Anti-Fragile: RebuildSubmitted by RetireWiseCFP on January 30th, 2019
I use market downturns as opportunities to renovate and rebuild. Yes, it is upsetting. I don’t look forward to it, but I know that it will happen over and over and over again. I will make a BOLD prediction: what we experienced during the last 2 months of 2018 will not be the last time. In the next 10 to 15 years, which is the appropriate timeframe for investors, we will have 10 to 12 occasions when the markets will suffer corrections of 10% or more.
Where are we now?
In a span of less than 15 trading days in November and December, the stock market wiped out all the gains and more your humble advisor had built up over the last 12 to 18 months. It was abrupt, swift, and painful to watch the profits we had built in many great companies get wiped out, primarily over two main issues that we as investors have zero control over. One was the endgame between the US and China over trade negotiations. The other issue was whether the Federal Reserve Bank was going to raise interest rates too many times and choke off growth. These are indeed serious topics, and they do have an effect, but as investors, we have absolutely no control over them. All I need is clarity on the rules of the game; I will go to work and make it work for my clients. I don’t cry over it. I will have more to say about these topics below.
Where do we go from here?
In the coming weeks, I will methodically go through portfolios and review the companies we own. Where should I add more, where should I have less, and where I should stay as is? This is not about a reaction to bad market swings. I look at the fundamentals of the companies and their industries. But while the media and the headlines are all about negative things, I am looking at something else—there are some great companies coming into the public market in 2019. Uber and Lyft are two potential opportunities in 2019. These two companies remind me of when we had the great opportunity a decade ago to invest in MasterCard and Visa at the beginning of and during the Great Recession (exactly during the bad times) for our clients. My job remains the same; I have to stay sane during the storms and keep my eyes on the prize.
On fixed income and alternatives:
For years now, I’ve lauded the Federal Reserve Bank in their communications and how they manage investors’ expectations. Not anymore! The new Federal Reserve Bank Chair, Jay Powell, overplayed his hand late in 2018 and was overly bombastic with some ill-advised sheriff- like talk. He talked too tough and too rough. Mr. Powell’s threat to raise rates to combat feared (but imaginary) inflation really spooked the market and caused a tremendous tailspin. The fact is: inflation, though rightly feared, has not occurred. If anything, oil prices (a huge component of core inflation that affects most people) have gone down, not up. So we have tough-talking Sherriff Jay Powell looking to shoot dead any roughneck inflation—but there is one problem. There are really no bad inflation dudes in town. There is no inflation in sight. If Sheriff Powell remains trigger happy, he is going to shoot innocent people. The market was afraid Sheriff Powell was going to raise rates so fast that he would choke off the economy and therefore cause a recession.
On Alternatives: The Bitcoin mania may be over. I am cognizant that it may come back. I’ve done nothing. Six months ago I wrote that “speculative higher oil prices may be the next self-induced mania.” I am happy to report that mania exhausted itself very quickly. Oil prices are now lower.
What should we look out for?
The outcome of the negotiations between the US and China is really the next BIG shoe to drop, and that, my friends, is a BIG one. There is no need to be speculative about it; or try to make this or that move; or do this or that in anticipation. Whatever happens—I will make only one promise—I will deal with it. We will buy more of the companies that will benefit from whatever outcome or decision is reached. America is a resilient and dynamic economy: I have never bet against America as an investor. I am confident America will make the necessary adjustments and China will not overcome America.
Thank you for all your support as I dealt with cancer in 2018. I look forward to getting stronger in the coming weeks and months. I’ve learned a lot about myself and am grateful for all my friends. The following message resonates with me and I believe applies to all of us: Health is the greatest gift, contentment the greatest wealth, and faithfulness the best relationship.
Femi Shote, MSF,ChFC,CFP,Accredited Investment Fiduciary