March 18, 2020: 10:35 am CST
Dear Friends, Family and Clients,
Despite today's -1,200 point decline,(as we speak) I have some good news!
Demand for stocks is returning! Underneath the hysteria, the news media, the doom and gloom, I see demand entering the market for the S&P 500 and technology stocks in the NASDAQ 100. We've seen a +12% in positiveness in the midst of gloom which is EXACTLY what we want to see.
The technical definition of a bear market is: a period of time during which common stocks are returned to their rightful owner.
Chart of the "bullishness" of the S&P 500
We want to see divergence.
We want to see a development in a different direction.
The chart on the left, represent the S&P 500.
A +12% positive shift in stocks flipping from a sell signals to a buy signals this week.
+2% to +14% positive shift.
In other words, 12% or 60 of the S&P 500 stocks have flipped from negative to positive.
This is very encouraging!!
The shift might be due to market volatility so stay tuned. This movie isn't over yet, but I know exactly how it's going to end.
Below, is a similar chart of the NASDAQ 100 technology heavy index. Extreme panic selling and now newer smart money is buying. This is very encouraging! Two out of three indexes, or 66% showing a small recovery. Here we see a +8% positive shift in buy signals.
Conclusion
These charts may seem unscientific, mumbo-jumbo, hocus pocus to you.
But they're based on the very
essence of investing. They measure supply and demand.
Nothing more; nothing less.
As your financial advisor I don't make investment decisions based on CNBC, Facebook News Feed, COVID-19 recoveries, political views or religious beliefs. I give to Caesar what is Caesar's; and to God what belongs to God.
- We're going to hold on to the cash we have until I feel more certain about the market, but we're in a good place looking to deploy when we get more evidence.
- Don't neglect 401(k)'s left behind at previous employers.
- Don't panic.
- Share the news with a friend or family member.
Here is an excerpt from an email I sent to a client in February 2019.
"My practice is limited to about 100 accounts. And these people are my life, which includes you. My commitment to the clients who choose to work with me is simple: I'm going to care more about you, and be more personally devoted to your financial success, than anyone in the world who doesn't have your last name. My fees are middle of the road, and very often indexes, benchmarks and other advisors can post better numbers for a year or two or three - I don't think that stuff matters very much in the long run. ...[and] as a firm I have to "begin again" every year, every quarter."
Pretty much sums it up. What we're seeing here IMHO, is the sowing of seeds for a positive, decade long resumption of the bull market. The virus only popped the bubble we saw last year. I hate to say it, but the current path we were on was unsustainable. THE MARKET NEEDED THIS.
The average market decline is -30%, and we just hit -31%. Typical, typical decline. The ones you forget about after a year or two or three. This is a mind set. A belief system.
Think "fire sale".
Think "clearance sale".
Think "bad investors are begging me to take the best companies in the world off their hands at prices we haven't seen in years".
The Truth
There are hundreds of studies on declining markets, business-cycle-boom-bust, election year declines, Spanish Flu, SARS, etc., etc. All of them are interesting, but none of them matter.
Truth #1:
The only thing you need to know is that the market advance is permanent; and the declines are temporary.
Truth #2:
The world does not end; it only appears to be ending from time to time.
Truth #3:
All successful investing is based on historical probabilities, not remote catastrophic possibilities.
The cycle always reasserts itself.
Always.
If any of your friends or family members feel abandoned by their current financial advisor during this time of stress and uncertainty please have them call me at 847-686-4800.
Please share this newsletter with them.
Respectfully submitted,
Bill
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charts courtesy of Dorsey Wright & Associates.
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