A Bad Combination

On this week’s show, Karl discusses what investors are really concerned about.  It’s the combination of two important happening at the same time.

Transcription:

Everybody, welcome to The Eggerss Report, it’s your investing playbook. Thanks for joining me. We appreciate it. As always, our telephone number, if you’d like to get ahold of us is 210-526-0057. Our website is eggersscapital.com, E-G-G-E-R-S-S capital.com. You will notice a lot of things on there. Probably the best, there’s three big buttons. Really, we give you a few options. One’s about financial planning. If you need help in that realm, it discusses some of the things we do here in regards to financial planning. We also do investment management and, the big button there, you can click on that and it’ll tell you a little bit about our thinking and what we do. And then, lastly, we have the financial education button, which is our blog. On there we do videos, we have the podcast, we do articles, probably two or three times a week, so make sure you’re checking that out. And if you want to subscribe to it, click on any of the blog posts. There will be a pop-up there just to subscribe to that. And you will start getting those delivered to your inbox.

Also on the first page, if you just want to skip all that, give us a call, you need some type of help, whatever it might be, could be that you just need some help analyzing your Social Security benefits, or you need help determining how to allocate your 401k, or if you can retire, all those things are on the table. Or if you need help with your investments, of course, click on the big green button says, get a free advisory consultation. Somebody will reach out to you and we’ll set up an appointment at your leisure.

Okay, let’s get right into it here. Oh, by the way, we are on all the social medias, so check out our YouTube channel, our Facebook page, our Twitter page, Instagram, et cetera. So let’s get into it.

The Stock Market still volatile, right? Saw some more volatility late in the week, especially Friday. You know, we had this oversold condition, and at the time, couple of weeks ago we were discussing on here that it’s all about timeframes, right? If you are somebody that is wanting to trade the market, there’s times to do that. Whether you use technical indicators such as stop losses, or moving averages or all kinds of technical indicators, and there’s certainly a place for that. If you’re somebody that has your allocation, which comes first. In other words, you have your overall allocation in place, and your stocks are reasonable portion of your portfolio, you’re comfortable with that, then you may not need to be doing any trading. But what we did say was you don’t sell when there’s panic in the streets, and there was panic a couple of weeks ago. When there was panic, we were talking about that there was an interesting set up technically, and that played out. We saw all of our indicators get really oversold.

And all that really means when we say oversold as that everybody was leaning one direction. So everybody agreed everything was getting worse. It had to go down, and when you see that there’s nobody left to sell, and the selling dries up, and lo and behold, you get this effect where it comes roaring back. And it’s possibly because people are covering their shorts. So the people that we’re betting on the market going down were right. But to lock in their gains, they have to buy back those shares. So that buying starts the frenzy, and then new buying comes in and up we go. That happened almost like clockwork, and we had a nice little rally on the Dow Jones from the low to the recent high this week. It was about an 8% rally. Nothing to sneeze about.

We went from this oversold condition, to an overbought condition. Short term things got to stretch to the upside. This kind of level that the market’s appearing to be pausing at here Thursday and Friday makes sense. That doesn’t mean it’s heading back to the old lows, although it could. Right? We don’t know that. And I told you at the time the rally happening wasn’t the hard part. The hard part is after it bounces, what comes next? Right? Because we had the bounce that we knew we were going to get it some time, and when it happened, we said that would be the test. Does it show enough strength to keep going or is it just a dead cat bounce, where it bounces a little bit and then here come the sellers again and down we go.

And I’ll be honest, the rally that we saw, and if you follow me on Twitter, I make some of these comments on there, but the rally we saw, while okay, wasn’t great. It wasn’t what you would call a … as I like to say, a rip your face off rally. Where everything goes up, everybody’s in and it really feels like you missed a buying opportunity. I didn’t get that sense this go round. You can look at the analytics of the market, and we look for things like an all or none day. So for example, are 90% of the stocks up? Or 90 or 95% of the volumes up volume? Are 95% of the points gained versus loss? It’s all just one sided. We didn’t see any of those types of days. And we didn’t even see any really good solid back to back days.

What’s interesting too, is during this little rally, the day after the elections, when the market was up, the Dow Jones was up over 500 points, I had people telling me, “Boy, what a great day in the market.” But if you dug underneath the surface, there’s a lot of stuff that was very mediocre, it was not. It was led by the usual suspects that are overpriced. The FAANG stocks. F-A-A-N-G. That’s what was leading it. So it made it appear that the market was doing really well, but when you really looked at all the stocks in the market, it didn’t. So I’ve been a little suspect of this rally. Now. Again, keep in mind, I’m not suggesting that … getting extremely defensive here. But I am suggesting that the market has not proved itself to us that the volatility and the selling that we saw in October is over just yet. Okay? Even though we moved up about 8% on that Dow Jones, I’m still not buying it just yet. And as we transition to the why, before we do that, let me give you a quick recap of how this week went.

We saw that Monday was interesting that the Dow was up, the Nasdaq was down. Apple had a really bad day. So the last of the Mohicans, right? The last of the FAANG stocks to hold up, Apple has started to look vulnerable. That was Monday. Tuesday, we saw that … we had election day, right? That was the big thing on election day. And of course, you know, people have been asking me for a long time how the election would affect the market, and I said that number one, I think the market was pricing in a Democratic House and that wasn’t a big shock, and a Republican Senate, and it could have gone either way, but the market was pricing that in, and that’s what ended up happening. So no big surprises. So up the market went.

We also, and I did an interview on Monday talking about gridlock, and how the stock market generally liked if anything, gridlock is a positive for the Stock Market, right? Where you have a split House or split Congress. So that was happening. And then on top of that we have very good midterm, a post midterm election seasonality. Meaning generally after the midterms, through the end of the year, instantly goes up. I mean it’s overwhelmingly positive. And we’ve just come off a sell off. So you have all those things kind of mixed together that would lead you to believe that we would have an up-biased market, not only after the election, which we did, but probably through the end of the year. So that was Tuesday.

Wednesday, as I said, we saw the Dow 500 points. I’d mentioned all those things on Monday morning about that. But again, we didn’t see the quality really good on that particular day. Also, don’t forget coincidentally, or not, Wednesday marked the day that corporations could start buying back their stock. Remember, they have a blackout where they can’t do it because it’s around earnings. They can’t go buy back their stock, release earnings that crush it, that’d basically be front running their stock. They’re not allowed to do that. So they have a blackout window. And because all companies report generally around the same time, there was no buybacks. Meaning companies weren’t buying back their stock, that’s a natural buyer for the market, so it started on Wednesday, and Wednesday was the day we saw the market go up. Thursday, we come back, the Fed announces that they’re not going to raise rates, which wasn’t a surprise. They are slated to raise them in December, six weeks from now.

But here’s the deal. They don’t seem deterred by market volatility. This Fed seems hell bent on saying, “You know what? We’re going to fight inflation no matter what.” Now here’s what’s interesting. Friday we come in, we see a crude oil trading down for the 10th straight day, down over 20% in a bear market, technically. WTI crude went below 60. Brent went below 70 for first time in a lot of months. And then we saw PPI, which is the Producer Price Index, it’s your inflation, but for people who make things. So you have CPI, which is the Consumer Price Inflation index, that is for you and I. And then we have PPI for the producers. It was the highest since 2012. And so again, we have a situation right now where we’re starting to see some inflation.

Now when we say inflation, let’s keep it in moderation. We’ve been scraping the floor on inflation in the last several years, right? People weren’t getting raises. There’s jobs available. Wages just weren’t going up. We weren’t seeing any of that. The commodities were low. Now we’re starting to see a little movement. We saw a little move in commodities last few months. We’ve seen wages start to accelerate going up about 3% a year in the last reading. But it’s still not the 1970s. But it’s something that the Fed is trying to tame. That’s their mandate. They’re saying we don’t want wild inflation. So they seem hell bent on keep raising rates to slow that down. But what’s interesting is the more data we’ve been getting here in the last couple of weeks has showed that the economy’s starting to decelerate. Now, decelerate is different than a recession. I want to be clear about that.

If you are driving your car … And I like to use the car analogy often, but if you’re driving your car to a stop light, what’s the first thing you do? You’re going 55. Hopefully, we don’t want you to speeding. You let your foot off the gas. What happens to the car? 54, 53, 50, 45, it starts slowing down. That doesn’t mean you’re going to go backwards, does it? That just means that some point you’re going to slow down, maybe you stop, but more often than not, you’re going to start accelerating again. That’s generally our economy. So the fact that are decelerating, every time we’ve done that post 2008, the Stock Market’s stumbled. So we have the economy decelerating a bit. It’s not growing as fast as it as it was several weeks ago, but the next thing that people think of is we got to be going into a major recession like 2008. That’s not the case, so they’re assuming that. You’re getting Stock Market jitters because the economy’s slowing down, at the same time, this is key, that the Fed keeps raising rates. So it’s as if the Feds out of tune and out of touch, and they’re not watching everything.

So the market’s begging for them to say, “Okay, we’re going to pause. We’re not going to raise rates anymore for the foreseeable future.” They’re not doing that. Hence, you get red days where the markets go down. But what’s interesting, and I posted a chart earlier this week on the blog, and the chart we call it the Paul Tudor Jones Indicator. And basically it’s pretty interesting. Last Friday, he did an interview, and he does very few interviews, but this guy is known as one of the best traders out there. He’s made a lot of money primarily through downturns. I think he called the ’87 crash. He made money during the dot-com bubble. He made money during the financial crisis. Been around the block. Billionaire and now he heads up the Robin Hood Foundation. That was what he started, I don’t think he’s the … running it at this point. But still very involved in it. Very philanthropic. But doesn’t do a lot of TV interviews. He’s worth like 5 billion dollars.

We got the chart on our site, but what he noted, which I thought was interesting, was he said, “If you go back and look at the dot-com bubble, and you go back and look at the financial crisis, coming into ’04, ’05, ’06, the Fed started to raise rates. They started raising them. The market went through several different, 10% drops.” Sound familiar? We’ve had two this year. They went through these drops, and then what happens is the Fed stops. It’s almost as if they say, “Okay. Okay, we’ll stop. We’ll stop. We don’t want the market to go down.” When they stop, then the market goes up to new highs. Right?

But all those Fed hikes that were baked in the system, now filtered through the economy, and it does slow things down, and then you do get a bigger recession, and then you do get a bigger stock market. So he said that happened in ’06, ’07? That happened in the ’90s, in the dot-com bubble, where the Fed would raise rates. The market didn’t like it. It’d go through a correction. The Fed would stop at some point. The market would go to new highs, and then you’d get a bigger sell off. So he doesn’t see why this would be any different. That’s interesting because that could happen here where the Fed feels pressure … I think they’re going to raise in December. But let’s see, maybe December they say, “Okay, we’ve done what we said for 2018, and we’re going to let the data speak for itself going forward.” If they say that, the market’s will zoom higher.

If in addition to that, we get progress on trade, the markets zoom higher. You remember that stuff that was floating around right before the midterms? Coincidentally or not, about that the president was having great conversations and it was asking the staff to draft a trade deal with China. Remember all that? And the market zoomed up and then it faded because there was the came out that that was not the case. We talked about that on last week on our podcast. If you see the reaction though, when when there’s progress and trade.

And by the way, rumors came out yesterday, on Friday, that the president’s looking to replace Wilbur Ross, Commerce Secretary. Now think about that. To me, and this is just again I’m speculating, as I did last week on kind of what’s going on behind the scenes. I think Wilbur Ross, I think Navarro, I think those two guys are very hell bent on tariffs. I don’t think they give a lick what the Stock Market’s doing. They’re trying to fix what they think is wrong with China and the US and their trade. They think tariffs are the answer. I think they’ve talked Trump into that, and President Trump is on board. He’s a tough negotiator. But at the end of the day, he does watch the Stock Market, right? He does watch that. He does want his approval rating going up. He doesn’t like the market going down.

So I feel like maybe those guys are so hard line tariffs, maybe he’s not as much, and so he’s going to get rid of them. That’s my speculation. You got Larry Kudlow on the other end, right? Who probably doesn’t like the tariffs. He’s a free trade guy. And you know, as always, “Oh, things are great and rosy.” So we’ll see. But that was the news on Friday. Didn’t really move the markets much at all. But those two things, the trade and obviously the interest rates. And the interest rates to me are the bigger thing because, look, we said this for a long time on this show, the worst thing for markets is a Fed raising rates, and an economy slowing down. That’s a bad combination, right? That’s like punching somebody that’s lying down on the floor. The economy’s not rip-roaring so much that they can just raise rates are through the roof.

Now, let’s look at where they are. Interest rates are still low, and they’re lower than they should be based on a lot of models. Okay? But the Stock Market doesn’t care about that because we were coming from a zero, and so the fact that they were doing quantitative easing, putting money in the system, now they’re sucking it out of the system, quantitative tightening, that’s what the market’s looking at. That’s what investors are looking at. They don’t like the direction of rates they’re going up. We see housing slowing a bit, we see auto slowing a bit. Now again, the naysayers out there and the bears will say, “See, we’re going back down to the ’08 financial crisis. Housing’s going down, autos.” No, these things are cyclical. They’re slowing down. Let’s acknowledge that. But that doesn’t mean they go to nothing. In fact, the housing stocks look very reasonably priced right now. But we are decelerating, so the market’s picking up on that.

Commodities have been falling. Oils falling, so everybody’s pointing to all these indicators saying, “See it is slowing down” and we are. We’re decelerating. But you can decelerate from 55 to 20 and you’re still moving forward. You’re still making progress. And I think that’s what’s happening right now. We’ve had a lot of decelerating, cyclical slowdowns. That means kind of a short term, slow down. We’ve seen it. We saw it in 2010, 11. We saw it in the 15, 16 timeframe, so we don’t know when it’s going to stop though, right?

What if the slowdown keeps going and it turns into a recession? And as I mentioned last week, the speech I went to with Janet Yellen, she seems okay with a recession. She actually said 2020 was probably the year we would have a recession, which is a normal part of cycles. It’s not going to kill anybody, but we’re willing to go through that. What we don’t want is inflation. That’s what the Fed’s mindset is. That’s what they want. They want to keep raising rates, and they’re okay with a recession. Investors are not. So that’s what we’re going through right now.

Now again, the bulls out there would say, “Hey, you guys quit worrying about all this. We’re having a little slowdown. I mean, earnings that were grown at 28% year over year. Phenomenal profit growth, and yeah, they’re not going to keep up that pace, but they’re still really good. And we’re having a little slow down, but hey, you know, with what we saw in Congress this week, we’re probably not going to get tax cut 2.0, but we’re still going to be able to … All the stuff that’s been implemented stays in place, and we have a good economy. Okay?” That’s what the bulls would say. I’m always a guy, and you guys know this, that we want to look at the evidence. And the evidence still suggests that we’re not in a bear market. The corrections, the volatility we’ve been through is normal. What we went through in ’17 is not normal. And see that’s what’s backwards. Investors think last year was normal. It should just go straight up, and that’s not normal. 2018, where you get some movement, you get some news driven stuff, that is more of a normal environment.

Now what’s interesting about 2018, and I don’t know how they measured this, but it feels like this. In 2018, if it’s ends the way it’s shaping up right now, it would be from an asset allocation standpoint, the worst year since 1901. Now I want to caveat that. I don’t know what they were measuring, but what they were saying was that almost every asset class is negative this year. Like you can’t hide out in bonds. You can’t hide out in stocks. Right? You can’t hide out in commodities. You can’t go international. You can’t go small cap. You can’t go … All those different factors are negative, and so there’s really no place to hide. Now what we are seeing though, is we have seen a few days were good deals, value, has severely outperformed growth, and we’re at such stretched levels. I mean I could show you charts of we’re near the dot-com mania. With the divergence between growth stocks, i.e. Netflix, Amazons, Googles, Mastercard’s, Microsoft’s, those companies are stretched from evaluation standpoint. And again, the ones that are cheap, are really cheap. There’s tons of companies that are trading that have a 3% dividend. They’ve got a 10 PE. They they’re growing at 10% a year on their profits. They’ve got cash, they’re increasing their dividends, and they get no love. Those are the companies that we think will start to do really well. And again, it could flip.

So that’s an interesting thing to watch over the next 12, 24 months because we’ve been saying, and we think we are very committed to this, and see tons of evidence of it, that what we’re going through, if it keeps going this way, could look like the 2000 through 2002 bear market.

Now when you think about that, you go, “Boy, I remember that being an awful time.” It was if you just owned the latest and greatest, which was what at that time technology mutual funds the S&P 500, right? You did get hurt. But if you diversified, and you owned other asset classes, you could have gone through that and potentially made reasonable money there, not lost it, you could’ve made money during that time. ’08 was a very different animal, right? ’08 was a it’s all going down, unless you’re sitting in cash. And I don’t see that happening. I see, if anything, and again these are extremes, but if anything more of a 2000. And I’m not even saying the S&P would fall 55%, or whatever it did in 2000 through 2002. I’m just saying whatever or sell off, you could see some stocks do that. I mean again, we’re seeing the companies like Facebook. Facebook peaked back in July, and that stock’s still down. I mean, it’s down 35% from its high like nothing. Could have go down 50%, 60, 70? Absolutely it could. And I’m not bashing Facebook, I just think it’s overpriced. And I think Netflix is the same way. Apple, a little different story but Microsoft’s very overpriced. And again, there are tons of companies that are not. So because they’re not, money will rotate as opposed to coming out of the market I think.

Now most people, as we’ve said for months, in their 401ks, low cost and easy is sometimes risky, right? If you own the S&P 500, half of your portfolio already is in five stocks because of the weightings. So I do think the people that are doing this blindly, and just throwing in a target date funds and not really paying attention, they’re probably the most vulnerable. And this is the first year they’ve seen losses in bonds in a while. In fact, what’s interesting is bond fund investors are kind of throwing in the towel. We had our first monthly outflow of bond mutual funds and ETFs, so when you combine them together, the first monthly outflow since December of ’16, so almost two years since we’ve seen any money come out, not net of bond funds. They’re finally kind of capitulating because bond investors are losing money this year. In the last week of October, there was 20 billion dollars pulled from bond mutual funds. That’s the third most in at least 15 years. So that’s rare. We haven’t seen that.

So what’s happening? Is it that they just see that it’s down? Are they worried about higher rates? What’s going on here? But if you notice, again, and I mentioned this last week, look at the 10 year treasury yield. Where was it at the beginning of October? Around 3.1, 3.2. Where is it now? 3.2. Usually money goes into bonds when the stock market sells off. It isn’t happening right now. So bonds are not the safety net they were, and so that’s interesting to watch. That may mean that while interest rates may not skyrocket, they may not go down. They’re going to stay in this level perhaps. Interesting to watch that because again, in the past several years when stocks didn’t work, your bonds went up. When bonds didn’t work, your stocks went up and they Ying and Yang, and together you got this nice steady portfolio, and this year that’s not really happening.

And so investors are a little confused. And that’s why I think at some point you will start to see, again, some of these other asset classes do well. I mean look, we know on evaluation basis international’s much, much cheaper than the US. Now you could say, “Well yeah, but don’t they have more problems?” Yes. That’s why they’re priced the way they are. It’s factored in there. That’s why they’re cheap. That’s an opportunity, and again, long-term. I don’t know for the next week, but long-term. And again, if you have money in the Stock Market, it should be long-term. This shouldn’t be one year money, it should be 5, 10, 15-year money, and we think commodities, value stocks, we think international. What we don’t like is some of the large cap growth stocks. We think that’s the most vulnerable area. And again, I could show you chart after chart and data to support that.

Now some of the standouts, I mean, hey, have you seen natural gas? Remember how that low that’s been? It’s up 30% this year. It was up over 5% on Friday. Up 14% this week. One of the few things that was really working on Friday. A lot of things were down. I mean, again, a lot of this is tied to a little bit of uncertainty, but uncertainty doesn’t mean bear market. But I do think that this trade situation is going to take a little longer than everybody would have hoped, and I think that’s what the market’s pricing because again, think of the logistical mess if you own a large company that gets stuff from China, what do you do? Do you pay more taxes? Do you change your supply chain? And then only to have a trade deal get worked out and you didn’t have to do it to begin with. So this uncertainty, you’re going to hear more and more of it in these conference calls because these big companies don’t know what to do, and they’re getting punished. And again, there’s some really good opportunities and some really quality companies out there. So again, I do think if you are somebody that owns individual stocks, there are a lot of stocks that are cheap. Some of them setting up technically, some of them just really fundamentally a good deal. But it’s been interesting.

But I did ask you guys last week, I said, “Hey, tell me what you’re doing in this environment.” Right? Because I was just curious when it’s real volatile, I like to know what you guys are doing in terms of trading. And one person wrote in and said, “Basically still has about 30% cash, has retirement 20 years out. If we retest the lows, I might buy more. We’ll see what really happens with my emotions involved.” That’s funny. That’s true. That’s true. It’s easier said than done. “Did add some emerging markets at the end of August.” I like that. “But didn’t buy anything last week.” So that guy’s got 30% stocks, or excuse me, 70% stocks, 30% cash. I’m curious if that’s the overall allocation because he has 70% stocks, 30% cash. Again, there’s things missing in there, right? Even a younger person could have some bonds. A younger person could have some real estate. A younger person could have some lending funds and loaning out their money, there’s lots of things in between. How much commodities do you have?

So if it’s literally just 70% stocks and 30% cash, there’s probably a bigger conversation to be had. And if it is just stocks and that’s because you got 20 years to retirement, and you can afford to have that. Then why is the 30% in cash? Is it because you want to sleep better at night, or you think you’ll get a substantially better deal? Because remember, 20 years is interesting. Data shows that 20 years the market has never had a 20 year period where it didn’t make money. So even if you bought at the peak, prior to the Great Depression, if you came back 20 years later, you made money. If you bought at the peak of the dot-com bubble, if you bought at the peak of the pre-financial crisis, you’ve made money if you owned just a basket of stocks. So the only reason is that either he thinks he can add value by buying it cheaper, but he admitted emotions may get in the way, and that often happens, or let you sleep at night. “Hey, I got 30% cash. I’m only moving 70% of the market. I’m doing all right.” But getting that 30 back in can be difficult. It can be difficult. That’s one person’s email. Thank you for that.

Let’s see, I got another one here from another gentlemen, and a long time listener. If I can find it here. Sorry, I got a lot of these. Let’s see. This was just last week, right after the podcast was put out. Okay, here it is. And basically I’ll try to wrap it up, it’s fairly long. This gentleman said he added to emerging markets about a month ago, a small increased value emerging market equities to 5% of total portfolio. Still 70% cash, and 6% short term investment grade bonds. So basically is this person is very, very conservative, waiting for the VIX to spike above 35. Now this came on, excuse me, November 3rd. And of course the VIX went down under 20 for most of the week and this past week. And in fact, was actually, even with a spike on Friday was still sitting there at the high teens, so waiting for it to go to 35. So obviously waiting for a big, big move. And again, like the last one, I want to see what the emotions are because when the VIX spikes at 35 and things are very scary, most people won’t add, they’ll wait for things to calm down.

Let’s see here has some options. It goes on to talk about the disappointment in politics. So is basically saying “I’m going to continue to trade the short term moves.” Okay? That’s one way to do it. Again, I would say when I look at that, I don’t know his situation, but in the big picture, if you’re trading your whole net worth, your whole portfolio, I don’t know if it’s the right way to do it. Do you have some things that are paying incomes to Steady Eddie? And frankly, we know over the long-term the market goes up. Right? It can go down. I mean, look, if you bought it … I mentioned, if you bought at the peak of ’08, and your portfolio went down 50% you’ve still made money, so you should have a peace that’s probably always in the market. Thank you for that. Thank you for that email there.

Let’s see. That is about it. So yeah, I’d like to know, I’m very curious what listeners are doing at times. Again, just to see … because when we have volatility like we do, there are opportunities. But for honestly, for most of you doing nothing is the best thing. There’s a lot of indicators I use, and it’s interesting because they give me signals, and I’ve created these over the years, and just basically kind of in the lab so to speak, trying different things and seeing the correlation to the markets and in back-testing and a lot of them get you out so they will give a signal to say, “Hey, it’s time to get out of a portion of your portfolio, and sit on the sidelines” and you sit on the sidelines. And by the time it says “get back in” it may be the same price, maybe even a little higher, so what did you miss? Dollar wise it was better to not be out, but it kept you sleeping at night and it prevented against the complete meltdown. Right? An ’08. So yes, there is a chance that when you get out an ’08 could happen and you’re like, “Oh my gosh, thank you. I’m so glad I’m out.” But most of the time you get whipsawed. And so what it’s meant to do is reduce volatility, not necessarily enhanced returns. That’s what’s interesting.

There’s a lot of people who use moving averages, so when the stock, or the Stock Market, goes below a certain movement average get me out, and when it goes back above, get me back in. And when they do that, the data suggests that most of the time they’re simply …. it’s for their emotions. It’s calming them down. Keeping them in the game to a certain extent, but it’s calming them down. But it didn’t financially make them better off and that’s an important lesson because if you put up with volatility over the long-term, you get the returns generally. Right? And so what we have to balance … and this is our job when we meet clients, is balance their emotions and their experience with the Stock Market with what they really need to earn over the long-term.

And if you can afford to earn less, you can afford to be more comfortable. Why do you think so many insurance salesman still exist in today’s world selling high commissioned annuity products? It’s because they prey on fear. They say, “You know what? You can’t handle that Stock Market volatility. My thing over here, doesn’t have any volatility.” No, but what it does have is high cost, high commissions, all of those sorts of things. And so those people are paying for comfort. They’re paying to keep their emotions in check, and they’re going to earn less over the long-term. And I’m not saying it’s horrible. I don’t like the tactic that they use. But I’m just pointing out that there are lots of ways to lower the volatility in a portfolio over the long-term, and still get reasonable returns. But to say I’m going to be 70% out of the market, or 80% and then when things calms down or things go bonkers, I’ll go buy and get it back in, I’ve rarely seen people do that.

I would suggest to you as well, that even these hedge fund managers that have these great, great long-term records, I would even suggest that they probably don’t do that. Now they hedge and they do this and they do that, but sometimes they’ll make a little bet with the options market, and it pays off in a big way on something kind of a black swan event, so that can happen.

But anyways, that is it for this show. Running out of time. Appreciate it. Hey, keep me updated on what you guys are doing. If you have any questions, let me know. And I love this dialogue we’ve got. Many of you have been listeners well over 10 years, so anyways, appreciate it. Take care. Don’t forget 210-526-0057. Or you can go to our website at eggersscapital.com. Take care, everybody.

Get our latest market commentary by subscribing to our blog here.

To subscribe to the Eggerss Report via the Itunes Store, click here.

This show is for entertainment only and information provided by the host, guest and this station should not be deemed as advice. Your investment decisions 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 the 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.

 

Scroll to top