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Inflation Compounds the Cost of These Investment Mistakes

Inflation is a silent rustler seldom identified by the plundered. Many things may trigger price inflation, such as a supply constraint or a sudden spike in demand, but one thing may be properly identified as inflation’s cause. Following the Covid lockdown, the Fed created so many arbitrary new dollars that, short of a severe economic depression, it will likely be a decade or more before price inflation (CPI) reverts to its desired 2% range. The FOMC’s recent upward revision for inflation estimates through 2025 support this thesis,¹ again proving entrenched inflation is not easily subdued. Persistent high inflation amplifies both the need to live by sound financial principles (discover Inflation-Taming Budget Strategies), but also the cost of investment mistakes. Avoid these three investing pitfalls as you strive to overcome the Fed’s inflation with successful investing:

  • The Anchoring Trap lulls investors into owning household names, like Kodak, Blockbuster, and J.C. Penney, based on former glory, even as they are displaced by new competitors. Occasionally referred to as value traps, these high dividend blue chips are in reality dinosaurs worthy of abandonment. Reinvesting a huge dividend doesn’t help when the share price is going to zero! The tires on every “Forever Stock” must be periodically kicked to affirm present industry relevance and the sustainability of future earnings. This is especially needful during times of rapid technological advancement, as Amazon proved in the last decade, and may prove again on the other side of things in the coming decade. Assume nothing, and allow only present facts to influence your investment decisions. Do your homework.

  • The Pseudo-Certainty Trap consists of two investment mistakes. The first involves reducing portfolio risk during a period of positive performance. It’s like a rabbit which slows down when it gets ahead of the turtle, but loses the race taking an unplanned nap. Allow stop-loss orders to instruct your selling and risk reduction, not your wayward emotions. The second is more injurious, which involves adding risk by increasing portfolio risk during a period of negative performance. This mishap constitutes attempting to catch a falling Kbar with your bare hands; the injury is generally bloody! The trend is your friend. Wait for a confirmed uptrend to increase investment risk.

  • The Sunk Cost Trap is born from the illogical (though nearly universal) assumption that a company is more valuable because we own it, grows into an obstinate refusal to sell regardless of the evidence we are wrong, and fully matures when we commit additional capital to a sinking ship. This mistake devastates portfolio returns, but is easily avoided by consistently establishing an exit plan for all non-forever holdings, and sticking to it.²

Think about it, and blessings on your investing efforts! Shaun

“The way of a fool is right in his own eyes, but a wise man listens to advice.” ~Proverbs 12:15

“In the abundance of counselors there is victory.” ~Proverbs 24:6

 

1 AIER, “FOMC Ratches Up Inflation Projection”, January 2, 2023 2 Daily Wealth, “Make Investing Easier by Avoiding These Three Traps”, by David ‘Doc’ Eifrig, December 30, 2022

 

The opinions voiced in this material are general, are not intended to provide specific recommendations, and do not necessarily reflect the views of LPL Financial. The economic forecasts set forth in this commentary may not develop as predicted.

All investing involves risk including the possible loss of principle. No strategy assures success or protects against loss.

 

     

  

https://www.fivestarprofessional.com/spotlights/90982

Award based on 10 objective criteria associated with providing quality services to clients such as credentials, experience, and assets under management among other factors. Wealth managers do not pay a fee to be considered or placed on the final list of 2012/2022 Five Star Wealth Managers.

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Catalysts, Signs and Strategies for the Coming Bear Market Bottom

I recall while ascending the Disappointment Cleaver Route of Mt. Ranier in 2009, our rope team traversing a glacier heavily littered with boulders of all sizes. A picture of that slope was etched into my visual memory, a sign of treachery so convincing no verbal warning was required of the guides. What are the signs of a near-term bear market bottom, what catalysts may invoke these signs, and what bear market principles can guide you safely and profitably through such a perilous course?

On that side of the mountain, there was simply no way to the top of Ranier but across that terrifying, boulder-infested glacier. Likewise, major bear markets, like the one we’ve experienced throughout 2022, simply don’t end without one of two indicators triggering: either 1) the Fed reverses course and starts lowering interest rates, or 2) broad capitulation takes place in the stock market, or both. Jerome Powell has been clear about what will cause the Fed to reverse course: either a) financial crisis, or b) a fall in inflation near the Fed’s desired 2% level (likely accompanied by severe economic contraction). Broad stock market capitulation is driven by a lengthy and discouraging downtrend in stock prices (the traditional third and final stage of a bear market).

Rather than cower at the edge of the glacier until we freeze to death, let’s consider the navigational principles for investing through times of high inflation, recession, financial crisis, and falling stock prices.

  • Present high inflation requires a high value be placed on present income, and that future growth be scrutinized ruthlessly. If you’re high on the “hopium” of an early Fed pivot, and still sitting on a portfolio full of growth stocks, maximum pain likely lies ahead for you.

  • Build a watch list of great businesses, the ridiculous price at which you must own them, and set the alarm clock for when it happens.

  • Build investable cash. If you can’t take advantage of a great investment opportunity, it won’t benefit you. Get frugal, cut expenses, and reduce positions vulnerable to said conditions. If you don’t put food in your pack, you’re not going to the summit!

  • Buy great businesses when you find them at a reasonable price, but don’t meaningfully increase stock exposure until the bottom is confirmed. Many climbers made a summit attempt the day before they should have, never returning home as a result. Don’t jump the gun trying to time the bottom with a hunch, or the market will set you up, call your bluff, and eat your lunch.

  • Never sell merely to reduce emotional stress. Capitulating near a bear market bottom is a catastrophic error. Don’t get buried on the mountain!

Realize in the case of a Fed pivot, stocks have historically bottomed at significant new lows months after the Fed reverses course, and in the case of broad capitulation, a bottom comes quite swiftly once the selling exhausts itself. Remember that history rhymes, but it doesn’t exactly repeat. The bottom could be confirmed at any time. As an investor, you operate in the realm of probabilities, not assurances. Remain vigilant and nimble, ready to act decisively and courageously whenever that rare investing signal flashes; do not waver when the summit is in full view, and the conditions beg of you to attain it!     

Think about it, and a blessed and happy New Year to you and yours. Shaun

 

“It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.” ~Warren Buffet

“What has been is what will be, and what has been done is what will be done, and there is nothing new under the sun.” ~Ecclesiastes 1:9

 

The opinions voiced in this material are general, are not intended to provide specific recommendations, and do not necessarily reflect the views of LPL Financial. The economic forecasts set forth in this commentary may not develop as predicted.

All investing involves risk including the possible loss of principle. No strategy assures success or protects against loss.

 

 

     

  

https://www.fivestarprofessional.com/spotlights/90982

Award based on 10 objective criteria associated with providing quality services to clients such as credentials, experience, and assets under management among other factors. Wealth managers do not pay a fee to be considered or placed on the final list of 2012/2022 Five Star Wealth Managers.

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Opportunities Lurk as Bear Regains Dominance

The White Mountains of New Hampshire are small, but extremely dangerous mountains, especially in the winter season. Climbers visiting from the world’s taller, drier, and in most cases smoother ranges, often expecting a mini-version of their past climbing experiences, are rather presented with endless rugged bouldering, cold but wet, hypo-thermically-conducive air, and the fiercest winds on earth. New Hampshire’s tiny range is especially equipped to brutalize climbers, introducing a few to their Maker almost every year. The financial markets are equally formidable, identified by savvy investors as “an organism designed to ultimately inflict the maximum amount of pain on the largest number of investors possible”. How might this truth present shrewd contrarians with exceptional opportunities, and where is this phenomenon relevant right now?

Buying a great business at a reasonable price and holding it for a lifetime is probably the surest, and one of the most efficient ways to build wealth. Every other investment is a trade in which one expects to sell their holding in the future to another investor for a higher price. While there are many trading principles which can increase the probability of success, like valuation guidelines, proper position-sizing, and stop-loss orders, the single biggest factor, and, therefore, opportunity, is to buy aggressively when prices are severely depressed, sentiment is at historic lows, and most investors think the sky is about to fall. Investors who possess the courage and good sense to commit their hard-earned capital to quality holdings when there is blood in the streets are often presented with above average returns. What markets seem poised to present such an opportunity in the near future?

  • Emerging markets equity prices generally move inversely to the U.S. dollar, which hit a 20 year high in September and is now collapsing. The iShares MSCI Emerging Markets ETF (EEM) broke through its year-long downtrend less than 30 days later,1 and seems poised to appear on Steve Sjuggerud’s “cheap, hated, and in an uptrend” radar device. Keep a tight leash on this one, as a global recession nears, especially punishing to this asset class.

  • Cash-gushing U.S. businesses, in particular beaten-down small and midcap stocks, especially those with pricing power, are in high demand AND in cases selling for the lowest valuation in years. Be careful to distinguish a “Forever Stock” purchase from a trade, and be disciplined to establish an exit plan for all trades at the time of purchase. Volatility will likely extend her stay, for so plans High Inflation.

  • Not long ago bonds were referred to by the shrewd as an investment offering ‘return free risk’. Today, following their worst year in a century, and given a high probability ‘the Fed’ will be forced to stop raising, and maybe even start cutting interest rates in 2023 by an impending global recession, improves the outlook for bonds considerably. Steer clear of “junk (high yielding corporate) bonds”, as the recession will harshly scrutinize them, and consider instead the longer-end of the high-quality market.

  • If you can imagine ‘the Fed’ having to stop raising interest rates, and possibly even having to cut rates and print money, while inflation is still two to three times its desired 2%, and this dynamic occurring while a global supply-chain restructuring unfolds, you can begin to imagine how expensive natural resources might become. Prefer domestic producers, established leaders, and especially royalty companies with strong income streams and capital efficiency. Build your positions in tranches, diversify, and honor your risk tolerance. Have an exit plan or it will have you. No boom lasts forever.

Think about it. Shaun   

 

“Give a portion to seven, or even to eight, for you know not what disaster may happen on earth.” ~Ecclesiastes 11:2

“Be wise as serpents and innocent as doves.” ~Matthew 10:16

 

1 YAHOO Finance, “Quote Lookup: EEM”, December 9, 2022

https://finance.yahoo.com/quote/EEM?p=EEM&.tsrc=fin-srch

 

The opinions voiced in this material are general, are not intended to provide specific recommendations, and do not necessarily reflect the views of LPL Financial. The economic forecasts set forth in this commentary may not develop as predicted.

All investing involves risk including the possible loss of principle. No strategy assures success or protects against loss.

Asset allocation does not ensure a profit or protect against loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

 

 

     

  

https://www.fivestarprofessional.com/spotlights/90982

Award based on 10 objective criteria associated with providing quality services to clients such as credentials, experience, and assets under management among other factors. Wealth managers do not pay a fee to be considered or placed on the final list of 2012/2022 Five Star Wealth Managers.

Shaun Scott No Comments

Two Investing Strategies for 2023 and Beyond

Mountaineers venturing above treeline in winter carry essentials to thrive in any weather scenario, and sometimes experience every weather scenario in a single day. Investors who prospered in the 1970’s, a decade which saw two lengthy recessions, wild market volatility, and constantly rising interest rates, were comparably equipped! 2022 ushered in conditions substantially similar to the 1970’s, and following similar policy errors, making the roadmap of the 70’s a valuable commodity to us today. What two particular investment strategies can tame a long period of erratic stock market volatility while dramatically improving investment returns?

A ‘Forever Stock’ represents ownership in a business of such high quality that, apart from a fundamental change in the company or industry, should never be sold so long as it was acquired for a reasonable price (or better!). Forever stocks are always capital-efficient businesses with a strong brand and significant free cash flow, and generally become industry dominators. They are also generally dividend-paying, and frequently dividend-increasing companies, sometimes referred to as “Dividend Aristocrats”. The stock averages showed some of the worst returns in history in the 1970’s, but investors who owned ‘Forever Stocks’, and reinvested dividends when applicable, fared far better. I use a set of five strict valuation parameters for the 31 ‘Forever Stocks’ I track, but you can create your own list and set of parameters, just make sure they’re tested. A mountaineer who doesn’t test equipment near home is in for the occasional rude awakening, or worse. ‘Forever Stocks’ seldom go on sale, but when they do, BUY THEM, regardless of your macro-outlook, and check your numbers frequently so you don’t miss “buy zone” opportunities.   

It’s common knowledge on Wall Street that asset allocation, not security selection, is most responsible for investment returns. Investors widely exposed to energy, healthcare, and consumer durables this year have enjoyed massive relative outperformance, while those exposed to information technology, real estate, and consumer discretionary have suffered large losses. Diversification is an important principle not to be violated, but focusing on industries in favor, and avoiding industries out of favor, and until the trends have run their respective courses, can both smooth out the ride and radically improve your investment returns. I climb in the High Sierra’s often because the conditions are ideal, and I avoid the Rocky Mountains because both the snow and rock are unstable. The same principle can be applied to investing, and the market environment that appears to be entrenched for the coming decade offers ideal conditions to apply it. Remember, the trend is your friend, and what is in motion tends to stay in motion (and in the same direction). This is not market timing or day trading, both highly speculative endeavors, it is trend following by industry groups. Be acquainted with the 21 Key Industry Groups, and again, make sure your parameters for industry selection and avoidance are proven.

Think about it. Shaun   

 

“There is wisdom in the abundance of counselors” ~Proverbs 11:14

“Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks.” ~Warren Buffet

 

The opinions voiced in this material are general, are not intended to provide specific recommendations, and do not necessarily reflect the views of LPL Financial. The economic forecasts set forth in this commentary may not develop as predicted.

All investing involves risk including the possible loss of principle. No strategy assures success or protects against loss.

Dividend payments are not guaranteed and may be reduced or eliminated at any time by the company.

Asset allocation does not ensure a profit or protect against a loss.

There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio.  Diversification does not protect against market risk.

 

 

     

  

https://www.fivestarprofessional.com/spotlights/90982

Award based on 10 objective criteria associated with providing quality services to clients such as credentials, experience, and assets under management among other factors. Wealth managers do not pay a fee to be considered or placed on the final list of 2012/2022 Five Star Wealth Managers.

Shaun Scott No Comments

Profiting from a Bear Market

I recall from over twenty years ago, while beginning a long hike on the Franconia Range in the White Mountains, my brother and I debating which of his four young children might first ask, “How much farther is it?”, and how soon they might ask it. Focusing on the suffering a mountain climb inflicts can steal the opportunities it also extends to profit from the experience, and the same can be said of an investor’s perspective in a bear market. The climber benefits most by appreciating the wonder of the forest, the danger above tree line, and the beauty of the summit vista, and it helps to remember that every step represents one no longer required to soak one’s feet in the numbing river below. What principles can turn the dreaded bear market into an equally rewarding experience for investors?

The simple decision to enjoy, and benefit from the climb sets the mountaineer to meticulous planning and committed training. The following issues can help any investor think very differently about bear markets, and profit immensely from the opportunities they present:

  • The most productive investments are made when prices are low. It will not “feel” right to buy when there’s blood in the streets, so have distinct parameters to make yourself do so.

  • Capitulating, or selling stocks near a market bottom to stop the pain, is a catastrophe. Build cash by reducing stock exposure when prices are high by use of sell-limit orders, and by appropriating new contributions to cash.

  • Always have an exit plan (specific parameters to sell) on all non-forever holdings from the date of purchase, and follow it judiciously.

  • Never part with a forever holding due to emotional pain, or for any reason other than a fundamental change in that holding.

  • Never be afraid to buy a great business at a reasonable price, but don’t back up the truck until the market bottom is confirmed.

  • Train yourself to get excited when prices are low, and concerned when prices are high. Profit on the fear and greed of others by agreeing with the market’s cyclicality and counter-intuitiveness.

  • Profitability comes more reliably from income streams than from appreciation potential; focus on dividends.

  • Build a “watch list” of great businesses, the price at which you must own them, and should they fall so far, buy them.

  • Heed Warren Buffet’s counsel that investing is like baseball in that you are never forced to swing at a pitch. Never make a purchase due to “Fear of missing out” (FOMO). Be patient when buying. Hunt like an alligator.

  • Strictly adhere to proper position sizing. Never allocate more than 5% of your investable assets to a single stock, especially speculative positions.

  • Dollar cost average the whole market cycle, preferably from peak to peak. Athletes train in the valley, not on the mountain top. The summit is the reward, not the daily experience. Do the work good investing requires.

  • If retired, account for income withdrawals. Never be forced to sell at an unfavorable time to fund withdrawals, especially in a bear market.  

  • Learn to gauge the sentiment of others. When conversations tend to include the stock market and investment success, make sure your ‘stops’ are in order; when tales of woe and loss abound, make sure your cash is liquid and your watch list current.

  • Understand returns are mostly attributable to asset allocation, as opposed to security selection. Focus on favored, and avoid unfavored industries. Don’t allow yourself to think favorably or unfavorably about the market as a whole, but investigate deeper what is wise to own at any given time.

  • Get the highest fixed rate you can on cash savings, especially at decade-high Treasury rates, but keep it liquid, for the bear market bottom may come sooner than you think.

  • Keep investment expenses to a minimum. Realize every dollar of expense directly reduces returns, and worse, it compounds that reduction indefinitely!

  • If you hire someone to manage your hard-earned savings and investments, make sure it’s a fiduciary who represents your interests alone.

  • Enjoy the investment process and never stop learning. Share your profits with those in need, and your knowledge with those eager to learn.

Think about it, Shaun.   

“What the wise man does in the beginning, the fool does in the end.” ~Author unknown

“Investors who buy in stage one of a bull market, when prices are low because of prevailing pessimism, have the potential to earn high returns with little risk; the two prerequisites being money to spend and the nerve to spend it.” ~Howard Marks

“Give a portion to seven, and even to eight, for you don’t know what disaster may happen on earth.” ~Ecclesiastes 11:2

 

The opinions voiced in this material are general, are not intended to provide specific recommendations, and do not necessarily reflect the views of LPL Financial. The economic forecasts set forth in this commentary may not develop as predicted.

All investing involves risk including the possible loss of principle. No strategy assures success or protects against loss. Asset allocation does not ensure a profit or protect against loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

Dollar cost averaging involves continuous investment in securities regardless of fluctuation in price levels of such securities. An investor should consider their ability to continue purchasing through fluctuating price levels. Such a plan does not assure a profit and does not protect against loss in declining markets.

Dividend payments are not guaranteed and may be reduced or eliminated at any time by the company.

 

     

  

https://www.fivestarprofessional.com/spotlights/90982

Award based on 10 objective criteria associated with providing quality services to clients such as credentials, experience, and assets under management among other factors. Wealth managers do not pay a fee to be considered or placed on the final list of 2012/2022 Five Star Wealth Managers.

Shaun Scott No Comments

A Compass Read on Inflation, Stock Prices, and the Economy

The Fed finally achieved its long-sought 2% inflation rate, over-shooting nearly five times before addressing the issue, and now inflation is driving monetary policy, the economy, and the direction of asset prices, and will be for some time. Why must Jerome Powell & Co. continue tightening policy until something big breaks? What market dynamics suggest stocks can fall farther from here? How is the economy handling these challenges? What sound practices can guide you safely through these dangerous waters?

The fed must continue raising interest rates and removing excess liquidity from the economy (by selling Treasury bonds from its balance sheet) for two reasons: 1) to reduce demand, in an attempt to alleviate inflationary pressure, and 2) to preserve its own remaining credibility. Unfortunately, today’s high inflation is driven primarily by supply constraints, which is why it’s a global phenomenon, and which places it largely beyond the Fed’s ability to curb. On Tuesday the August inflation report came in hotter than expected at 8.3%,¹ and it did so in the midst of the most aggressive Fed rate hikes in decades. Powell has made no commitment to slow rate increases yet, nor can he until an impetus larger than 40-year high inflation emerges, but such an impetus will emerge, and when it does, Powell will revert to his dovish tendencies as a bee to an early Spring flower, so hold your bearishness loosely.   

The broad stock market is down double digits in 2022 and recently entered The Third and Final Stage of a Bear Market. Doc Eifrig, of Stansberry Research, last week shared his observation that ‘equity risk premium’ has only begun to rise, strongly indicating 1) stocks have so far declined in an orderly manner due mostly to rising rates, as opposed to investor panic or deteriorating financial or economic conditions, and 2) rates are likely to rise significantly from here.² Trained “buy the dip” investors are beginning to realize the Fed no longer has their back, as are the millions of disenchanted “60/40” retail investors who are enduring their worst relative performance on record. The strong summer rally suggests a spirit of speculation remains, and that most retail investors have no bear market plan, which means they are likely to capitulate before the present bear market turns, another reason to not hold your bearishness too tightly.

Thus far, the U.S. economy has contracted modestly for two consecutive quarters under the aforementioned factors, but more serious concerns are arising:

  • The Dry Baltic Index, which measures bulk, dry goods shipping, is crashing, which could be signaling an earnings recession is around the corner.³ 

  • The credit market is tightening on all types of loans, making it more challenging for businesses to obtain financing, especially heavily-indebted companies.

  • The 2/10 Treasury yield curve remains severely inverted, the most accurate indicator for an oncoming recession.

Warren Buffet said, “Don’t bet against the U.S. economy”. Sir John Templeton said, “Never stay bearish for long”. I would humbly add that we should be investing for inflation, buying quality companies with streams of income and pricing power, and building cash for the coming bear market bottom. If you are retired, make sure your cash flows are accounted for first. 

Think about it, Shaun.

“Precious treasure and oil are in a wise man’s dwelling, but a foolish man devours it.” ~Proverbs 21:20

1 CNBC, “Dow tumbles 1,200 points for the worst day since June 2020 after hot inflation report”, September 13, 2022 https://www.cnbc.com/2022/09/12/stock-futures-are-higher-as-wall-street-awaits-key-inflation-report-.html 2 The Stansberry Digest, September 10, 2022 3 Chaikin Analytics, Power Feed, “The Leading Indicator Nobody Cares About”, September 9, 2022

The opinions voiced in this material are general, are not intended to provide specific recommendations, and do not necessarily reflect the views of LPL Financial. The economic forecasts set forth in this commentary may not develop as predicted.

All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

All investing involves risk including the possible loss of principle. No strategy assures success or protects against loss.

 

     

  

https://www.fivestarprofessional.com/spotlights/90982

Award based on 10 objective criteria associated with providing quality services to clients such as credentials, experience, and assets under management among other factors. Wealth managers do not pay a fee to be considered or placed on the final list of 2012/2022 Five Star Wealth Managers.

Shaun Scott No Comments

The Third and Final Stage of a Bear Market

June introduced the first natural bear market in the U.S. since the Great Recession in 2008. The February to March, 2020, covid lockdown-induced bear market qualified by definition, which is a 20% decline from the recent peak, but lacked important characteristics of a traditional bear market, and was anything but natural.

Major bear markets are always accompanied by economic recession; remembering that will help you distinguish a market correction from a more painful and lasting drawdown event. As described in Bob Farrell’s 10 Rules of Investing, the three stages of the bear market are as follows:

  • Sharp down

  • Reflexive Rebound

  • Drawn-out fundamental downtrend

The sharp sell-off occurred from early January through mid-June, interrupted briefly by a relief rally in March, and saw the S&P500 to a 23%, bear market decline. The reflexive rebound played out as an impressive 17.8% summer rally from mid-June through mid-August, conning many talking heads to pound the tables on the new bull market, and has since rolled over. That leaves the drawn-out fundamental downtrend.

The bear market’s final stage consists of two phases: a dramatic, fear-driven sell-off to significant new lows with little interruption, and then a longer, slower, more methodical decline in prices. The investor’s psychological journey begins in disbelief, when the initial sell-off occurs, travels to denial, during the fake recovery, ventures through awakening, when fake recovery’s cloak falls off, breaks the speed limit to fear, when the crash arrives, spends a few days in despondency, during the drawn-out decline, and finishes the journey at capitulation, where it’s illegal to own stocks. Capitulation greatly excites savvy investors, who subscribe to “The Daily Gazette”, but never visit.  

While it’s important to protect our capital with prudent bear market principles, like dollar cost averaging, diversification, honoring stop-loss orders, building a cash position, and favoring quality over potential, it’s also critical that we realize:

  • The Fed fears deflation more than inflation, and while we shouldn’t fight the Fed, they will print again, which means stocks will rise again. The bear market will culminate in a fantastic opportunity.  

  • A person is smart, but in groups people are dangerous and irrational. Broad capitulation is a gift from the masses which the prudent never refuses. Build cash.

  • When a large pile of money is sitting in the corner, Jim Rogers said he always goes over, picks it up, and takes it home with him. Know what you want to own, the ridiculously low price at which you must own it, and make sure you are notified when it happens.

Politicians, the Fed, and the financial media have been lying to you. Recessions and bear markets are not evil, and they are not avoidable. Recessions punish the heavily indebted, which frees up unproductive capital and sends it to productive ends, the non-profitable, which promotes and compensates entrepreneurialism and fiscal restraint, and the under-educated, which trains workers to be useful and productive. It also sets the foundation for sustainable economic growth. Bear markets weed out excess leverage and speculation, and prepare the table for a new and sustainable bull market. The prudent don’t fear these things, they welcome them.

Think about it, Shaun.   

“Be wise as serpents, and harmless as doves.” ~Matthew 10:16

“If you have not been faithful in the unrighteous wealth, who will entrust to you the true riches? You cannot serve God and money.” ~Luke 16:11,13

The opinions voiced in this material are general, are not intended to provide specific recommendations, and do not necessarily reflect the views of LPL Financial. The economic forecasts set forth in this commentary may not develop as predicted.

All investing involves risk including the possible loss of principle. No strategy ensures success or protects against loss. Asset allocation does not ensure a profit or protect against loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

Dollar cost averaging involves continuous investment in securities regardless of fluctuation in price levels of such securities.  An investor should consider their ability to continue purchasing through fluctuating price levels.  Such a plan does not assure a profit and does not protect against loss in declining markets.

 

     

  

https://www.fivestarprofessional.com/spotlights/90982

Award based on 10 objective criteria associated with providing quality services to clients such as credentials, experience, and assets under management among other factors. Wealth managers do not pay a fee to be considered or placed on the final list of 2012/2022 Five Star Wealth Managers.

Shaun Scott No Comments

Natural Resources, Deglobalization, and Tech Megatrends

The percentage of any wild animal’s time spent searching for food is impressive, a display of planning, exertion, and perseverance which puts even Master Gardeners to shame. The animal is simply not in confusion about the importance of food. Vital resources steadily supplied to producing nations through established distribution channels by way of relatively free trade has been a boon to earthly societies for millennia, but the Covid19 lockdown dismantled the global supply chain, which today is being reconfigured meaningfully. How is the scramble for natural resources suddenly reshaping national policies and international allegiances? How do the technological megatrends discussed last week exacerbate the need for critical resources, and how should it affect your thinking and behavior as an investor?

If the Lord should tarry, effects from the Covid19 lockdown will still be playing out in 100 years. Nations are now forced to align based on the supply of required resources over and above former priorities; for instance, Europe may abandon support of U.S. sanctions against Russia this winter if Putin threatens to withdraw his supply of natural gas via the Nordstream pipeline, a development which would have massive political, economic, and currency implications. Non-producing, importing nations are being squeezed financially by higher prices and the sudden need to increase dollar reserves in preparation for the oncoming global recession. Developing, resource-rich nations, also under pressure to build dollar reserves, are tempted to fund the effort by nationalizing large producers of essential commodities, further reducing global supply, a catastrophic error most recently repeated by Venezuela. Dominant trading nations, like the U.S. and China, are adjusting production and trade policies, spending aggressively, and threatening war over resources perceived to be up for grabs, all in a frantic effort to secure critical supplies for the future. This is a telling landscape, but the opportunity gets even better for investors paying attention to the suddenly most important asset class on earth.

God made everything from nothing, but people are capable only of refashioning existing materials. Globally scalable, disruptive mega-trends, like 3D printing, robotics, electric vehicles, battery technology and renewable energy, are already introducing a new and insatiable demand for specific natural resources, especially the rare earth metals required to mass produce these new technologies. Supply for many essential resources may not exceed demand for decades; coupled with the inflation policies of modern central bankers, the evidence is beginning to suggest we may have recently entered an historic commodity supercycle.

The following factors may help as you consider whether natural resources are something you should own:

  • Commodities last crashed from 2011-2020 and are coming off some of the lowest prices in history. Jim Rogers says it’s the only inexpensive asset class in the world today.

  • Commodities are risky investments, and are notorious for experiencing huge bubbles and busts. Diversifying modest exposure is critically important.

  • Prefer the stocks of profitable, dividend-paying producers to futures contracts, which have high trading costs and are heavily manipulated.

  • Never chase prices higher when buying natural resources. Hunt for shares like an alligator, not a cheetah. Wait for recession, when demand is weak, to do most of your buying.

  • Have an exit plan at the time of purchase, or at some point in the future you will definitely, woefully regret it.

Think about it, Shaun.

“Give a portion to seven, or even to eight, for you don’t know what disaster may happen on earth” ~Ecclesiastes 11:2

The opinions voiced in this material are general, are not intended to provide specific recommendations, and do not necessarily reflect the views of LPL Financial. The economic forecasts set forth in this commentary may not develop as predicted.

All investing involves risk including the possible loss of principle. No strategy ensures success or protects against loss.

Asset allocation does not ensure a profit or protect against loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

Dividend payments are not guaranteed and may be reduced or eliminated at any time by the company.

The fast price swings in commodities will result in significant volatility in an investor’s holdings. Commodities include increased risks, such as political, economic and currency instability, and may not be suitable for all investors.

 

     

  

https://www.fivestarprofessional.com/spotlights/90982

Award based on 10 objective criteria associated with providing quality services to clients such as credentials, experience, and assets under management among other factors. Wealth managers do not pay a fee to be considered or placed on the final list of 2012/2022 Five Star Wealth Managers.

Shaun Scott No Comments

Investable and Disruptive Mega-Trends

Hikers venture into the White Mountains of New Hampshire every year adequately prepared to climb in pleasant conditions, sadly never returning to their families. No sailor enters The Clipper Race around the world absent years of intense mental and physical preparation for good reason, and ‘the winds of the White’s’ have no more compassion on those depending on nature’s kindness than ‘the waves of the world’s great seas’. Myriads of retail investors today rely on Wall Street’s highly-touted ‘60/40 Portfolio’, consisting perpetually of 60% stocks and 40% bonds, a system Warren Buffet, Doc Eifrig, and dozens of other famed investors are warning is a trap in the post-Covid world, and a corpse the financial media is scrambling to resurrect. The coming decade in the financial markets is likely to resemble a Canadian winter front in the White’s, a multi-day event famous for claiming the lives of experienced winter mountaineers. What can you do to not only survive, but prosper in the storm?

Profitable investing involves, among other things, committing capital not to developments one believes ‘should’ be playing out, but to those which ‘are’ playing out, or better yet, to those which soon ‘will’ play out. An investment theme is in motion which is capable of turning a potentially ‘lost decade’ into a very profitable affair for those paying attention, one which will transform the way virtually every American interacts with others, travels, makes purchases, and manages their own health. These emerging and disruptive mega-trends are not necessarily favorable for individuals, or even society, but the people and institutions behind them possess both the power and resources to make them happen, and so they will. The same way Amazon devoured the brick and mortar retail world in the past decade, the following emerging technologies will displace and destroy even the largest corporations which refuse to embrace the world’s new way of doing things:

  • Robotics

  • Artificial Intelligence

  • Battery Technology

  • Blockchain Technology

  • Synthetic Biology

  • Electric & Autonomous Vehicles

  • Telehealth

  • The Metaverse and Augmented/Virtual Reality

  • Renewable Energy

  • Fintech

  • E-Commerce

  • 3D Printing

As you consider the above world-altering trends for your own investment portfolio, I would urge you to weigh three things: 1) consider the moral issues at hand, and refrain from violating your conscience, as no amount of money is worthy of that, 2) realize these are all very risky ventures, as all start-ups and developing industries are, and allocate a minute portion of your investable capital to this investment theme, and 3) stay diversified within each new industry, as most competitors won’t survive; virtually none of Amazon’s early competition exists today.

I’ll close with two very exciting concepts: 1) it will not require a large investment in the companies that end up dominating these new market sectors to meaningfully impact your overall rate of return in a decade that will otherwise, at best, be difficult for most investors, and 2) the stock price of nearly every company in every one of these industries has plummeted catastrophically in the recent sell-off, and will likely offer great entry points when the present bear market concludes.

Think about it, Shaun.

“But you, Daniel, shut up the words and seal the book, until the time of the end. Many shall run to and fro, and knowledge shall increase.”  ~Daniel 12:4

The opinions voiced in this material are general, are not intended to provide specific recommendations, and do not necessarily reflect the views of LPL Financial. The economic forecasts set forth in this commentary may not develop as predicted.

All investing involves risk including the possible loss of principle. No strategy ensures success or protects against loss. Dividend payments are not guaranteed and may be reduced or eliminated at any time by the company.

All performance referenced is historical and is no guarantee of future results.

Companies mentioned are for informational purposes only.  It should not be considered a solicitation for the purchase or sale of the securities.  Any investment should be consistent with your objectives, time frame and risk tolerance.

 

     

  

https://www.fivestarprofessional.com/spotlights/90982

Award based on 10 objective criteria associated with providing quality services to clients such as credentials, experience, and assets under management among other factors. Wealth managers do not pay a fee to be considered or placed on the final list of 2012/2022 Five Star Wealth Managers.