Tag Archives: investors

Staying Sensible During Market Records

diceIt’s almost like a fact of life; the market will go up and go down, break records and hit all-time highs or lows. In short, the stock market can fluctuate as we have always seen and once it breaks records, people can swing either way about it. Whether they are positive or negative, one could think that becoming active on the market is a good course of action. On the other hand, another might feel as though they missed the mark and they can’t get in on the offers for the time being.

One thing is certain, no matter what the market is doing, investors should stay sensible. If the market is breaking records, it’s nothing new, it has happened before so new highs should not merit excitement or worry. Take it from Zack Shepard, the vice president of Matson Money, over the long-term the market generally rends to rise, so new highs may not be worth the hype. No one can predict what the market will do. Just because something may be trending now, tomorrow it could be down in the dumps. Financial coaches need to rein in their investors and discuss how market records can change in an instant.

If you are going to jump in and buy, hold on to it or just stay in it. Take for instance data published by the Center for Research and Security Pricing (CRSP) with respect to the CRSP 1-10, a stock market index representing the entire market cap of the New York Stock Exchange and other exchange equivalents.  According to the historical data for the CRSP 1-10 index, the average 5-year annualized return after a new high since 1926 is 9.02%! Of course, past performance is no guarantee of future success. This index return information does not reflect actual investor results and no representation is made that your portfolio would experience similar results.

Indices are unmanaged, cannot be invested in directly and their returns do not represent the performance of any actual fund or transactions and do not include management fees, transaction costs or expenses. Just looking at the CRSP historical data, holding out could be beneficial, but that’s the beauty of the market.  It can be a hard game to play, but if you look at your long-term portfolio and manage it well with diversified stocks, you could be on the way to more stable financial footing.

Capitalism 101

When you talk about educating investors, Matson Money believes that Wall Street does a terrible job of it. They teach people how to buy stocks, how to do this, do that, but nobody really talks about what’s underlying all this: Why would you even want to invest?

So I’ve created a little talk that I call Capitalism 101, which I could paraphrase by saying, “how is wealth created?” And I’m talking about true wealth, like the wealth, GNP of a country. Not “moving this guys’ money from his pocket to your pocket.” You might get rich but that didn’t create any wealth. So when you really stop and think about it, you ask, “Well, what is really needed in a country’s economy to make that economy grow and create this wealth?”

And the one that comes to mind first is skilled labor. We take countries like a lot of the Asian countries, but China is a great example over the last 20 years. A lot of skilled labor, allowing them to produce a lot of product quickly. Next, you’re going to need every economy needs, raw materials. That’s why China needs those raw materials from Australia and vice versa. Canada, Australia, Chile, Norway, these countries generate a lot of wealth just by having natural resources and selling those resources to the latter.

The third thing that’s needed is money, financial capital. And where and who is supplying financial capital to this whole system. It’s investors. So by supplying this capital to the whole system and the wealth being created, you as an investor, are entitled to your share of that increase in wealth. Now, unfortunately most investors don’t get what is truly their fair share. And that’s a big part of what my message has been over the years is, “how do you go about getting that?”

Advisers have a huge role to play because of their job. They’re not there to create wealth. And we know they’re not there to pick stocks, you know, or time markets or do those traditional things we call active management – none of that is creating wealth anyway. The adviser’s role is to make sure the investors, who are supplying the financial capital, are getting their fair share. So I call it a defensive strategy. The economy creates the wealth, the adviser structures the investment solution that enables the investor to get a fair share and then brings discipline to the whole process.