1 fiduciary

   noun               fi·du·cia·ry             \fə-ˈdü-shə-rē, -ˈdyü-, -shē-ˌer-ē\

  1. one often in a position of authority who obligates himself or herself to act on behalf of another (as in managing money or property) and assumes a duty to act in good faith and with care, candor, and loyalty in fulfilling the obligation.

End of Days. Again.

I have to comment on the End of Days December correction before we completely forget that it happened.

In conversations with clients, reactions run from ambivalence to real concern. Sure, no one enjoys a correction and I am no different, but this never quite reached bear market territory. It did make a dent in 2018 results. Still, it was the first negative year since 2008 and 10 years without a loss is a pretty good run historically.

Causation is problematic, as in proving cause is hard to do. The Fed got the rate increase wrong but Chairman Powell was quick to walk back future increases as he should. That was also how the downturn ended. Otherwise, the gibberish I remember is global slowdown, trade wars, illegal immigration and government shutdown. We may yet make it to a recession, but to be fair a global slowdown is a recession. So, we are saying recessions cause recessions, or maybe we are saying fear of recessions causes recessions. It hurts my head.

As it was, on the first trading day in December the S&P 500 closed at 2790. On December 24 the market closed at 2351 which was also the low for the year. As I write this on March 4, 2019, the S&P 500 closed at 2792.

Some people sold in December, though not my clients of course. Those that sold digested that toxic stew of bad news and their guiding light became the endless collection of crises. If that is their view of the world, then it kind of makes sense to get out of equities. Who would want to bet not only their future dollars but their current dollars on that bleak outlook? Their set of facts were negative and, as we have seen, temporary and of no consequence.

But there is another group that did not sell and some maybe even took the opportunity to buy more equities. Their facts are more enduring. The jobs report in December, for example was exceptional. You would really have had to pay attention to catch it on the news but it was one for the ages. Ditto the increases in the broad market’s earnings reports. By the way, the collective reduction of company earnings due mostly to the business cycle or interest rate cycle is the definition of a recession. Earnings overall increased in 2018 as the economy EXPANDED. News flash, we were having the opposite of a recession.

People who made temporary issues a reason to sell caused real and permanent damage to their portfolio. Those that didn’t sell simply have not lost money, not from an accounting standpoint but also not in real terms. The best way to lose money in the market is to panic and sell. As a way of parting you from your money nothing else comes close, except maybe crypto currency.

Here are my takeaways from December, which reinforces my investment philosophy:

  • Selling to avoid a correction will always damage your portfolio performance. It is market timing and market timing does not work.
  • Markets generally trend up. Market timers get left behind holding cash over and over.
  • Making a plan with someone who times the market is an exercise in frustration for all involved.
  • Being prepared to lose money temporarily and only on paper only is a prerequisite for successful equity investing. So is diversification to minimize these losses.
  • Paper gains and paper losses signify nothing. Returns should be based only on cost basis and realized gains. Everything else is temporary.
  • Corrections are mostly emotional events. Small earnings corrections turn into market routs because of investor behavior.
  • The successful investor has learned to ignore corrections.

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1 Source: http://www.merriam-webster.com/dictionary/fiduciary

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