Thousand Stocks Underperforming Episode 81


Christmas day is almost here! I hope you have a wonderful time celebrating the holidays! Below are pictures from our recent Christmas photos.
David and his family
Thought For The Week
Have you ever listened to someone tell you that they are tired? It made me feel fatigued when I heard someone explain that they were tired. I had been consumed with work and hadn’t slowed down to think about it.
The thought of being tired hadn’t crossed my mind beforehand. Obviously, this is a silly example, but it’s an important thought. Be careful who you listen to and what you allow into your mind.
What people say to us has power. Proverbs in Bible talks about the power of the tongue when it says, “A gentle tongue is a tree of life, but perverseness in it breaks the spirt.”
Amelia
In my role as an advisor, I tread lightly in what I say to people when it comes to their finances because I understand the impact what I say may have on people.
Some people are looking or assurance that they are on track, but I have to be slow to comment on whether they are or aren’t until I fully understand their situation.
What I have found is that my role is not to convince people of our way of doing things, but to present our methodology. If it resonates with people, that’s wonderful. But if not, hopefully you’ll still get value out of things like this newsletter or our podcast.
So often, when it comes to money, people assume a defensive stance. Sometimes this comes off in an arrogant attitude, and we feel demeaned. Or sometimes it’s presented with an emphasis on the greed of the situation and we feel a prideful undertone. Or maybe it’s presented as why we should be afraid of something.
The point being is that we should exercise caution with whom we allow to speak into our lives so that we are not wrongly influenced by what we hear.
How Do We Do This?
Stick with the facts. Ask yourself, “What can we verify to be true?” Then use prudence with how to act on the information.
The aspects I described above are emotions. Our feelings are important and may help us make decisions, but they should not be the driver of our decisions.
What’s Going On In the Market
Bloomberg ran an article this week that stated, “One of the interesting aspects of the brief selloff in stocks in late November was that breadth deteriorated markedly. The broad indexes were only down a few percentage points, but there were more than a thousand stocks making 52-week lows on a daily basis.”
So, large indexes were only down a little, but over thousand stocks were the lowest they’ve been in a year. Big companies like Apple and Facebook and Microsoft help lessen the impact of the smaller companies losing.
The article continues to explain that nearly every investor owns those large companies, because they are used as hedge. As the market decreases, they tend to rise. In the early 2000s, the hedge stock was Cisco Systems, but when the volume of trading continually declined, it was the start of the Dot-com bubble.
But many people are unwilling to get out of the big stocks because their cost basis is so low. “Psychology dictates that people don’t experience as much pain with the loss of big unrealized gains as they do with outright losses, and are willing to withstand corrections of some magnitude. If you have a 500% gain on a stock instead of a 1,000% gain, it’s still a 500% gain.”
The author also explained that another advantage for the market has been people’s willingness to continue holding because it seemingly only goes up. The author concluded by saying, “I have also come across more and more investors who characterize themselves as optimists. Sure, optimism works most of the time. But there are long stretches when it doesn’t. Most people forget how painful the dot-com bust was at the time. It was a full three years before stocks finally returned higher. And don’t forget the sad period of 1929-1945. If the time you have to wait for new highs isn’t for years or decades, it’s not easy to be an optimist. Remember, as recently as 13 years ago, pessimism worked as a strategy. They made a movie about it, if you recall: The Big Short.”
What To Look Out For
If you’re within ten years of retirement, what the market is doing is important to consider. How you’re allocated matters more as you get closer to using your investments for income. Consider whether what you’re doing is appropriate for your situation and verify whether it is with a trusted advisor.
Until next week,
David C. Treece,
Financial Advisor
864.641.7955
Did you miss one of our last newsletters?
Don’t Do What I Did: Click here
A Diversified Approach Is Normally Suitable: Click here
Controlling Our Emotions: Click here
Have You Considered Adding Alternative Fund? Click here
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