Riding the Public Market Rollercoaster | AWM Insights #163
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Episode Summary
Last October when Equity Markets bottomed out, there were calls to sell and warnings that market conditions would only get worse with rampant inflation and a weakening economy.
With the recent positive performance of most Public Equity Markets, you may be noticing that the trend to invest and take risks is now “in” again.
Markets fluctuate, and although these swings may lead to emotional responses, even on the upside, investors must tune out the noise, ride out the waves, and focus on their mission.
Have questions for an upcoming episode? Want to get free resources, book giveaways, and AWM gear? Want to hear about when we release new episodes? Text “insights” or the lightbulb emoji (💡) to Brandon at (714) 504-7689 to join our new AWM Insights Network.
Episode Highlights:
0:00 Intro
0:41 What has happened this year and what’s to come?
3:33 Accepting volatility and not reacting to the noise.
5:25 How the wrong advice from the “experts” can impact your wealth.
6:49 Why we build portfolios for the long haul.
9:53 Text us!
+ Read the Transcript
Brandon Averill (00:03): All, right everyone. Welcome back to another episode of AWM Insights. We're about halfway, a little more than halfway through the year, and so we're going to take a little moment to pause and just take a look back at the first six months and see what happened, see if we can't get our crystal ball out, shine that up a little bit and tell you all what's going to happen in the second half.
(00:22): It's kind of funny, I was just at the All-Star game and after a little chitchat with an agent, that was the first question. He's like, "All right, let's talk business. What's going to happen the rest of the year?" And he said it tongue-in-cheek because he knows our investment philosophy and we've talked a lot about being evidence-based and not trying to sell or kind of predict markets.
(00:42): But in all seriousness, I think there was a touch of truth or at least curiosity in his mind, and so we have no idea where the markets are going. We're not going to take this whole podcast to get there, but it is good to reflect back on what happened over the last six months. I mean, we've seen stocks rebound from their worst year since 2008, and we returned to a bull market, at least here in the US.
(01:08): We've seen inflation, that was such a concern over the past couple years, really start to fall off, causing the Fed to stop some of their rate increases, pause some of that a little bit. And then the topic de jour right now is artificial intelligence, so that's definitely dominating headlines.
(01:28): Somebody actually brought up at the All-Star game as well, what happened to crypto? And AI is definitely the new crypto. So-
Justin Dyer (01:36): Taking the top spot.
Brandon Averill (01:37): Yeah. Justin, I'd love to get your perspective. Obviously spending day in and day out in the markets and the investment accounts of our clients, what's been your observation? How does this maybe change your thinking, not change your thinking? What sticks out from the last six months?
Justin Dyer (01:55): Well, boy, I think there's a lot we can point to that reaffirms just the general approach we take, and certainly you're alluding to some of it. And I'd even say, taking a step back further too. Trying to predict the future, at least talk about the future, hey, what's going to happen, is completely normal. It's actually somewhat healthy to do it.
(02:17): What's not healthy is to take those conversations and those guesses, because really that's all they are, and try to implement them into a portfolio that's built to, or should be there to be providing for your priorities, right? What's important to you in life. When you're trying to predict the future, you're kind of going to Vegas in a sense and gambling with that important capital that's there to support you and your priorities.
(02:43): So talking about it, reflecting on it, these are things we actually do, to your point, day in and day out. But to get to your question specifically, it is amazing. Time and time again, you see the statistics, the data play out. We know there's a very high likelihood after a down year, which 2022 was very much a down year, there's a very high likelihood of a positive year to follow.
(03:09): Now we're not done with 2023, but so far it's been a really, really good year. And that's at the, I guess disagreement, let's call it, of a ton of market participants. If we went back to January of this year, the vast majority of banks, Goldman Sachs, Morgan Stanley, they were saying, "Hey, the market's going to fall further. Interest rates are going to keep going higher," which they have done, but guess what? Markets didn't accommodate or cooperate.
(03:37): And it just goes to show you, six months ago, all of these very, very, very high-profile, respected individuals and institutions basically got it wrong. Now, there's probably someone in there you can find who got it right, but that's the challenge. And each and every cycle, each and every year, you see the same general things happen. It doesn't repeat itself, but it certainly rhymes and we know the data.
(04:06): And it's comforting, I hope it's comforting to the clients listening that the data that we rely on still is relevant. We know that if we're consistent, if we take care of taxes, if we minimize certain costs in the portfolio and just have a really disciplined tried and true approach, then we're going to get a huge benefit from the market overall.
(04:31): It doesn't mean tomorrow's not going to be negative or the next month or the rest of the year can't be negative, but taking a step back, knowing the market is this phenomenal generator of wealth over time, there is some probability that we can garner from long-term investing and that's what we really, really stick to. And certainly the first half of this year has underscored that and reaffirmed it, in my opinion.
Brandon Averill (04:54): Yeah, I think most definitely. When you start to think about the end of 2022, inflation is ripping, we're looking at a debt ceiling kind of issue. We've got the Fed jacking up rates. I mean-
Justin Dyer (05:09): Is a recession eminent?
Brandon Averill (05:10): Yeah, recession eminent. I mean, Goldman just announced they're cutting their recession expectation in half. All these different things that built up at that time period, I mean, you have to dig deep in your gut and go, "Hey, if I'm really trying to predict markets, is that the time I was going to go all in, if I was going to try to do different things?"
(05:30): And we know if you would have missed the first six months this year, the impact on your return over long periods of time is incredible. We've certainly hit on that in the podcast previously. And you look at the odds, it doesn't mean it's going to happen, but you want to capture all the returns that you deserve. And when you look at down years like 2022, staying invested, the data shows that hey, on average, the return after a 20% market decline in over one year is a 22.2% return. Over three years, it's 41.1 and over five years it's 71.8.
(06:08): Now, let's be clear, that's not a straight line up. No, you got to take the rollercoaster a bit. But that's why it goes all the way back to your overall financial structure that we talk so often with you guys about, is we want to make sure that hey, we're going to have our protective reserve locked in. We're going to match up our priorities with the bonds and make sure that we can fund those priorities over a shorter period of time so that we can allow our equities, our growth part of our portfolio, the growth engine, to capture all of these returns without having to worry about the six-month, the three-month, the one-month kind of movements that we might experience.
Justin Dyer (06:45): Oh, yeah. And not only to speak, and you mentioned this, how difficult it is. I mean, that is an impossible task to do. And the data supports this isn't just hyperbole, that's an all but impossible task that just takes luck to get right.
(07:01): Going back to what I was saying earlier, 2022 was a bad year. January of this year, everyone said basically it was going to continue. Well, six months later, it just takes six months, and the news narrative over that period of time hasn't changed all that much other than inflation really in the last month or so changing, right? Softening up a little bit.
(07:22): And you would've been caught totally flatfooted. And to your point, if you missed out on that growth that we've seen, it's pretty damaging. The opportunity cost of missing out on that can be pretty damaging over the long term.
(07:34): So not only does the data not support timing the market, it just doesn't pay off, right? I mean, I guess I'm saying the same things there. It just really doesn't pay off to try and get caught up in the hype, the noise, what's the fad in the marketplace this year, this month, this quarter, whatever the case may be, and try and capitalize on. It's really a way to probably lose money as opposed to earn money.
Brandon Averill (08:04): Yeah, and it's going to continue to be an interesting time for the next six months. I mean, there's some big themes that are probably going to capture all of our attention as we look at the second half of 2023. Where's the economy actually going? Here in the US abroad, will this new bull market, is it going to continue to roar? Are we going to continue to see the NASDAQ just kind of throw caution to the wind?
(08:28): Or are we going to see it maybe take a breath a bit and just really kind of relax and take a little bit of a step back and set up for the future? And then this whole AI thing, how much is that going to capture all of our attentions and what's the actual impact on the economy? You hear all kinds of different things there. But I think when we think about all these things and what we do know based on the evidence is, whatever does happen, the market is going to take all of this information, it's going to digest it, and it's going to be extremely efficient over the next six months, over the next one year, two years, three years, et cetera, and that we should have a lot of confidence.
(09:06): We know that our investing experience, our return experience should be dominated by an investment philosophy we know that we can stick with over a long period of time. That is how you're a successful investor. And so if we can set up your priorities in the right way, set up your portfolio with the Protective Reserve, and allow you to participate in the world's greatest growth engine that's ever existed, the public stock market, things are going to turn out pretty well, or at least are statistically in your favor to turn out extremely well.
(09:36): So hopefully this is helpful. Just a little bit of a look back on the first six months and then what we're considering as we're looking ahead over the next six. We'd love to hear from you guys, as you know. Feel free to shoot us a text, shoot me a text at 714-504-7689. We'd love to answer your questions as we head into the second half of the year here.
(09:56): And until next time, own your wealth, make an impact, and always be a pro. It's been awhile. Thanks for sticking with us.