For 20 years ending 2019, the S&P 500 had an annual return of around 4.5%. Many mutual funds results were less. Not that bad, but considering you could have bought a 20 year Treasury bond in 1999 with around 5.5% with much less risk and cost, stocks did not do so well. Keep in mind that during that period there were several market corrections with two of the most devastating declines in history. (2001 and 2008-9) Also, that stock performance is probably less than what you may have thought given all the media hype about how terrific it is to invest in stocks.
For those who have been with me during that same time, we have done far better with less risk and less cost. Beside stock selection, what also helped significantly was that we were heavily allocated in cash before those serious market downturns. The hidden lesson is that buy and hold does not work. The perception that it does work has been contrived by Wall Street and is designed to make them money, not you. Active asset management is needed to perform successfully.
A long term perspective can provide a better viewpoint against current perceptions. For me, it has been a long road.
I always tried to save money and made my first investment at age 15. It was small, although large for me, and even though my understanding of financial markets was quite rudimentary, it worked out well. Over the years, my knowledge has increased very dramatically and my results have continually improved.
I was studying economics in 1971 when President Nixon delivered the final blow to our currency when he stopped its international convertibility into gold. It was such a big deal that it was announced to only be a temporary situation. It has been temporary for 48 years. It was part of the inflation boom of the 1970’s which was unexpected by the public. Geo politics began to change America in ways unimagined.
Starting in 1976, I began to manage and advise small businesses and continue to do so to this day. In 1981, I became a professional investment broker and in 1994, I formed my own firm to function as a fiduciary for financial planning and investment management.
In the early 1980’s, I advised my clients to sell gold and start buying stocks and bonds. Stocks were very scary at the time and considered dangerous. Bonds, were viewed somewhat the same. I was able to get the highest coupon municipal bond issued. It was a Texas entity with a 14% tax free yield AAA insured. I was able to secure a sizable piece of the offering as it was not considered attractive. The perception by most people was that yields would go up forever, so why bother for 14% when CD’s were around 20% and were going to keep rising. I was only marginally invested in stocks before the crash of 1987 and maintained that position until investing heavily the day after the bombing of IRAQ in 1991. I had hardly any exposure when the tech bubble broke in 2000 and was astonished to see how many people were taken in by the hype. In 2001, when the market opened after the terrible World Trade Center attack, a couple of my stocks were of the few to be up. It was not any consolation, just sadness and anger. One of the economic consequences though in the midst of that tragedy, was that many people learned that a mutual fund could stop the redemption of shares and had to wait several days while the market was going down before getting their money back. I knew the risks of mutual funds and stopped using them early on in my career.
In 2005, I warned my clients to get out of real estate. The perception at the time was that real estate was the easy way to make big money. In 2007, I began to take profits in stocks and hold the cash. The perception then was that the stock market was the best deal in town. Therefore, for my clients, when the carnage of the financial crisis hit, their portfolios were secured and hardly impacted. New opportunities began to emerge.
Over the past dozen years, I started Marquis Bank which is one of the strongest community banks in Florida. I co-founded a small technology business, Yotta280, which we sold part of to J2 Global a few years ago. I also directly managed a new beverage, ChocoVine, into a highly successful national brand. Interestingly, in the beginning, industry leaders thought it would be a dud. A year later they were waiting in line to get it. I negotiated the sale of the business to a European company.
It’s important to mention these things as I need to tell you that based on many years of experience, I presently believe that contrary to public perception, the global financial market is moving towards one of the highest risk levels of my life time. Due to the money printing of the central banks, the equity markets may continue to progress concurrent with increasing risks. Despite the rise in nationalism, geo politics will still be a dominate force in the world economy while political polarization will be the focus regionally. Perceptions will need to be examined.
We are about to experience long term changes in the world and our country which will affect our lives in unexpected ways. Sadly, there may be more tragedies than triumphs.
I am confident and committed to provide the best investment service with lower risk and cost and hopefully, will continue to realize superior results.
For more perspective, read INVESTMENT DILEMMA
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