A Winning Mindset
A Winning Mindset
Winning, whether on the field or as investor, carries with it some important prerequisites and mindsets. We discuss these in more detail while also sharing some relevant current market history to highlight the key points.
Five Things You Should Know
- Equity Markets – were higher this week with U.S. stocks (S&P 500) up 1.57% while international stocks (EAFE) rose 1.46%.
- Fixed Income Markets – were mixed with investment grade bonds (AGG) down -0.37% while high yield bonds (JNK) rose 1.36%.
- OPEC+ – this week saw the first in-person meeting of OPEC members and their allies in almost two years and resulted in the biggest production cut to oil since 2020. While US officials attempted to dissuade the decision, lobbying efforts were met with deaf ears. As expected, oil prices rose following the decision, an unwelcome sight to policymakers attempting to temper gas prices.
- Jobs Report – the U.S. economy added 263K non-farm payrolls in the month of September. This is the least added since April 2021, but above market forecasts of 250K. Gains could be seen in leisure and hospitality, healthcare, and professional and business services at 83K, 60K, and 46K, respectively. Employment is now 500K above pre-pandemic levels. Openings are starting to draw down, but the labor market is still running hot.
- Key Insight – [VIDEO] Winning, whether on the field or as investor, carries with it some important prerequisites and mindsets. We discuss these in more detail while also sharing some relevant current market history to highlight the key points. [ARTICLE] Successful investing/planning does not require you to predict the future. Below we cover the key framework we use to protect our clients, particular during times of such dire history marking data. We also share what such data really tells us about the not-so-distant future and why it may surprise you.
Insights for Investors
“It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness…” Charles Dickens, A Tale of Two Cities
Intro
Last Friday the world was ending, and investors were on the run only to come racing back to begin the week in historic fashion pushing the S&P up over 5% in just two days (more on this below). And yet, here we are again on a Friday with investors once again panic selling. Simply manic and nonsensical behavior.
You can be manic with the crowed or prepared…the choice is yours.
No one enjoys market volatility, but far from being fatal it can actually be a benefit for the prepared and diversified investors. What traps most people is that they weren’t prepared in terms of either cash flow or positioning/risk tolerance.
Too many people were leveraged and/or chasing returns that simply weren’t sustainable only to get caught “offside.”
For those that are prepared, at worst they simply ride through it and at best use it to reposition and get in an even better spot.
How to L.I.V.E. Through the Storm
Being prepared boils down to being able to confidently answer this one simple question inspired by the L.I.V.E methodology/framework we use to help give client confidence and clarity:
Do you have the LIQUIDITY and INCOME you need today to survive market VOLATILITY in order to get the EXPECTED RETURN you desire over time?
If you are not sure, or don’t fully understand, what the above means, don’t feel bad just give us a call.
You see, “volatility” only becomes “risk” if you have to sell, which of course also keeps you from achieving the returns you hope to see.
An investor can avoid “having to sell” by making sure to appropriately address their liquidity needs, as well as build in a cash flow that can sustain them through bad markets. Perhaps the cash flow comes from your current job, or perhaps it needs to come from the portfolio itself which is why we built the High Income Series.
Our High Income Series derives its 5%+ cash flow from a variety of sources from call-writing, alternatives and tactical fixed income allocations but in the end its about realizing that “capital appreciation” is the byproduct of proper planning and portfolio construction and not a foundational element in and of itself for many situations.
Income is critical for a couple of key reasons: 1) dividends/cash flow from a most asset classes are far less volatility than the underlying asset values themselves, 2) steady cash flow therefore mitigates sequence of returns risk (see this link for reference) because it helps you meet your needs without forced liquidations during periods of market volatility.
As to point #1 above, and the resiliency of income vs. values, consider the S&P 500 itself. As you can see from the chart below, dividends are not just steady but growing. As First Trust noted, “Overall, the companies in the S&P 500 Index are flush with cash, as measured by the S&P 500 Industrials (Old) Cash & Equivalents. This measure excludes Financials, Utilities and Transportation companies. Cash holdings totaled $1.6 trillion (preliminary) on 6/30/22, according to S&P Dow Jones Indices.”
Just like the old story of the tortoise and the hare, most investors will “win” the race by taking the slower but steadier approach to building wealth, but certainly as relates to maintaining their wealth.
Tale of Two “Markets”
After historically grim investors sentiment (north of 60% for just the 5th time ever) culminated in a brutal sell-off in markets last week which took them to deeply oversold and shorted levels (see following three charts respectively) the market preceded to gain over 5% in just the first two days week (yet another history making data point).
As you’ll see from the first chart below, such strong moves don’t happen often but do tend to occur near the bottoms of nasty bear markets.
The good news is such occurrences have historically indicated more strength ahead, albeit not right away. As the next chart shows, the average 12 month return after such a move is over 27% even if the 3-month average is negative. For those of you paying attention to recent commentaries such strong 1-year number may strike you as familiar as we’ve highlighted similar 1-year returns after a) calendar year bear markets, b) sentiment readings of 60%+ bearish investors and c) similar negative breadth readings (see our commentaries from 9/23/22 and 9/30/22).
Such data points all historically resulting in similar 1-year returns is not a coincident as they all have occurred during the same tough market periods.
The takeaway is that while it feels as though such dire times will never end, the reality is that they do, and their endings invariably bring pretty solid returns.
Our hope is this historical context can help lift your spirits, and if you need a little more motivation, please check out the video above.
As always, we are here for you and wish you a wonderful weekend,
Tim and the team at TEN Capital
Data, Just the Data
Data points this week included:
- U.S. Jobless Claims – jumped by 29K to a claimant count of 219K for the week ending October 1st. This was up from a five month low and far above expectations of a 203K count. The four-week moving average rose fractionally by only 205 people to 206.5K.
- U.S. Manufacturing PMI – fell to 50.9 in the month of September, after a reading of 52.8 the month previous and below forecasts of 52.2. New orders dipped along with employment, down 8% and 10%, respectively. Production slightly increased and price pressures settled to 51.7, the lowest since June 2020.
- U.K. Manufacturing PMI – came in slightly lower than previous estimates at 48.4 in September. Intermediate goods producers struggled the most while investment and consumer goods fell at softer rates. New business contracted for the fourth consecutive month as new exports fell the most since 2020. Employment did see some increase with vacancies disappearing.
- U.K. Composite PMI – came in slightly higher than estimates at 49.1 from 48.4. This still shows the sharpest drop since 2021. Manufacturing production dipped to 48.4 and services came in at a flat reading of 50. New work marked the lowest inflows in 20 months and business confidence fell for the seventh consecutive month.
- Eurozone Retail Sales – fell (0.3%) MoM in August and marks the third consecutive monthly decline. Markets forecasted a (0.4%) dip with food and drink sales declining (0.2%), while non-food sales rose 0.2%. Auto fuel sales rose 3.2%. YoY retail sales have shrunk (2%).