Humans are hardwired to avoid danger, including financial dangers. This instinct causes many investors to panic and make costly mistakes during periods of market turmoil. A Fidelity study, however, found several positive trends among investors during the recent 4th quarter market correction. It is encouraging to see these trends and, since market corrections occur regularly, it is crucial investors repeat the actions in future market downturns.
MCM’s own Director of Portfolio Management, John Meyer, scored a podium finish in the recently completed Cincinnati Business Courier 2018 Stock Picking Contest! John finished in the top 2 of 28 Cincinnati-region investment professionals. The average total rate-of-return of his 5 stock picks was +10.4% in a year when the S&P 500 Index was negative -4.4%. That’s +14.8% total outperformance versus the broader market. John’s top gainer was Veeva Systems Inc. (VEEV), a cloud-based life sciences software company. Veeva gained +58.8% in 2018.
The 2019 CBC Stock Picking contest is already under way and John is going for the win this year.
Investors of a certain age recall all too well the end of the last bull market. From late 2007 to early 2009, the S&P 500 Index fell 56% and lost a staggering $11 trillion in market value. That painful memory has many of today’s investors wondering how long the current bull market will last and how they can protect their portfolios from its eventual, inevitable demise. The simple answer, surprising as it may sound, is “don’t worry about it.” Rest assured, I have not lost my mind.
Study after study shows that most investors buy-high and sell-low. This is because they’re convinced they can correctly identify the beginnings and endings of bull and bear markets when, in fact, they can’t… no one can. As a result, the millions of Americans who sold in 2008 when stocks were low missed out on the extraordinary gains that began in early 2009 and persist today.
When I was an undergraduate studying finance, the idea of buying and selling common stocks sounded thrilling. It captivated me. I read accounts of day traders making millions, supposedly, by just sitting at their computers and buying low and selling high. How easy does that sound!? All I needed was a handful of well-placed trades each day and I was sure to be retired by age 30. Yet, as I delved deeper into the world of finance, and subsequently began my career as a professional portfolio manager, I learned those day trading stories were far from the reality of successful long-term investing.
One of the most widely recognized investing principles is portfolio diversification. Surprisingly, novice and seasoned investors alike often misinterpret the true meaning of diversification. A common misconception is that diversification means no more than investing in many different companies. Subscribers to this fallacy may fill their portfolio with high profile glamour stocks, for example, that appear in the headlines day after day. Akin to a collection of unrelated shiny objects, these investments typically offer few of the benefits of diversification. A well-diversified portfolio bears little resemblance to a random collection of shiny objects.
Forbes Magazine’s 2016 list of Best Cities for Young Professionals ranks Cincinnati a very respectable #15 in the nation, even among hot-spot regions like San Francisco, Silicon Valley and Denver. As a young professional, this is exciting confirmation of what I already knew. But as Cincinnatian’s know, each neighborhood here is its own organism and some areas are more attractive to young professionals than others.
When I was nearing graduation from Xavier University, many of my peers were clamoring for job offers in the popular and trendy Over-The-Rhine (OTR) neighborhood. OTR is charming with lots of character and is within easy walking distance of a multitude of unique restaurants, clubs, and bars that draw crowds of young professionals at lunchtime and after work. Other XU grads opted for jobs in the central business district at one of Cincinnati’s 10 Fortune 500 companies. I was an outlier (I prefer to think trendsetter) when I accepted a position in the suburbs, namely Anderson Township.
My decision to work in Anderson proved to be an excellent choice. On the surface, there are obvious positive attributes — beautiful parks, close proximity to highways, and a pleasing mix of city and rural life, to name a few. Once I started working here, though, I learned Anderson has even more to offer those who dig below the surface.
Halloween is upon us! The season of scary is filled with a crisp chill in the air, trick-or-treaters showing off their costumes and spooky decorations lining the streets. For many investors, though, the fear looming in the shadows isn’t a goblin, ghoul, or ghost; it’s investment risk.
For a limited only, new MCM clients who qualify are eligible for one full-year of free equity and ETF trade commissions, making now a great time to refer someone you know!
Personal referrals are MCM’s primary source of new business growth. We are actively seeking to grow so that we can bring more of MCM’s great benefits and services to more people. We are very thankful for each referral we receive and for all of our existing clients who joined the MCM family via referral. If you appreciate someone who shared MCM with you, it’s likely someone you know will also appreciate the gesture. So…share the wealth, figuratively of course, by referring someone you know. They’ll be grateful, and we will too.
A common concern among investors is running out of money in retirement. Combating this concern, the “4% rule” is widely presented as a simple way to help your money last. Created in 1994 by financial planner William Bengen, the 4% rule says if you withdraw 4% of your nest egg each year, adjusted annually for inflation, there is a 90% chance your money will last at least 30 years. Yet despite its notoriety, the 4% rule is not without issue.
Society has an activity addiction. We constantly need to be entertained. So much so that the average human attention span is only 8.25 seconds – down from 12 seconds a decade ago and almost an entire second less than a goldfish’s, according to Statistic Brain. Undoubtedly, millennials bring this average down a bit. 77% of people aged 18-25 said if nothing is occupying their attention, they will grab their phone, compared to only 10% of those over age 65. Begrudgingly, I can attest to this. I’m currently working to complete my MBA degree through Ohio University, which is rewarding but includes a lot of paper writing. Although I’m thriving, I’ll admit if I had a nickel for every time I checked my phone, answered a text message or opened an off-topic internet tab instead of focusing on a paper, I wouldn’t need to earn my MBA…I’d just buy one.
*stops writing this post to research the going price for MBA degree*
Obviously I can’t actually buy a graduate degree and as easy as it is to joke about the fact that many of us can’t pay attention anymore, this notion made think (impressively, for more than 8 seconds) about how investors are affected by short attention spans. This mindset makes investors hypersensitive to trading frequency (“Why didn’t my investment adviser buy anything today!?”) and short-term price movements (“She bought that for me last week, why is it already down -1%!?”). This mentality can cause investors to “act just to act,” or worse, act solely on short-term volatility.