“When should I get back into the market?”
Yeah… I don’t really get that question. Clients, we think two main things set apart you. My take in this week’s video.
Want content like this in your inbox each week? Leave your email here.
cash management
“Fed” Up With Inflation
Recent weeks and months have been tumultuous in the stock market, and if you listen to market commentary, you will see one word come up over and over: inflation.
The funny thing is, market commentators cannot seem to decide whether we have too much or not enough. Many commodities started dropping a few months ago, driven by fears that inflationary prices would lead to a recession. When it looked like inflation was starting to level off, the same commodities dropped more. And then the Federal Reserve said it was satisfied with the way inflation was leveling off. Investors started worrying that the Fed was too complacent about the possibility of further inflation.
So guess what happened? Commodities dropped further still.
The moral of the story seems to be that the markets will do what they want in the short run and that market commentators will find excuses for it.
But we do believe that inflation will have a noticeable impact in the long run, and this poses many risks and opportunities for all of us.
With all the government stimulus money floating around, it might seem like inflation is inevitable. But the supply of money is only one side of the equation: money’s value depends on the supply of money versus the supply of all the things we want to spend it on.
For now the supply of money is up (due to the stimulus), and the supply of stuff we want is down (due largely to last year’s shutdowns and disruptions). The government’s hope is that as the next normal arrives, the supply of stuff will catch up to the supply of money—and inflation will settle back down.
Maybe that happens, maybe not. But we are less interested in what inflation does in the next year or two than we are in what it does in the decades ahead.
Everyone wants to build a bigger, brighter future. We are seeing an unprecedented demand for raw materials to make that happen, on top of the equipment and expertise to transform those materials into useful products. Whether we have a little inflation or a lot of inflation, this position strikes us as a good time to be in business for the companies producing raw materials and the ones manufacturing finished goods from them.
We do not know with certainty when or if this will play out. It may take years or decades. Even then, it may not come to pass the way we’re imagining.
But we think these big-picture trends will be more important in the long term than what the Fed announces this week or the next.
Clients, would you like to talk about this or anything else? Write or call.
The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
Want content like this in your inbox each week? Leave your email here.
Play the audio version of this post below:
"Fed" Up With Inflation – 228Main.com Presents: The Best of Leibman Financial Services
This text is available at https://www.228Main.com/.
Up And Down Really Means Up And Down
As long term investors we talk a lot about the need to weather short-term volatility in pursuit of long-term results. Our notion is that volatility is not risk, but an inherent feature of investing.
As years go by, many think of the market as having good years and bad years. This is based on the outcome for calendar years. The astonishing thing is how much movement there is during the course of the typical year.
“At least one year in four, roughly, the market declines.” We’ve said that about a billion times, to reiterate that our accounts are likely to also have good years and bad years, if one judges on annual returns. The object is to make a decent return over the whole course of the economic cycle, year by year and decade by decade.
But in those other three years out of four, the market also experiences declines during the course of the year. In an average year you may see a decline of 10 to 15% at some point during the year.
Our object is to leave long term money to work through the ups and downs, without selling out at a bad time. Three things help us do that:
1. A sense that everything will work out eventually, a mindset of optimism.
2. Awareness that downturns tend to be temporary, ultimately yielding to long term growth in the economy.
3. Knowing where our needed cash will come from, based on a sound cash flow plan.
Bottom line, even years that end up well can give us a rough ride. Knowing this can make it easier to deal with.
Clients, if you would like to talk about this or anything else, please email us or call.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
Stock investing involves risk including loss of principal.
All performance referenced is historical and is no guarantee of future results.
The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
Money in the Bank
We have learned over the years that money in the bank is useful and worthwhile for a variety of reasons. It helps us deal with emergencies and take advantage of opportunities. The confidence that comes from having that certain amount safe and sound is perhaps the best thing about it.
With the right amount of money in the bank, people may have more tolerance to the ups and downs of longer-term investments. With today’s low returns on safe, liquid investments, for some living with volatility is the only way to have a chance at decent returns over time. (We are using ‘money in the bank’ as a term to include a variety of conservative investments likely to maintain value.)
As with so many things, there is a gap between how people usually think of their money and how the financial industry talks about it. For example, when you think about the balance you need to have in order to sleep comfortably, you think in terms of a dollar amount. It might be $2,000 or $200,000 or some other number—a matter of circumstances and personal preference.
But the financial industry talks about it in terms of percentages. For example, a blend of 80% stocks and 20% conservative, or 60/40, or 40/60. We see things a little differently. Like Warren Buffett, we believe a temporary dip is not a loss, we are optimistic about the long term, and we know that tolerating volatility is crucial to successful investing. But you still need to sleep comfortably at night, and you still need those advantages that come from having money in the bank.
Our proposal: we will be working with you in the weeks and months ahead to sort out how much if any of the funds entrusted to us should be devoted to capital preservation first. We won’t be talking about percentages like 80/20 or 60/40; we’ll be looking to help you ascertain that dollar amount in conservative investments that strive to leave you feeling comfortable.
This is slightly harder than it sounds, since the trade-off for more stability is less growth potential over time. But we are here to work you through these issues. Write or call if you would like to discuss your situation in detail, or have other questions about this.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. No strategy assures success or protects against loss.
Stock investing involves risk including loss of principal.
There is no assurance that these techniques are suitable for all investors or will yield positive outcomes.
You must be logged in to post a comment.