On this week’s show, Karl discusses why volatile markets can cause investors to make some big mistakes. Karl gives some practical solutions to listeners to help them minimize those mistakes.
Also, the government is now open for business. Well, for now. Ironically, the market went straight up while it was closed. Will it fall now that it’s open?
Hey, good morning everybody. Welcome to the Eggerss Report. It’s your investing playbook. My name is Karl Eggerss. I am a advisor and I do the podcast on the weekends to kind of get you behind the scenes of things that I am having to deal with as an advisor in terms of all the situations that we advisors go through dealing with clients and all kinds of situations. Deaths. Divorces. Happy couples. Educating their kids. Retirement. All those different things we face that come along in life that involve lots of emotions but they also involve your finances.
Because we’ve met with so many clients over the years, we bring that experience to the podcast every week and try to share some of the things that may help you in the future if you come into some of those situations. We also obviously discuss the markets, what’s been going on this past week to try to help you become a better investor and keep you up to date on what has been going on.
That’s what we do on the podcast each and every week. Lots of ways to get our information. One of them is to simply go to Eggersscapital.com. The other way you could call us if you want to talk to us is 210-526-0057. You can email us as well. But we’re on Twitter, Facebook, Instagram, lots of ways to get our information but Eggersscapital.com has everything you need right there.
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So, speaking of some of those challenges and life situations that I was discussing earlier, I spent some time this week with two clients that have gone through deaths in their families recently. We spent last week a lot of the show talking with Sean Morris, our certified financial planner just about some of the thing you should be doing right now at the beginning of the year.
One of the things I failed to mention was by the way, make sure you have the umbrella policy. That’s a cheap thing to get to protect you. But, as I spent the week talking to some of these people that have gone through deaths recently, one somebody had lived a very, very long life. Had all the boxes checked. Knew where she wanted her assets to go in case something were to happen to her. Longtime client of mine. Pretty easy transition.
But, the next generation that is receiving the money, we’re having to plan not only did they have to take care of selling the house and closing accounts and funeral arrangements and all those things that go along with that, but they also inherited some money that A, they need to distribute to some other people. But also it came into their life and now we’re starting from scratch to a certain extent basically doing some planning. What kind of cash flow can they expect for the rest of their life? How does that need to be invested? That was one scenario.
The second scenario was unfortunately, a death that was sudden, 51-year-old. While the husband and wife were on the same page with the finances, a little bit different philosophy on certain things. But, a pretty complicated scenario. A family business that one of the spouses ran. The other spouse had a job. There’s multiple accounts. There’s just everything that goes along with that and again, it happened suddenly. So, I’m having to help her walk through that and deal with that.
Again, that’s why we talk about what we did this last weekend. Get your ducks in a row now while everything’s calm. You can put your wishes down and really a lot of it’s just organization. That’s a lot of what we help people do is just get their financial life in order. It’s not that it’s a mess, it’s just complicated. We all have complicated lives because of children, grandchildren. We have jobs. Sometimes we have an ex-spouse and a new spouse and so a blended family.
All of those different scenarios but regardless whatever you want your wishes to be, you want it to be as simple as possible. So that’s why we spent last week talking about some of that and then here we are this week and that’s what I spent some of my time doing one of the days this previous week. That’s a little back ground on that and a little encouragement for you to go out and do that.
As far as the markets are concerned, kind of an interesting week for the week. We saw the markets pretty flat for the most part. The Dow Jones was literally almost flat. It was up about a hundred and … actually it was pretty flat. Only up 11 basis points or .11%. The S&P was down just a quarter of a percent. Really not a lot of movement. A little volatility in between but nothing dramatic. We did see the volatility index drop a bit.
But some of your winners and losers on the week. The winners were the semiconductors which some of that happened to be most of that was on Thursday. A lot of the companies came out on Wednesday evening and had some really good earnings reports. And so semiconductors had a great run this week and now they’re up over 20% from their December lows.
We also saw the gold miners have a good week. Up about 4%. Again, most of that coming on Friday as we saw the dollar really fall on Friday afternoon until the gold miners got a nice bump from it. Emerging markets.
Look, emerging markets we’ve been talking about those for months how we have liked those especially relative to the U.S. markets. They’ve been outperforming for quite a while now and they continue to do so. For some of you that are technicians and like to look at the charts, go take a look at the emerging markets as a basket and you’ll see a classic double bottom. You’ll see a trend reversal where it’s starting to head back up. So that was one of the big winners this week. Up about a percent and a half.
On the downside, natural gas down about 3 1/2%. Some of the oil and exploration companies down a little over 3%. Just energy in general down a percent and a half and consumer staples down a little over 1% along with health care and bio tech. But a pretty muted week overall. We had Monday … remember this was only four trading days. Monday the markets were closed for MLK Day. None of the markets were open.
The story of the week was still the government shutdown as it continued to go along here. Of course, the stock market was doing fine through the government shutdown. Longest government shutdown ever and the stock market just continued to move higher this past month.
But Tuesday China reported its slowest growth in two decades. That is obviously on the minds of investors. There was reports that came out that the U.S. had turned down a China trade offer and so the market was down about 300 points and it was kind of like, man, this was reminiscent of 2018 isn’t it? Right? Trade talks right there.
But the market kind of gapped up on Wednesday and then it gave it back but it didn’t fall apart. See that’s what was interesting. That’s why the psychology and the mood of the market seems to be changing because it was down on Tuesday. Then it jumps up on Wednesday and you think, “Oh, look at this it’s going to bounce all the way back within just a few minutes,” and then it fades but it didn’t just fall apart. It could have, but bounced a little bit and so it was kind of finished mix, but little more on the positive side.
Then of course Thursday we did have the semis very strong after those good earnings. And another day where the market looked kind of mixed but the internals were very strong. All throughout the week another theme Thursday was the Democrats rejecting a couple more proposals by the President to open the government.
And then of course Friday late in the day we did hear that we’re going to temporarily open the government and it looked to me that the President lost that little battle because he was framing it as, “Hey, we came to an agreement.” Well, they didn’t really come to an agreement. The longer it stays closed, the more it’s going to affect our GDP and eventually our stock market and the corporate earnings.
So, the President’s keenly aware of this as are his people. He really didn’t have a lot of leverage in this particular case. I think he had to open this to do a reset. So, we’ll see how this all plays out but some of the damage has been done. What we’ll see in the numbers going forward but it was a long shutdown and we’re still not out of the woods but it will affect grown because people kind of talked themselves into it.
In fact, I had a client this week, one spouse is retired. The other one is still working. Government worker got a paycheck and so some of the things are still being paid for but the net paycheck was zero so she actually has a pay stub that says zero on it. They’re still getting checks apparently they’re just for nothing. Not one you would to cash I guess.
Obviously not a joking matter in terms of the people that are struggling with this. She is fine. They have accumulated a good deal of wealth actually but she thought this was a interesting check. I didn’t know they would do that to be honest until I saw it. But yeah, very difficult for people that are out of work.
It’s hard for me when
Watch some of the government employees that are laid off or not working right now and not getting paid, that there’s different places that are saying, “Hey we’ll give you …” I’m using a hypothetical, but a free hamburger for government workers that are affected. But look. A lot of people are laid off every day. Small businesses, sometimes people that work at small businesses, especially startups, don’t get paid. And they don’t get any kind of perks and benefits. So maybe I’m missing something in terms of why there’s some special treatment for that. But again, I’m not going to … I guess if you or I were in that situation, we wouldn’t mind having the free hamburger, or a discount somewhere, or whatever. But we’ll see how this plays out. But it does affect the mood. And so again, there’s a lot of can we talk ourselves into a recession? And that seems to be what the risk is.
But the good news is that we’re still seeing things okay. But we are seeing some of the leading economic indicators soften a bit. We actually got the leading index. One of my favorite indicators. It came in as expected this week. But it was negative. So does that string together multiple negative prints. And look, if you look at things like initial jobless claims, those generally tick up well in advance of a recession. So I’m still not on the recession camp. But we are going through a deceleration.
We’ve talked about that for several weeks now. The market was pricing that in. Earnings are coming out every day. We’re getting more and more earning. We’re going to get more and more earnings next week. Some very big companies. Visa, McDonald’s, Microsoft, Exxon, Merck, Caterpillar. So we got next week is a very big week for earnings. And the earnings are coming in okay. But again, what we’re seeing here is this a trend? Are we going to have at some point an earnings recession, which means two quarters in a row where the growth was actually negative? Or we were actually … The earnings were less for two quarters in a row as aggregate. We will see. But that doesn’t seem to be the case right now. So I do think from the stock market’s perspective, it’s interesting because I’ve said for a while, the longer we stay at these levels without giving back some of those gains, the more bullish this is.
Now we broke through some technical levels and if you want to … Let’s talk about the Dow Jones. Around 240,200, we’ll call it, was a very big technical level. Because it had fallen to that in October. It bounced. It fell to that in November. It bounced. It fell to that in December. And it had a little baby bounce. And then once it broke through that level, that’s when it fell very hard. Now that we are back above that level, it looks like we’re in the clear, right? But for you technicians, go draw a line from the highs. Go draw a line from all the highs starting in October all the way till now. You’ll see the high in October, the high in November, the high in December, and you have one now in January. So we’ve had lower highs every single month for the last four months. And we’re technically right at it right now. So we still could pull back from here after a monster rally. And I would expect it. And if we do fall again, there may be some acceleration a little to the down side. But based on all the evidence that I see, I think the bottom was put in. That doesn’t mean that we don’t go and at least give back half of the gains, or a quarter of the gains, or two thirds of the gains. I don’t know. But what we saw is a really rare event.
And I’ve said it the last few weeks since this happened. And there’s lots of ways to measure it. But the essential thing that we saw is we saw panic selling all one sided. The whole market. Every stock going down. And when I say every, I don’t mean literally. But just about every stock going down. Get me out at whatever cost. Just acceleration to the down side. Markets couldn’t ever hold on to any intraday gains. And then … And by the way, we saw the market selling off as the day went on each time, right? It would gap up in the morning sometimes and then it would fade all day. So we saw that.
And then really within a couple of weeks, we saw a complete polar opposite of that. Which is almost panic buying. I mean, literally panic buying where we saw, I mean, just every stock up. Every sector up. Just acceleration to the up side. So for those that sold into that, it’s really been a violent, violent rally. For those that did nothing, it’s been a lot of volatility, but you’re pretty much where you were at the end of October. If you didn’t do anything. Now if you bought, you’re better off than you were at the end of October. And that’s the benefit of having some powder dry to buy those dips. Or take more conservative assets and move them to the other side of the ledger to take advantage of that. Shift your allocation if you will.
And again, I get stories every week when I ask you guys what did you do during this time. I ask it for a couple of reasons. One, because I’m curious. Two because I want to help you if you made some big mistakes so that you can be aware of going back and looking what did I do during that time. And so those are the main reasons why I ask that. And some of you have reached out to me and communicated what you did. Some of you had extra cash on the sidelines because you’re expecting something worse. And maybe you still are. And so you’re just not doing anything. You’re just sitting there. Some of you said, “Yes, I did use that opportunity to take advantage a little bit.” And some of you were frankly very aggressive and either got stopped out, or doing option strategies, or shorting the market, or doing something that caused you to get hit on the down but not benefit from the up. And that’s kind of the worst scenario, right?
And so that’s why I ask that question because we want to learn from that. We want to look back and … Because this will happen again. See, that’s the thing is that we’ve seen it. Ever few years we see violent markets like this. And they feel like they’re going to zero. And they feel like the world is ending. And again, I want to be clear. I’m not saying that everything’s rosy out there, and that was it, and let’s just move on. But we did see a classic V bottom. I mean, very, very textbook. And a very non-typical way it happened. And by non-typical, I mean when you look at how it happened, there’s only been a handful of times in the last 50, 60 years where we’ve had that combination of days that look like that from the internals of the market. So when you look at the previous times it’s done that, they’ve all been much, much higher a year out. So I’m still bullish going out. But we have to see the economy start to stabilize because it’s continuing to decelerate. And obviously, a government shutdown doesn’t help that. Okay? So that’s what we need.
But I do ask you what you did during that time. And it’s not to pick on anybody. Because obviously nobody knows who you are. But sometimes you tell me what you’ve done and want my opinion, or advice, or what have you. And everybody did something different. But it’s … Remember, the volatility is not what hurts you. It’s the risk really is the permanent loss of capital. That’s a big distinction. Permanent loss of capital. So if you sold on December 24th, and the market goes straight up, and you never get back in, yes, you did lose that. It’s not about … Sometimes when people sell a stock and lose money on it, they say, “Oh, I lost.” But if you took that money and bought something else, all you did was create a taxable loss. You didn’t create an actual loss. It’s a taxable loss. You took the money, and stuck it in something else, and it goes back up. But when you are literally sitting on the sidelines and you’ve locked in a loss, that’s permanent loss. Or you bought a stock that went bankrupt, that’s permanent loss.
So those are … That’s the risk that you have. And really, it’s not even about the individual positions, it’s more about if you have a portfolio that’s, let’s say, $500,000 and you sold stocks on December 24th, and you took $100,000 out, and you went and spent it, and then you’ll never get that back because of the fact that it can’t. You took the money out of the portfolio. So we’re not even talking about individual positions. We’re talking about literally removing money from the account. So that’s permanent loss of capital is really the risk. But we’ve had some volatility. And volatility’s not comfortable. Right? We don’t like that. But it is part of investing. I mean, there’s so much research that I could show you over the years that would show you how much volatility people really have to put up with to earn reasonably good returns over the long term.
And again, I like to use Netflix as an example, Amazon as an example. Amazon went down 90 or 95% during the tech bubble after it went public. And look where it is. Netflix. Netflix went down 40% in one day one time. And it’s had … I think it’s had four 70% draw downs or more since it’s been public. Yet it’s made somebody that held onto it through that a tremendous amount of money. So most people aren’t going to go through that type of volatility. But that is what you have to put up with to make some good returns over the long term. How much you should have of your money in the market depends on your situation.
I met a gentleman this week. Called me up. Been listening to the podcast. Basically asked what things were out there that were not CDs because he doesn’t like CDs and money markets. But he hates the stock market, okay? He’s just an older gentleman. I didn’t get into why. But perhaps he didn’t do well in it in the past and just doesn’t like it. Now, the question is does he need it? Right? Does he need to be in the stock market? Well, he has enough money to where if he made zero for the rest of his life, he would be fine because of his age and his net worth. So he has options. He can sit there and earn nothing and avoid the stock market. Or is there something else out there? So we had some discussions about some income type investments that he may consider may be a good fit to accomplish what he needs. That’s his situation. Right? Your situation may mean for you to earn what you need to earn. Over the long term, you’re going to have to have an allocation of stocks because stocks tend to produce the most … He’s not going to make as much over the long term as you will in the stock market. But he also isn’t going to put up with the volatility. So you can’t have your cake and eat it too,
Right. If you’re going to be in there and try to earn bigger returns, you’re going to put up with more volatility. I mean people pay a tremendous premium for comfort. I don’t want any volatility and I want to make 7% a year. You know, very, very rare. You’re going to have some risk. There’s numerous risk. A lot of people just think of volatility as a risk. We’ve developed our own risk, not our own but ones we’ve identified. We have over 16 that we identified.
So everything’s got risk and, you know, by that gentleman saying, “I don’t need to … I can do what I need to do and not earn another penny”. Well his risk, he’s got two main ones, longevity. What if he lives to 110 years old and there’s inflation. All of a sudden that money earning zero will buy him less, and less, and less. So he does have risk. See, he just doesn’t want volatility risk.
So we all have that type of risk. So the thing you got to do, and again going back to what did you do during some of this volatility, the thing you have to do is, look back and say, “Whatever I was doing, did it match up with what my goals are?”, and it sounds kind of financial planner, you know, cliché but it’s true. If you have enough money to do the things you want to do, then you have an option there. You can take more risk because if it goes away, you still could live your lifestyle. I’ve seen people like that or if you’re living comfortable and you don’t want to be awake at night worrying about your portfolio, you can come down the risk scale, and I’ve got clients on both ends of the spectrum and some people, we switch over time because their situation changes, their view on the markets change as they’re more educated about it.
So that’s why I say, go back and look at what you did and then ask yourself, why did I do that. Not from a standpoint of, what was I thinking but why did I do that. Was I trying to … why was I so aggressive? Was it the fact that I was trying to double my money over the next six months or what was it that made me do those trades the way they were done, and I do think we’ve entered a little different era where in the past few years, the simpler that you invested, the more money it made you and really, the less diversified, the more money it made you because we all know the S&P 500 is made up of literally just a handful of stocks for the most part 500 but the way they’re weighted, you’re owning a big chunk in just a few stocks.
Going forward, that’s going to change I think. Last year cash was the number one asset people could own. It out-performed like 95% of all the other assets out there. That’s highly unusual. So is 2019 going to be the year for commodities or gold specifically or foreign stocks, right or value versus growth. I think over time you’ve seen you have to diversify and you have to be strategic in what you’re doing, and that was not the case the last five years. That was not the case.
So I think people that have everything just on auto-pilot, you know, and believe that’s the way to go, I think they’re in for a rude awakening at some point. It’s like driving without a steering wheel. It works real well on a straight road, and the straight road in our example is with the FED lowering rates, keeping rates at zero right. You don’t need a steering wheel but when they start raising rates as they have, which they already did, and they start doing quantitative tightening, which they are, and the economy starts to slow down, which it is, you have to have a steering wheel and a lot of people don’t have that steering wheel, and aren’t set up for that, and so the volatility we saw, while maybe a little bit was abnormal, most of it was pretty normal.
It was 2017 that wasn’t normal. So the volatility we went through was because of the fact that we were going through a little bit of a slow down and the FED was hiking rates and we had some risks overseas. That’s why the markets were doing what they were doing. They were anticipating that we were going to start seeing earnings coming down, profits coming down, and they were right. We are seeing that.
So, you know, do you have a portfolio that has something in it that benefits from volatility? Does your portfolio contain income producing assets that aren’t tied to the stock market? Do you have a strategy for buying when things are volatile and buying the dips? Do you have a strategy for selling some things when it looks like things are extended to the up side? So, and again everybody’s situation’s different. You know when I do these podcast, you know it’s hard because I’m talking to an audience of very diverse people in all different situations and that’s why knowing what your situation is and then having a portfolio that matches it is key.
How you feel about it, is a part of it. It is a part of it because if you can’t stick with the strategy, it’s not worth doing but at the end of the day it’s more about, what are you trying to do and how are you going to get there, and using history for your guide. So I hope that’s helpful and again, it’s the same thing right now. What are you doing right now about the markets? You know the markets … honestly, the markets are harder today than they were on December 24, because December 24, which is where we made on our growth strategy our last buys, it was easier because it was so stretched.
You don’t want to buy when it’s plummeting, like they don’t feel like it in other words but you know it’s the right thing to do if you’ve been doing this a while, which we did and so that was an easier buy. Right now, after the stock market’s run, you know, call it 13, 14% from December 24, now it’s more difficult. Now we’re in that kind of no man’s land. Now it’s … I feel like the market is going to have to some type of catalyst of some sort, and we’ve had a little bit but, you know, a permanent solution to border security with the government open and seeing that there’s some agreement from both sides, seeing that yes, the FED is definitely on pause, seeing that the trade war is muted and we continue to get positive developments there, and then seeing if the economy respond to that.
I think if we get some substantial movement on trade, I think what you could see is what you saw in 2018, 17 into 18, which was with the tax cuts, you know, where you had this burst of energy, I think you could see that because look, there are companies that are on hold right now. They’re saying, we need to figure out what’s going on, where are interest rates going to be and how are imports and exports, how are we as a company going to be affected by that and so they may be hoarding cash, and if we can get a resolution there, of some sort, again a comprehensive deal I think is still difficult but if we can get some resolution where they have some clarity and transparency, I think you’ll see another burst and that’s when we could go back up to new highs in the stock market, and then after that we have to see what did all those hikes do.
All those interest rate hikes from December 2015 all the way up to 2018, as they trickle through the economy, and if they really start slowing things down, that’s when we could see a bear market, which is a longer, sustained down trend where we go, man we just keep losing money every single month and we aren’t there. I believe we are still in a bold market based on all the evidence that I see and that’s hard because the noise from the television and the radio is distracting.
It makes you want to get out. Nobody … you watch the news, nobody would want to be in the stock market right. So the ones that are the most successful, and I know you’re listening, probably it’s because you’re not buying into some of this, you’re not getting distracted by all the comments, all the tweets, all the breaking news. You’re not getting into that. You’re saying, “You know what, I know what’s gotten me here, which is saving a portion of my pay check diligently, spending less than I make and diversifying my assets”. Right, that’s how you’ve accumulated wealth. Period. That’s what you need to continue to do but it is a difficult market because we do get so much stuff thrown at us, right, with our phones.
I mean our phones, every five minutes there’s something popping up. I mean how many of you on Friday got some type of pop up on your phone saying that’s the government’s back open for business. Everybody, in breaking news and it makes you want to do something about that and that is a, most of the time doing something about it is the wrong thing to do.
Most time you should do nothing about it. So all right. A lot of tap next week again. Earnings kind of the big driver right now and it’s interesting, these semi-conductors set some really good earnings this week and more about what did they say and technology companies, what did they say about going forward. You know are they using some of this stuff going on as an excuse but if they say something positive, that is very encouraging.
So again look for companies, if you own individual stocks that are selling at a discount, period. I mean good cashflow, selling at a discount and there are plenty of deals out there still even where we are right now there are plenty of stocks that are good deals if you buy individual stocks. If you buy funds and ETFs, it’s a little different ball game but still, opportunity out there in the market.
All right. If you need our help, Eggersscapital.com. Telephone number 210-526-0057. We’re always here to help and don’t forget to share the show, and like it, and don’t forget we’re doing videos that come out. So if you want to start getting those, you can either check on the website at Eggersscapital.com in the blog section or go to the blog section and just put in your name and email and every time we put one out, you will get that along with the podcast and it’s all free of charge.
All right. Have good weekend everybody. Take care and thanks for listening.
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This show is for entertainment only and information provided by the host, guests and this station should not be deemed as advice. Your investment decision should be based on your own specific needs. You should do your own research before you make those decisions. As president and CEO of Eggerss Capital Management, Karl Eggerss may hold securities mentioned in this show for himself and his clients. Just don’t buy or sell anything based on what you get from radio or TV. Use your own judgment or get yourself a trusted advisor.