Investment Newsletter for the end of July 2016

The market roared ahead this month and now has hit an all-time high. The Dow went up 502 points (2.8%). The S&P went up 75 points (3.6%). The Russell 2000 (small cap companies that I like) went up 68 points (5.9%).

Last month I mentioned fear pits, the irrational panic around whatever event. Recently it was Brexit. Before that the Greek crisis and something else before that. The press amplified the emotion and the herd ran out of the market screaming.   The market recovered within a few days. It could have taken months to recover.   Sometimes the herd takes a little longer to switch directions.

The opposite emotion is greed. It happens when the herd comes rushing in. They want to buy because they think they can make a lot of money. Their friend did; the guy on TV did (maybe it is even true-who knows); The neighbor just bought a new car. Of course, all those are the wrong reasons. Because the market did well, it does not mean it will do well again. Greed is just as stupid as fear.

We see that same greed/fear cycle in real estate also. Right now everybody thinks they can make money investing in real estate. Waterlogged tear downs are going for $200,000 over asking in Seattle. Portland is just about as bad. We are seeing major greed. It is clearly a bubble but I just cannot tell you when it will pop. When it eventually does pop, I cannot tell you if it will pop suddenly or in a long slow hiss. I can tell you that I would not touch real estate right now. I bought a townhouse three years ago that was a short sale on the market for a year. The real estate industry was so panicked that nothing was selling. The townhouse was in great condition and I have made out well.

The market is now hitting records. Is it a bubble? I do not know. I have not received many phone calls demanding to buy. These highs can continue for some time, months even. It can continue to get higher. Eventually, the herd will run out of greed. Then the market will go down. It may go down fast or slow. It may happen around some event or the press will invent some reason.

Short-term fluctuations are meaningless. Think of the drunk staggering around a light pole. In finance, even one or two year periods are considered to be statistical junk. Over longer periods, ten years or more, these fluctuations wash out. The market then resembles the long term economy. I believe the market is relatively efficient. That means in effect that it is impossible to time the market. I do not know when the fear pits and bubbles will wear off. I do know the herd is always too late to the party.

My solution is to follow a set allocation. 20% for this fund, 13% for this other fund, etc. As the market whips, I buy and sell to keep these percentages constant. The result is that I keep your risk level constant. I have also made very decent money for clients over the up and down cycles. The clients that have made the most money are the ones who have been with me for both the up and down cycles. Interestingly enough, the fear pits are more irrational than the bubbles are. My rebalancing works. It does not necessarily work this quarter, etc. I will be rebalancing again very soon. I last rebalanced at Dow 18,011. It is now 18,400.  Before I rebalance again, I want there to be a 500 to 600 points difference (18,511-18,611).

I have set up secure vaults on my website ( I’ve sent all my clients sign up invitations and can send them to you again. You can sign in on my web site with your user name and password. I will be posting reports and newsletters there. Later on tax returns, etc. I will be happy to walk you through the setup. Let me know if you need another invitation link. Let me know if you would rather keep getting paper and I will of course do so.

Fee Structure

Rate Assets Under Management
1.44% Below $125,000
1.00% Between $125,000 and $750,000
.85% Between $750,000 and $1,250,000
.80% Between $1,250,000 and $1,750,000
.75% Between $1,750,000 and $2,500,000
.70% Between $2,500,000 and $3,250,000
.65% Between $3,250,000 and $4,250,000
.60% Above $4,250,000

A single rate is applied to the entire account. So a person with a $750,000.01 account pays less than a person with a $750,000 account. I will waive personal tax return fees for accounts over $1 million. For accounts that are above $5,250,000, we’ll need to discuss a custom rate.

As I’m writing these to help my readers, I would be very appreciative of any input in regards to what I should write next. If you want me to write about a particular topic, please contact me. If you would like to submit a post to my blog, please contact me.

If anything that I mentioned above interests you, please consider downloading my free e-book. The book contains my thoughts on investment management and some information that I think everyone should know. You can also download it below.

E-Book Download

Questions for the comments

Did my newsletter make sense? Do you agree or disagree with what I said?

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