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October 2011 |
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News and Notes from Ellen R. Siegel & Associates In The News Ellen was tapped this month by Nightly Business Report on the topic "How to Recession Proof Your Portfolio" - they dubbed her her clients' "Professional Worrier." Click here for a link to a brief video.(www.siegelplanners.com/news_video_110916.html)
Quote for the week: We live in a society bloated with data, but starved for wisdom. By ethnographer Elizabeth Lindsey How to Evaluate the Economy A recurring theme as I talk to my clients over the last two months is frustration and a feeling of helplessness. Portfolios seem to be eroding, the political situation in the US and Europe keeps deteriorating.
LPL Research Report 9/28/2011 The key to making successful, long-term decisions is dependent on "ignoring the noise," discounting emotions, and investing based on facts, not feelings. Our process does not chase overvalued names, but rather invests in opportunities to be ready for when the market begins to reward these undervalued assets. We believe that the fundamentals of the market are stronger than what pessimistic and panicked investors perceive. Our Process The LPL Financial Research investment process focuses on three distinct, but complementary tenets: Fundamentals, Valuations, and Technicals. The LPL Financial Research investment process uses the intersection of these three factors to make the portfolio decisions within all of our recommended models. Fundamentals: Fundamental analysis is the use of objective economic and market data... we believe that the key to making successful, long-term decisions is dependent on "ignoring the noise," discounting emotions, and investing based on facts, not feelings. We believe that over the long term, emotional decision making is a primary source for underperformance as little good occurs when gut reactions override thoughtful analysis... Common fundamental factors include statistics like earnings, employment, economic growth rates, and housing data, to name just a few. However, over the short term, market fundamentals have not mattered to this market. Rather, the current market... is reacting to emotion, fear, and panic. Here are facts: The balance sheets of corporate America are the strongest they have been in many decades as strict cost controls, decent sales growth, and a deleveraging of debt have left businesses with more cash in their coffers than ever before. This strong position for companies means they are better poised now to withstand economic downdrafts and are better situated to fuel growth through enhanced spending, share buybacks, acquisitions, raising dividends, and hopefully soon, additional hiring of staff... The U.S. economy grew at a 1.0% pace in the first quarter and 0.4% in the second quarter. The third quarter is on pace to grow at a 2-2.5% rate. ...The Index of Leading Economic Indicators (LEI), which is a grouping of several economic statistics that are usually predictive of future economic conditions, continues to suggest slow growth and not a double-dip recession. In fact, LEI posted a solid and better-than-expected 0.5% gain in August - marking the third straight month of re-acceleration in the year-over-year growth of the LEI, which suggests that a recession is unlikely. While this fundamental data is relatively positive on the growth of the U.S. economy and supportive of opportunistic investments, the market has largely ignored these fundamental facts. Consumers are acting differently than they are feeling. The fundamental data shows that consumers, which make up nearly 70% of the U.S. economy, are going to the malls and spending at levels not seen since 2007. Valuations refer to the concept that... there is only one way to make money in investing: buy opportunities at a low price and sell them at a higher price... this part of our process has not been rewarded as of late as the prices of attractively valued opportunities become cheaper and overvalued opportunities continue to be purchased by those investors overcome with emotion and fear. Our discipline regarding valuation is to sell portfolio winners as they move from attractive opportunities to overvalued investments. Areas where we have been deploying capital based on attractive valuations are selective equities, such as Japan, small cap, cyclicals, high-yield bonds, and bank loans. Because the market appears to be pricing in a far greater likelihood for a return to recession than the data actually indicates, stock valuations are cheap versus their historical averages. Technicals are the science of analyzing the historical return behavior of markets to predict their potential future movements.
Technical analysis currently supports our fundamental and valuation views that it is prudent to be more opportunistic than defensive at this time.
All three of the tenets of our process are leading the LPL Financial Research team to position against the crowded trade of emotional selling and fear-induced defensive moves. Rather, we believe that the fundamentals of the market are stronger than what pessimistic and panicked investors believe. While fear and panic have driven an emotionally charged market over the last few months, we believe that an investment process that values facts over feelings will be rewarded over the long term. There is no doubt that the negative "noise" that started in the gut of nervous investors and has been perpetuated by a media that loves to report on a "train wreck" has been the drumbeat that has driven the market as of late. Summary: While our views on Fundamentals, Valuations, and Technicals has not been in alignment with what has worked in this fear-driven market over the short run, we remain fully convicted and stand behind our time-tested investment process. Sometimes the right thing to do is not take the easiest or most comfortable course over the short run... it is our commitment to tune out the noise, ignore the emotional feelings, and invest on the facts, as we believe that is the key to long-term, sustainable portfolio success. ======== And I remind you that if you still are unable to relax about your investments, we have "downside risk aware" portfolios designed to further dampen the impact of roller coaster returns, i.e. more defensive than opportunistic, so just call me for information. Have a good week! And for my Jewish readers, have an easy fast this weekend. Best regards,
Ellen R. Siegel, CFP®, ChFC, CLU Ellen R. Siegel & Associates (305) 665-2130 Why would a client partner with an advisor affiliated with LPL Financial? This video shows the 4 key reasons why LPL Financial advisors lead the industry.
Important Disclosures:
Why would a client insist on working with a Certified Financial Planner certificant? Our Standards of Professional Conduct ("Standards") require all CFP® certificants to place the interests of their clients ahead of their own at all times. A CFP® certificant who provides financial planning services is required to do so with the duty of care of a fiduciary: acting in utmost good faith, in a manner he or she reasonably believes to be in the best interest of the client. (See Rule 1.4 of CFP Board's Rules of Conduct) CFP Board's active enforcement of the Standards is a key factor that differentiates the CFP® certification from other credentials within the financial services industry. I am proud to be a CFP®. |
For general information please visit our site at www.siegelplanners.com. |
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