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Update January 11, 2017
Special Announcement:
The FOOD BANK OF NEVADA COUNTY is now taking applications for a new executive director to manage all our operations at the facility. Please see our website a FOODBANKOFNC.org for applications and job description or contact me direct.
Next Money Matters airs January 19, 2017 Noon PST
Tune in to hear about our markets!
Marc's Notes:
Hi kids! Welcome to 2017! All shows on the website at no cost. Check it out! Posting my latest show right now #244. Pay close attention to the above job availability. We need a new director so if you or someone you know would like to submit an application, go to the website listed above.
Looking forward to a great 2017 in the markets. Contact me for a no-cost sit down to revue your holdings and strategies. (530) 559- 1214 or email me at mcuniberti@cambridgesecure.com. Long term care, life insurance, estate protection and income and growth annuities also available. New strategies abound. Read about all of it below!
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188609 APPROVED
Losses and negative balances when they occur can be an unwelcome aspect of investing but they can actually tell us a lot about what kind of strategies are being used and whether they are appropriate for a particular investor’s situation.
In my humble opinion, the words of famous investor Warren Buffet apply first and foremost:
“Rule No. 1: never lose money; rule No. 2: don’t forget rule No. 1”.
Investors would be prudent to heed such advice. Limiting losses when the market moves against you is more important than how much you make in up markets.
Looking at the percentage amount of your losses in down markets may be an indication of how much at risk your portfolio might be. On the flip side, how much you make in up markets can also help indicate the level of risk.
Suppose an investor sees a general market increase of 50% and his portfolio moves up by the same amount or even exceeds the percentage and gains even more. The investor is thrilled and perceives the strategy a sound one and that he or his advisor is a genius.
Standing back and analyzing that result with more thought however may yield a different opinion.
If the portfolio rises in lockstep with the market, it could also fall in lockstep. In our example, a 50% gain may feel great, but if the market falls 50%, would a 50% loss in your portfolio feel as good?
Probably not. Most investors I know would not tolerate such a setback. A 50% loss is a gigantic hole to dig out of. To recover from such a loss would then require the market to double from the lower level due to the math involved just to break even. Many investors might think the market only has to recover 50% from such a loss but a rise of 50% gain from the lower level would still yield a 25% loss.
A portfolio that moves up in lockstep with the market may mean you are over exposed for your level of comfort should the market move against you.
A more conservative approach may mean you make less in up markets but you also won’t be subject to violating rule No. 1 as badly.
Think back to the markets of 2009. Many investors took losses in the double digits and some lost significant amounts and still haven’t recovered. Had the losses been limited to single digits however, recovery is much quicker and a lot less stressful.
If you are seeing huge profits in your portfolio in up markets that may indicate a level of exposure you may not be comfortable with once the markets move against you. Generally speaking, a more conservative approach will mean you won’t make as much when markets run, but it also means you won’t lose as much if markets fall.
Portfolios that don’t move much may not seem as exciting or rewarding as your neighbors portfolio at times, but it may mean you will sleep a lot better than he will if the tide of markets rush out unexpectedly.
Portfolios that grow slowly over time but keep losses at a minimum when they inevitably occur, could help to keep rule No.1 at bay.
Heavy concentrations in stocks to gather fast gains may be enticing but there was a reason the tortoise beat the hare. Slow and steady may be the order of the day when it comes to long term investing and living within your risk tolerance level.
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Approved 187029
Alternative Strategies to traditional stock market holdings.
Investors come to the stock market to hedge against inflation and living expenses and often say to me they just cannot get any decent returns in the market. Others wince if balances move against them, some no matter slight the balances may drop. It is common for portfolio balances to rise and fall somewhat in concert with the general market but how much they move depends on what kind of assets one holds.
Holding all stocks will likely move the portfolio up significantly in fast uptrends yet drop them just as fast in down markets. One only has to look at portfolio balances in 2008/09 to witness just how much damage can be done. Having stop loss targets which sell out a position at a certain point are prudent to prevent small losses from becoming big ones however could also cause you to lose any gains should the position share price increase after the sell.
Moving some positions to fixed income baskets such as debt instruments (bonds and other types of fixed income investments) and areas which are defensive or traditionally less volatile (in advisor terms having a lower beta) can help smooth out violent moves and provide income or payments to the portfolio to help offset losses. Which of these to hold is the key to a successful strategy as one cannot blindly buy just anything in a certain area.
Holding large amounts of cash or cash equivalents can also help keep movements to a minimum and give one dry powder to spend when prices get lower. Taking profits when they exist can help as well. Nothing can feel worse than having a huge profit only to watch is go away as a security rises then falls back down.
A successful strategy might be to attempt to limit participation in down markets yet get onboard with the uptrends. How one does this and when movements are made is where the proverbial rubber meets the road in money management.
Looking at losses can be indicative as to whether one is utilizing sound strategies. In down markets were your losses significant or limited to a few percentage points? During extreme market routs such as 2008/09 did you lose 5% or did it get ugly with 30% losses or more?
Investor should realize that losses are a part of investing and if one cannot stomach seeing a negative number, bank accounts are the next option as well as U.S. guaranteed debt. These and similar holdings won’t lose value but they likely won’t gain much either and if inflation rages you will likely lose a significant amount of purchasing power. Other strategies that encompass market participation but guarantee no loss of principal are also available but terms and conditions must be understood before investing and early surrender charges may apply to some of these products.
Keeping with a sound semi- conservative strategy may limit upside movement somewhat when compared to the general market but will likely not hurt as much in market sell offs.
In may be wise to abstain from comparing your portfolio to general market movements as a more conservative approach may not move lockstep with the markets. If your portfolio is gaining as much as the underlying indexes, although that feels good in up markets, it could mean you are over exposed in down ones. We will discuss some options to traditional investing techniques in our next edition of Money Matters.
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Have you given lately? Many of you did during my Turkey Matters food drive and thank you. Giving and supporting our community is so important. It helps others in need AND helps you feel better about yourself. There are many excuses we can give to avoid giving. Perhaps we throw a dime in the Salvation Army bucket or give a dollar to a homeless person. Although that helps alot, many can afford to give more. Search your soul and ask yourself if what you gave is indicative of what you spend on yourself. You are probably not hungry or cold but many are. Is that new coat or pair of shoes all that important when we have hungry people wandering our streets? Could you give a little more? Here is a local realtor that saw the need and used her FB account to donate one dollar for every "like" she got. It amounted to over $400.00 without costing anyone who pressed the "like" button a dime. She just paid it herself. A big thank you to Deborah Guelinas and Teresia Renwick of RF/MAX Realty for helping. Her dollars went into our feed the kids program. Thank you!
Me, Teresia, Deborah, Toni Thompson (Director) and Bob Dion (Warehouse)
Contact me if you would like to help in any way you can.
Until next time and Jambo!
Marc
