SI #13: Market Corrections, Estimates and Index Investing

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Today, Ted Halpern and Kirsty Peev join us from Halpern Financial.  We discuss the crazy phenomenons that occur in equity markets and how to react to them with sound logic.  Kirsty points out that equity markets are the only place where the majority of people don't get excited about a sale!  

Founder/Wealth Advisor Ted Halpern and Portfolio Manager Kirsty Peev, CFP® are on the Investment Committee at Halpern Financial, Inc. Halpern Financial is a fee-only, independent Registered Investment Advisory firm serving high net worth clients throughout the U.S.  from their offices in the Washington, D.C. region.

And a few notes to support the points made in the podcast. If there are any I missed just let me know and I’ll track down the source:

·         The following graphics are from the Oppenheimer Q1 2017 “Compelling Wealth Management Conversations” flipbook

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·         Market corrections happen fairly often and even in the good years, including fairly significant intra-year declines in recent strong-return years like 2010 and 2012.

o   From 1982 to 2016, the S&P 500 Index has experienced at least a 5% intra-year decline (i.e., loss) in every year but one. The average intrayear decline over the past 35 years has actually been 13.9%.

o   But notice, equities have still posted positive returns in 30 of those last 35 years with annualized total returns over that period of over 12%.

o   So let’s take a page from Warren Buffet, when asked by a CNBC personality in 2009 how it felt to have “lost” 40% of his lifetime accumulation of capital, he said it felt about the same as it had the previous three times it had happened.

o   The bottom line is, market corrections do not equal a financial loss…unless you sell. Markets go up over time, just not straight up!

·         It’s time in the market, not timing the market.

o   According to recent data by Putnam, by staying fully invested over the past 15 years on a $10k investment, you would have earned $20,460 more than somebody who missed the markets 10 best days.

o   University of Michigan Professor H. Nejat Seyhun analyzed 7,802 trading days for the 31 years from 1963 to 1993 and concluded that just 90 days generated 95% of all the years' market gains — an average of just three days per year.

·         Market pundits cannot tell the future

o   https://halpernfinancial.com/views/stock-market-predictions

o   “ “I’m very bad in market timing,” Rogers said. “https://www.bloomberg.com/news/articles/2018-02-09/jim-rogers-says-next-bear-market-will-be-worst-in-his-lifetime

o   We could discuss these types of predictions from any number of prognosticators

·         How do people respond when there’s a significant markdown in prices at their favorite department store? They run into the store searching for bargains. How do they respond when there is a significant markdown in prices in the stock market? They often run out of the “store” and don’t return until prices get back to “full retail.”