WHAT WE VALUE
A business' intrinsic value fluctuates very little. Yet, the price that the ever-moody "Mr. Market" will pay at any given time can fluctuate dramatically based on outside economic and political forces.
At Pilot Wealth, we feel no need to explain it, no need to tell a story. Instead, we recognize volatility happens and we welcome it.
For the last 7 years the vast majority of economists and analysts alike have incorrectly forecasted rising interest rates and the possibility of rampant, out of control inflation. Recently, however, these same soothsayers have flip-flopped and said that they now believe that interest rates will likely stay lower for longer.
A sideways moving market, as we have seen recently, requires a different mindset to navigate. Indeed global developed markets have been flat for a couple years now, emerging markets have been flat for 10 years, and US Small Cap stocks have had zero return since late 2013. Most Wall Street sources have described it as, “The most hated bull market ever.” The following charts have us asking ourselves, is it possible the bull market ended and no one noticed yet?
We just finished hosting a few open houses for friends of the firm, and whether it was one too many glasses of wine or the volatility we saw in the first quarter, I think we stumbled on an interesting topic. Truth be told, we are a little late publishing this newsletter. In spite of some volatility in the first two months of the year, not much has changed. Thus, at the risk of sounding like a broken record, we wanted to revisit a discussion (reference the earlier newsletter) regarding the emotion investors experience during market volatility.
As of this writing at the end of January 2016, the markets have been quite volatile. We have had a few conversations over the last couple years with clients wondering why we were so conservative. A few actually pointed to other investors who were earning a more substantial return, while their returns were more subdued. It is amazing how quickly the narrative in the market has changed from momentum-based risk taking to capital preservation.
For those that have grown up in the Pacific Northwest, the story of the most famous suspension bridge to be built, and subsequently destroyed, in our own backyard is well known. For the rest of the world the Tacoma Narrows Bridge, more commonly known as Galloping Gertie, is no more than a footnote on a study of failure analysis for a university level structural engineering class.
Along with the sinking of the Titanic, the Tacoma Narrows bridge collapse was a sobering reminder of the devastating cost of hubris.
If you have been following the financial headlines of late you may have noticed a consistent theme around the ills of over stimulated markets. Every day we go deeper into this historic market run up the warnings become more pronounced. Even to the seasoned investor, the current state defies conventional logic.
If you recall the childhood game of Rock, Paper & Scissors, then you likely know as much about investing as many in the markets. To come out ahead however, it requires developing a strategy rather than leaving it to chance as those that are disciplined will undoubtedly be better off in the long run. Listen to this latest installment of the Chart of the Week and hear Nick and Rick's take on how applying a strategy to either activity will benefit you in the long run.
Taking the discussion further from two weeks ago on the Conscious Competence Learning Model, Rick explains where many leaders fail to leverage the learning from the model to apply it to their leadership and organizations. Listen to this week's Chart of the Week to learn where the Mastery Gap is and understand how you can challenge yourself in your leadership.
Almost everyone is feeling good about the prices at the gas pump these days, reflective of the price of oil that has dropped precipitously over the last few months. Who wins and who loses, however, is worthy of discussion and in this weeks' installment of the Chart of the Week, Nick walks us through who is on which side of the equation.
In a bit of a changeup this week, Rick will be leading the discussion of the Conscious Competence Learning Model, useful for understanding how and what we learn both from an individual leadership and an organizational perspective. Listen in to learn how you can apply what and how you've learned in 2014 to propel your 2015 initiatives, ensuring you are maximizing the potential of your business in the coming year.
In spite of the repeated learning and profound wisdom in the financial markets around the perils of short term thinking and the merits of long term thinking, inevitably investors still make poor decisions. Whether it is out of boredom and the lure of the shiny object, or fear that drives one to irrational decision making, poor investment decisions prevail. What can we learn from this? In this week's installment Nick focuses on what it takes to overcome these behavioral pitfalls to truly reap the benefit of good long term thinking and investment strategy.
The Federal Reserve met today to discuss among other things, whether to continue the Quantitative Easing (bond purchasing program). As we wait with baited breath on the outcomes of the meeting, we will be contemplating the implications of continued over-sweetening of the markets, or if the promise of ending QE is more trick than treat.
With major stock market averages in the midst of a pullback, I thought it would be interesting to review the risks we have seen in the markets. As of this writing the S&P 500 dropped below its 200 day moving average for the first time in 477 days (third longest streak in history). Small cap stocks have been especially susceptible (down 13%+ on a price basis since end of June). This pullback is no coincidence, the stock markets domestically and internationally have benefitted from the global experiment of Quantitative Easing. Indeed the correlation of increasing stock prices in the midst of each round of quantitative easing is unmistakable. Likewise, the subsequent fall of stock prices, as each round has ended is distinct. Therefore, with the end of QE3+ on the horizon, there is no wonder that stock prices are under pressure.
We share some thoughts about what we believe on our Pilot’s Log and Navigating Markets including words of wisdom inspired by the greats, periodic updates about current markets and timely seasonal reflections.
2233 NE 45th Avenue
Portland, Oregon 97213
Office: 503-847-9723
