Investment Newsletter for the end of December, 2018

This month and quarter were very poor. The markets were substantially down not just in the US but also worldwide. The result was painful losses in your portfolios. We believe these losses will reverse into gains for you but cannot tell you when. The market goes in and out like the tide but less predictable.  Our purpose today is to discuss what causes these swings. There are several reasons.

Dan has argued for years that the crowd of investors is irrational. They rush in with greed and they panic over the cliff with fear. The result is stock prices that swing too high with good news and swing too low because of bad news.

A second cause is the computerized trading formulas that some hedge funds and other big/similar players use. These trading algorithms (computer programs) move millions of shares without human interaction. They can trade many times per second. When the market starts moving sharply, the algorithms can order immediate buy or sell orders that swamp the market. The result is like gasoline on a fire. A much sharper drop. A far faster rise.

These two causes are not mutually exclusive. They both can exist. The algorithms can order a sell off. Then people panic and sell out. Then the algorithms order more sell offs, etc. 

We cannot ignore, of course, several other causes. A politician may say something or not say something. The wrong group may win here or somewhere else in the world. Some piece of economic news may be unexpected. There are many reasons for uncertainty. Any or all can be critically important to some people.

We recognize that we have our own biases. We (Daniel and Eli) cannot and should not discount any of these as invalid. The truth is that all of these causes and perhaps more play into the market movements. The second truth is that no one really knows how all these things fit together. What is the dollar effect on the market of a government shutdown? We don’t know either. Does the irrational panic account for 2%, 5%, 10%, etc. of the drop? No one knows how to put a number on it. Did the algorithms really order a sell off? It will take the academics six months to figure it out which is six months too late to be useful to you.

As investors, all we can do is try to control our own emotions and educate ourselves as much as we can. To quote the great investor Warren Buffet, “Be greedy when the market is fearful and be fearful when the market is greedy.” As you all know, our use of allocations is basically contrarian. We are always facing the other direction from the market swings. A few days ago, we rebalanced almost all of your accounts. We bought equities and sold bond funds.  Hopefully, we purchased at the bottom of the melt down and your profits on the recovery will be even higher as a result. Sticking to the plan leads to higher long-term profits.

Dan and Eli

Investment Fee Schedule

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 whole 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. Please contact me if you would like to submit a post to my blog.

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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