February/ March Bullseye Client Newsletter
by Timothy Guthrie on Mar 5, 2018
I have not written since the heavy volatility of February. What has happened since then? A fair amount of additional volatility, some sideways movement and some price recovery. This past 6 weeks has not been the ‘immediate bounce back’ we saw so often the past few years, but has been harder to gauge, and several issues are affecting the stock and bond markets. Below are the numbers:
YTD as of February 28th:
Bullseye Composite (average client results) +1.5%
70/30 NYSE composite / Bond index -1.6%
S&P 500 +1.5%
We beat a balanced index (balanced between stocks and bonds) by 3.1%. This is good performance. We were tied with the S&P 500, which is OK performance for those with no bond or fixed income holdings. We lost less than the S&P in early February and our climb back was a little slower on the rebound. Overall, we had a less volatile experience, and I think that is worth something.
So far in March we have gains, but it is not real pretty. Tech stocks have been the leading group, doing far better than other sectors.
Why did I sell 1/3 of our stock holdings in February? I sold a large portion of our stock holdings to protect against a larger, protracted decline – just in case. Since we didn’t have a big, long lasting decline, then after selling, I must reallocate back into stocks, rebuilding your accounts. What I sell in these cases is our most aggressive holdings: biotech, robotics, tech stocks in general.
In February I sold, reallocated (I tried to get folks back in incrementally to reduce risk), and in March I reallocate again, increasing our holdings of medical devices, biotech, computer chips and gas and oil pipelines. This is why you have seen so many trade confirms.
In February, when the market first declined sharply, fear of higher interest rates got the blame. In fact, interest rates did shoot up fast in the early part of the year, and higher interest rates can make stocks look a little less attractive, as low risk investments are looking better (with interest rates climbing). Since early February there have been other economic reports that have somewhat calmed fears of rising rates, and for some sectors, rates have declined a bit since then.
In March, we have had a new whipping boy: trade tariffs. This is complicated issue (historically, politically, culturally), but the global stock markets hate tariffs, or at least NEW tariffs. I would agree that almost any tariff is a net negative for the stock market and country as a whole, at least in the short term. Tariffs create new winners and losers, and the idea adds to uncertainty, and markets don’t like change. Very targeted tariffs, could be structured in a way to cause little damage, and might even work, but few countries have leaders that want to look ‘weak’ by standing pat while we install new tariffs, so, to appear ‘strong’ they have to threaten tariffs of their own, aimed at our exports, airplanes, tech, agricultural commodities, then you have the painful trade war, and a big mess.
My opinion (if you care) is that it is hard to fix the damage done by trade policy 25 years ago. The North East US (NY, Boston, DC) benefited from globalism because of their dominance in global finance. The West Coast benefited from globalism because the movies, airplanes, and technology they produce were in demand all over the world. Farming areas benefited some because while they lost many small-town factories, they did export corn, soybeans and wheat to many countries including China. The upper Midwest bore most of the pain from globalism, and the other regions couldn’t have cared less. Now Trump comes along, and points out the obvious problems, but most of the damage is done.
I think our trade, military, and foreign policy should be built upon containment of China, but this is a messy business because so many US businesses make money in China, or make money selling us stuff they have made in China. Think about the iPhone. All of them are made in China. The most valuable company in the world(Apple), and a leading US tech company makes 100% of their most important product in China. Apple pays more income taxes to the US treasury than any company in history, so we do benefit in some ways. Hurting Apple, hurts the US, yet, Apple is dependent on China.
We don’t want a trade war. It gets real messy, and as you peel back the layers of the onion, you find new permutations.
Today the news was that President Trump named Larry Kudlow as his chief economic advisor. This is a good move, and I have a lot of respect for Mr. Kudlow. Larry is well known in global investment circles and will be a strong voice of reason. It probably wouldn’t hurt to pray for him, as he has a big job, under difficult circumstances.
So, with all this going on what I am doing? Three things:
- Adding to what I believe are the best sectors: medical devices, robotics, tech, and a little biotech
- Increasing diversification: I have added exposure to bank stocks, foreign stocks and oil and gas pipelines
- For clients with moderate or lower risk tolerances, I am adding low risk fixed income, reducing stock exposure, or at least reducing risk somewhat.
I am staying relatively fully invested generally, and believe that we will avoid a real trade war, and that good economic growth, and good corporate results will help produce good results. If things look ugly, I will reduce risk.
If have questions or concerns about your account, please contact me. All my contact information is below.
With all the talk of trading above, and all the trade confirms you have been getting, now is good time to remind you that neither Bullseye the company, or Tim Guthrie the person has any financial incentive to trade. I don’t make a penny from transactions and don’t mark up any fee TD Ameritrade charges. I only trade when I think it makes sense for you, either to pursue an opportunity, or to reduce risk.
I have no product-based conflicts of interest either. The investment products I use are investments that have management teams I trust and are also very good performers. That’s it. I don’t get a trip to Disney or tickets to the game for using this fund over that fund.
Last year I became affiliated with the Dave Ramsey sponsored Smartvestor program. This program introduces investment professionals to folks looking for investment help. It is a good program, and has helped me meet many new people, and sign up many new clients. I eventually became endorsed by the Smartvestor program in both Cincinnati and the Ashland/Huntington area. I have decided that being involved in the program in two areas is too much. There are no issues between me and the Smartvestor program, I am just getting a little too busy. I want to make sure that the quality of my work stays high, and that I keep my commitments to those who hire me (YOU). So, with that mind I am dropping my affiliation with the Smartvestor program in Cincinnati. Why drop the Cincinnati affiliation? It is bigger and creates more work. I am trying to cut down on the client acquisition (for now) and this territory simply creates too much work now. I may sign up again in the future, I have enjoyed it.
I am keeping my Smartvestor affiliation in the Ashland/Huntington area. This area really encompasses Southern Ohio, Eastern KY, and Western WV. I have gained new clients in this area, and it has been a good fit. This area creates the right amount of new potential clients, without me being swamped. It fits. I hope it continues.
Mandatory Newsletter Notices
I can’t read your mind. If your investment goals have changed, or if you want to be more aggressive or take less risk, you need to tell me. Further, you need to tell me if you retire, change jobs, or become unemployed. Any big life change could affect how I should be managing your account, so give me chance to get it right and let me know.
Today a client went to my old office out of habit. Please remember, I have a new Cincinnati office location. Still on Beechmont, but now in the Waycross North Building behind Beechmont Toyota. My address is:
431 Ohio Pike
Cincinnati, OH 45255
Tim Guthrie, CFP