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Just as the vitality and sustainability of any nation’s economy is tied to the condition of its middle class, the direction and momentum of the stock market is tied to the health of the average stock from which it is comprised. Market breadth is always a key indicator of the market’s general health, and many successful trading algorithms are built on breadth alone. What is market breadth telling us today, and what concerns remain?

For the 19th time since 1950, the market recently flashed a critical buy signal known as a ‘thrust’ signal. A thrust signal occurs when the 10-day total of advancing stocks divided by declining stocks exceeds 2, and in every one of the 18 occurring instances over 73 years, it has been a very bullish setup for the stock market.¹ While this is a strong indication of where stocks may be heading this year, enthusiasm for risk ought to be tempered with the following ongoing concerns:

• Major bear markets, like the one in 2022, have historically not ended until the Fed began lowering interest rates, or until broad capitulation occurred in the stock market, or both, neither of which has yet occurred in the ongoing bear market.

• Pullbacks of 5% to 8% have frequently preceded the advancement of prices following the thrust signal.²

• The inverted yield curve is likely warning of an oncoming recession, which could bring an earnings recession, which would be punishing for stock prices.

• Inflation is likely to remain well north of the Fed’s desired 2% range when it is forced to lower interest rates to battle the coming recession. This will likely fuel inflation again, especially with China re-opened for business. Continue to favor present streams of income.

• Be sure to account for withdrawals before committing additional capital to equities.  

• When my climbing buddy and I are committed to a fair weather adventure, we carefully pack…and then wait for the weather window. Maintain a cash position as ‘dry powder’ for any remaining pullbacks in stock prices.

• Maintain an adequate level of diversification, but continue to focus on prospering, and avoid suffering industries as the economy and financial markets adjust to new dynamics.

History rhymes, but it does not exactly repeat. We don’t need to see the Fed lower rates for stocks to change course, and with inflation easing, and the Fed indicating additional reductions in rate hikes, and knowing it would be extraordinarily rare for the stock market to decline in this post-mid-presidential election year, and knowing stock prices and valuations are significantly lower than 12-18 months ago, it is time to adjust our thinking and posture as investors. As Sir John Templeton wisely said, “never stay bearish for long”.

Think about it. Shaun

“He who had received the five talents came forward, bringing five talents more, saying, ‘Master, you delivered to me five talents; here, I have made five talents more’. His master said to him, ‘Well done, good and faithful servant. You have been faithful over a little; I will set you over much. Enter into the joy of your master’.”  ~Matthew 25:20-21

1,2 Insights by Chaikin Analytics, “Stocks Just Triggered a Critical Buy Signal…..And a New Bull Phase Could Be Here”, January 17, 2023

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.

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.

There are two ways to climb a world class mountain, heavy and slow, which is laborious and time consuming, but safe, and light and fast, which is relatively easy and requires a fraction of the time, but it is extraordinarily dangerous. I’d call the former a principle for successful mountaineering, and the latter, a rare exception pursued by the reckless. Accumulating the wealth required to fund a lengthy retirement and leave a meaningful inheritance to one’s children and grandchildren isn’t easy, but it isn’t complicated, either. Only the consistent application of tested financial principles over time brings reliable success to a feat precious few Americans ever attain. Perhaps this is because we weren’t taught financial principles in school, but the deficit needn’t prevent our careful apprehension, and practice of the principles! Do more than consider the following:

• Don’t place too high a value on money or it will betray you and leave you empty and broken. It’s not the end; it’s only a means. Hold it loosely and give it generously, especially to those who can’t pay you back. Wealth building is simply the right thing to do, nothing more.

• Torch your excuses and take responsibility for your financial life. You are a distinct financial entity, and your family, a micro-economy. Your success or failure is the result of nothing more or less than the sum total of your decisions. Purpose to consistently make wise decisions, and gain the knowledge fitted to the venture.

• Climbers who don’t launch from a base of strong conditioning suffer, and often die for the mistake. The financial world is no different. Begin by building your foundation: 1) adequate emergency savings, 2) a specific schedule of payments to pre-retirement debt freedom, and 3) term life insurance sufficient to give your family opportunity to carry-on the mission in your absence.

• Maintain a strict budget to maximize net positive cash flow (net income exceeds gross expenses). This reveals your potential for investing and giving. Purpose to make prudent decisions with this critical resource.

• Invest in a primary career consistent with your talents and abilities. Work hard, place honor above gain, and advance yourself with specialization in your field. This is the bread and butter of your financial life; don’t forfeit it without deep consideration.

• Allow compounding returns to build your investment portfolio for you. This is the most important wealth building principle. Own primarily boring businesses with steady cash flows, and reinvest dividends for decades. Seldom invest in non-income-producing ventures, and require speculations to be tiny and infrequent.

• Apply the logistical trio of dollar cost averaging, diversification, and maintaining an exit plan on all non-forever holdings (from the date of purchase). The most conditioned climber in the world needs to frequently eat and drink. Feed your portfolio with automatic purchases, try to keep each holding to less than 5% of the whole, and confidently run with your winners while cutting your losers with ruthless expediency. Keep unproductive capital on the same leash you would a spastic puppy.

Financially speaking, the world consists of two types of people, wealth producers, who apply the above (and other) principles and practices, and wealth consumers, who don’t. Determine to be a wealth producer, practice the principles, and be thankful to the One from whose hand every good thing comes. Think about it. Shaun

“A wise man leaves an inheritance to his children’s children.”

~Proverbs 13:22

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.

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.

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.

All investing includes risk including possible loss of principal.

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.

We’ve all heard the cliché “if you fail to plan, you are planning to fail”. Many former mountaineers can attribute their unnecessary demise to this simple truth. At Old Forge Wealth Management, we seek to teach investors how to apply financial principles towards effective wealth building, and then help them teach their children how to retain and grow that wealth multi-generationally. While the planning required to accomplish such high goals is noteworthy, it’s also true the consequences of failing to plan rivals those presented to negligent mountaineers, albeit in the financial realm. What are the issues and best practices of late life financial planning, and how might you improve your own family’s financial plan?

• Teach your heirs to become wealth builders (see Financial Planning Principles). Test beneficiaries with small advance gifts, use your observations as teaching opportunities, and either control distributions, or allocate small portions to gluttonous individuals. One wealth consumer can devour what it took you a lifetime to build in a few short years, and even destroy them-self in the process. Be careful not to enable this tragedy unwittingly.    

• Be a meticulous record keeper. Store an updated and comprehensive summary of your financial life (and other important documents) in a safe place, notify executors and trustees of its location, and include a brief mission statement to reiterate purpose. Feel free to request a copy of our Estate Tax Information Checklist here: Jennifer.carreiro@oldforgewealth.com.

• Have a formal plan to fund the high expense of late life care. Whether it includes payments to an unskilled healthcare provider while at home, self-funding from your large estate, payments by a Long-Term Care insurance policy or annuity, or devoted care from your loving children, have a specific plan, and share it with immediate family members.

• Name primary and contingent beneficiaries on every asset that affords it (cars and homes do not). It’s easy, free, and carries comparable legal authority to an expensive trust. Store a beneficiary list with other important documents, and update it periodically.

• Have a specific plan to fund final expenses. Whether it be pre-payment to a funeral home, a small permanent life insurance policy, or a designated portion of your estate, make sure your kids are on board, and that they don’t get stuck with the tab contrary to your wishes!

• Plan for the management of your estate in your incapacity or absence. Health proxies, POA’s, and trustees should be selected according to trustworthiness and ability over age or proximity. Make sure they understand what will be required of them and agree to it, and then incorporate them into the process early.

• Make sure there is sufficient liquidity immediately accessible to your executors and trustees at your passing, so they can manage the distribution of your estate with your money and not their own, which could greatly complicate matters. The above practices should help in this.          

I hope these practices bless your family. Shaun

“A wise man leaves an inheritance to his children’s children.”

~Proverbs 13:22

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.

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.

Guiding principles are vital in that in any endeavor they maximize the probability of survival, even in threatening circumstances, and when consistently practiced over time, typically add success to the experience. These principles are applied positively, with actions to execute, and negatively, with mistakes to avoid. Three of my close friends started kayaking in the last couple years, and all three have already experienced dangerous capsizes; I’m not familiar with the principles of kayaking, but I hope to be before trading my crampons in for a small boat! What powerful principles can maximize the probability of your financial success, and supply wonderful things to impart to your children?

Financial planning involves having a plan, so begin by putting your goals to paper. Secondly, understand how your numerical assumptions flesh-out over time, given conservative estimates on variable factors, like Social Security, rates of return, and inflation. You are unlikely to modify your approach if you’re unaware you are off-track. Thirdly, realize financial planning is really “a way of living financially”, so don’t place too much emphasis on the goal; do apply the principles and enjoy the process. Sadly, some of the members of our Denali climbing team considered our effort a failure because we didn’t summit. The truth is we just enjoyed the grand adventure of our lives! And to the three, add these:

• Know who your Provider is and avoid placing too high a value on money, for money can “sprout wings and fly like an eagle toward heaven”.

• Have a detailed budget, including incomes and expenses. You must know the cost of running your household, and your potential for saving, investing, and giving.  

• Identify your Net Positive Cash Flow, or the extent to which net income exceeds gross expenses, and determine to appropriate this valuable resource wisely.

• Be vigilant with debt. Maintain a low debt/equity ratio. Avoid unproductive debt, especially consumer debt, and never fully retire while in debt.

• Use insurance for protection against catastrophic risks only. Avoid being “insurance poor”. Never think of insurance as an investment. Use temporary insurance to cover temporary risks (and permanent insurance to cover permanent risks). Always price shop.

• Build your financial foundation first: a) ample emergency savings, b) ample term insurance to protect your loved ones and give them a fresh start in your absence, and c) a specific plan to become debt free, including a scheduled mortgage burning party!

• Make wise investment decisions. Keep expenses low. Never miss an employer-matched contribution to a company retirement plan. Buy great businesses when they sell at reasonable prices. Avoid catastrophic losses by investing in different industries, keeping individual positions to less than 5%, never buying aggressively into a bull market peak, never capitulating near a bear market bottom, and having an exit plan on every non-forever holding.

• Start dollar cost averaging immediately, and never stop unless you have to, even in retirement. Remember, reinvesting dividends also constitutes dollar cost averaging!

• Put your affairs in order with proper estate planning. Why should only the rich enjoy the benefits of multi-generational wealth building?

In short, when the weather allows you to kayak, KAYAK! Regarding money, this means earning it, spending it, saving and investing it, holding it loosely, and giving it away freely. Teach these things to your children while they are young. Think about it, Shaun.   

“A wise man leaves an inheritance to his children’s children.” ~Proverbs 13:22

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.

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.

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.

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.

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.