Sometime back before the crash of 2008, I was in need of a full time assistant and approached someone that had previous experience in the equity arena. This person had experienced the bear market of 2001-2003 and didn’t want to be involved with equities ever again. She and her husband were going to begin trading in the housing market. Her last comment to me was, “Housing values never go down”. Not sure what happened to them after 2009.
As we all know, the stock market has reached incredible values, especially after the 2016 presidential election. Tax cuts and reduced regulations have allowed the US companies of all sizes to expand and grow, some of them exponentially. As a result, these very big companies like Apple, Google, Amazon and other FAANG stocks as they are called dominate the market. When these companies start losing a little of their glamour, their effect on the market indexes is exaggerated and give the impression that the sky is falling. We’re seeing that now.
Currently, almost all the equity positions in our recommended portfolios are large, well established companies paying dividends at or above 2%, have stock buyback programs and exist in areas of the economy that new competition would be hard to enter and compete. It may not be sexy but it’s steady.
Finally, these portfolios continue to protect against a sudden and dramatic market decline helping to recover most if not all the portfolio losses. (As I have said many times, it’s not guaranteed.) Also, as I have said many times, in a raising market these portfolios will outperform the markets and in a declining market (not a crash or dramatic drop) the portfolios will underperform, primarily due to the expenses related to keeping the protection against the big and fast drop.
While history doesn’t repeat itself but sometimes it looks an awfully like the past. But, also remember who won the race between the tortoise and the hare. Don’t know what’s going to happen next week or tomorrow or next year but, historically and for the long haul, equities continue to outperform inflation by a wide margin. So, for now, let’s all go out and see how we can make our little corners of the world a better place. Call or email me if you would like to talk or get together.
Have a great week!