posted on by

Challenge and Interest go hand-in-hand in the Growth Mindset. Think – this is challenging and fun. It is about learning something over time. The point…”who cares if you cannot yet do it now…you will do it in the future.” Think and believe… I cannot do it yet… and becoming is more important than being.

The two most dangerous words in people’s vocabulary are “I can’t”. Never say “I cant” and instead, say “I presently struggle with…”.

The two most powerful words are… “I am”. Must be careful were we place our identity.

Capitalism Under Attack

Aside

Capitalism has created extraordinary opportunities for American citizens, opportunities that would have never occurred within a Socialist or any centrally managed economy. Yet, there are many challenges with Capitalism. Essentially, the proverbial rising tide of Capitalism has not equally or fairly lifted all boats. The yachts have risen faster and higher than the row boats. In fact, the disparity in incomes and wealth between the top ten percent relative to the bottom fifty percent as a result of capitalism in the U.S. has never been greater.

The major challenge of Capitalism in 2019 is that it rewards specialization and skilled labor over generalization and unskilled labor.  The high paying, low skilled manufacturing occupations of the 20th Century that lifted millions of Americans out of the working class to middle class have all but disappeared in the U.S.   The manufacturing jobs of our parents and grandparents have been replaced with low paying, unskilled service related occupations.   

Within Capitalism, there is little economic incentive for those few controlling and benefiting from the means of production to assist the working class majority who are not benefiting fully and who are falling further behind.  John Hope Bryant, during an interview on CNBC, stated that America’s Capitalism must create incentives for the privileged few who control the means of productions to create more opportunities and more widely distributed benefits of capitalism, through internships and training for the working class majority. He stated that we need more qualified opportunity zones and entrepreneurship schools in the inner cities and rural areas.   

Further, he stated to ask any majority kid working an internship at a Fortune 500 how they got their opportunity.  More than likely, their response would be that they received the opportunity because they or their parents had connections and knew someone.  Non-majority kids, especially those living in the inter-city, do not necessarily have parents or friends who know someone and have connections.   

European Social Democratic nations, those few who appear “socialist-like” such as Sweden follow a philosophy of “create it like a capitalist and spend it like a socialist”.  However, what works in Sweden cannot be scaled to work in the U.S.  Socialism, throughout history, has proven unable to effectively and productively use resources to create wealth. To create societal wealth, human ingenuity must be encouraged and released.  History has shown consistently that the private sector has more successfully use the means of production than the public sector.    

On CNBC recently, Ray Dalio, head of Bridgewater Capital, the world’s largest hedge fund,  commented that Capitalism is not working for all Americans.  A fact that most Americans would agree.  However, several media commentators have misrepresented his comments implying that Ray Dalio stated that  “Capitalism is broken”.   

In today’s global reality, it is Socialism that is and has always been “broken” around the world in countries such as North Korea, Venezuela, and Cuba.  Socialism is essentially where the state owns the means of production of goods and services and determines how the wealth is distributed.  In most of the world, Socialism has come to mean “shared misery” to the populace who are unfortunate to live underneath the system.

But, Capitalism should not get a pass.  In many Capitalist countries across the globe, the citizens and economies of those capitalist economies are suffering.  Look no further than the failed economies of  Haiti.  

Current Headlines and Market Volatility

Posted on by

Here are the recent financial and economic headlines: 

  • Strong U.S. jobs report was released on Friday with unemployment falling to the lowest level in fifty years.   
  • The Federal Reserve is holding on moving the Federal Fund interest rate.   
  • U.S. Inflation rate is lower than economist expected and trending around two percent.  
  • U.S. economy has been very good with GDP reported to be growing at a robust 3.2 percent during the first quarter of calendar year 2019.   
  • The economy has experienced consistent growth for more than ten year despite periods of short term market volatility, sell-offs and negative headlines.   
  • POTUS tweeted late Sunday threatening to raise tariffs on Chinese imports. The tweet has riled and caused a sell-off of U.S. and global equity markets during the first full week of May. 
  • U.S. financial media reporting that the Chinese trade officials are considering postponing travel to the U.S. to continue trade negotiation talks.
  • U.S. – China trade negotiations continue with most economists and financial experts assuming that a trade deal will be successfully negotiated since many believe a bilateral trade deal is in the best interest of both parties. 

With the recent headlines, what actions should a long term investor take in view of the headlines, current short term market volatility and sell-off?   

A long term investor should take no short term actions other than to follow their long term financial plan and maybe decrease the volume on the financial media/entertainment networks. If in doubt, they should call their financial adviser for emotional support.

Buying High – Selling Low

Posted on by

“All through time, people have basically acted and reacted the same way in the market as a result of: greed, fear, ignorance, and hope.”

Jesse Livermore

Recently, I read that multiple studies have shown that when the stock market goes up, investors’ money flow into it. And when the market goes down, investors’ money flow out of the market.  This type of behavior would be like a shopper heading to the grocery store every time the price of produce goes up and then returning the produce to the store when it goes on sale – but the store will only buy it back at the sale price. 

This behavior of buying high and selling low results in investors market returns to be substantially less than historical stock market returns.   

Behavior Gap is the difference between an investment’s return and an investor’s actual return. The “gap” is where investors’ behavior—their actions and emotions–come into play.  Without investor’s emotion, the difference would be minimal between what the investor would have earned in compared to what they actually saw in their investment account. 

According to Vanguard founder, the legendary investor Jack Bogle, the average equity mutual fund investment gained 173% from 1997 to 2011, but the average equity mutual fund investor earned only 110% during the same period. From their analysis, this gap is directly attributed to investors allowing their emotions of “greed, fear, exuberance or despair” to control their investment decisions.  

Additionally, every year since 1994, Dalbar’s Quantitative Analysis of Investor Behavior (QAIB) has measured the 20-year average annual compound rate of return for the average large cap equity mutual fund in the U.S. and the average return realized by equity mutual fund investors.   

For the 20 years through 2007, Dalbar’s QAIB results demonstrated that the average equity fund produced 10.81%, and the average equity fund investor produced 4.48%. From the analysis, it is apparent that over the 20 year span, the average fund investor consistently realized much less investment return than the return of the average fund.   

“People have a tendency to sell at the bottom when the market is at its worst and buy at the top when the market is at its best. Inherently, this leads to poor investment returns.”

Carl Richards

Additionally. According to Dalbar, most investors took performed poorly in the second half of calendar year 2018 — in fact investors averaged a loss of 9.42% — compared with the S&P 500, which had a loss of 4.38%.  And, during October 2018, in which the S&P 500 was down 6.84% while the average equity investor return was down 7.97%; and in August, when the S&P 500 was up 3.26% and the average equity investor was up only 1.80%.  The QAIB research concluded that the average investor didn’t have much success whether the market was good or bad in 2018. 

In a January 2012 Forbes interview, Carl Richards, author of the  book, The Behavior Gap: Simple Ways to Stop Doing Dumb Things with Money, pointed out that investors are “…responsible for their behavior.”  He states that investors are responsible for spending less than they earn; to saving and investing with discipline. Further, he states that it has become easier for investors to blame banks, Wall Street, credit card companies, politicians, etc., for their financial mistakes…but blaming others does alter the impact their own behavior has on investment account. Thus, it’s better for investors to own up to their responsibility and learn from their mistakes. 

Fortunately, there are several actions investors can take to protect themselves from making emotional decisions during times of eye raising market volatility and to reduce the impact of the Behavior Gap on their investment accounts.   

  • First, investors can stay true to their long range financial plan and make a conscious decision to do nothing since short term market volatility should not matter.   
  • Secondly, they should never sell or have any reason to sell stocks in a down market.  If an investor’s portfolio is properly allocated and they have set aside three to six months of living expenses in an emergency fund, they should be able to ride out short term market volatility.  
  • And, finally, investors can seek professional help and confer with a financial adviser. If an investor is unable to control their emotions, they should not be investing on their own.  

The Behavior Gap by Carl Richards – Four Pillar Freedom

Posted on by

The Behavior Gap by Carl Richards – Four Pillar Freedom

The behavior gap refers to the gap between investment returns and investor returns. Due to fear, greed, and irrationally, most people buy and sell at the wrong times and lose money. The best investment strategy is often the simplest investment strategy.

— Read on fourpillarfreedom.com/the-behavior-gap-by-carl-richards/

Stock Market Highs Make Even Bullish Money Managers Cautious – Barron’s

Posted on by

Barron’s Big Money poll of professional investors finds a drop in the percentage of bulls from last fall. Why the pros like tech stocks and fear Tesla
— Read on www.barrons.com/articles/stock-market-big-money-poll-51556309101