Volatility Danger & Protection


Sideways motion in the stock market kills the average investor.  They buy at the top, sell at the bottom. Then they drop out, then come back and do it again and again and again.   The greatest protection against this mistake is value.

The first lesson  sent Pi subscribers this year (1-5-2020) showed the 30 years chart below of the Dow Jones Index.

You can see that bubble pop just before the beginning of the 2000 decade.

microtrends.com

We began that lesson with this question… “Will the 2020s decade be more like the 2000s decade or the 2010s decade?”

Then this comment was added… “Ask me again in January 2030 and I will know, but since no one knows the answers now, proceed with caution.”

I’m more confident the answer to “what this decade will be like” will be like 2000 to 2010, but always keep Golden Rule of Investing #1 in mind,  “There is always something we do not know”.

What we do know is “beware of sideways motion”.

I sent readers the chart below in 2002 that shows how the equity market performed from WWII, up to the beginning of the bull market that ended a decade later when the dot.com bubble burst.

I wrote (in 2002):  You will see how between major bull markets the Dow runs through a series of sideways motions. This chart shows how the market had a crash beginning 2-9-1966 that is similar to the current free fall. Then there was a rise of 48% over 26 months before it crashed again down 36% in 18 months.. Then there was another rise beginning May 26 1970 as the Dow rose 74% in 32 months before there was another 48% drop over 21 months. These rises and sudden falls happened two more times from 9-21, 1976 through 8-12-1982.

The bull market did not firmly take over for 17 years.

So the market may rise in the short term for even as long as 33 months.

Beware of rises like this as they are likely to be a short term bear market rallies, with a falling U.S. dollar.

The chart makes it look like the market was a lot better than it was. To cash in on a sideways period like this, one has to get in and stay in or get in when the market is low and then get out early, before each crash. Most investors do exactly the opposite.

This advice “BEWARE” makes sense again now.

chart

We have already seen some huge volatility with the stock indices limiting up one day and then next day limiting down.

Expect volatility.

Here is a broader picture from Stockcharts.com

chart

If history repeats we could see a pattern similar to 1904 to 1924 and 1966 to 1984 (shown in red) or 1936 to 1946 and 1988 to 1992 (shown in blue).

The Red projection would suggest a Dow dropping to between 11,000 and 12,000.  The Blue scenario shows a Dow at around 18,000, where it is  close now!

History also suggests that when markets hit bottoms, it does not mean an immediate rebound and return to a bull market.

History suggests that we could see three to twenty years of sideways motion.

There are factors at play, such as low interest rates everywhere, runaway debts and deficits, trade wars and excessive divisiveness in Europe, the UK and US, that leave a lot of room for doubt.  This uncertainty may lead to a more bearish trend.

Markets move short term based on emotion and are unpredictable.  Markets move long term based on value and are predictable.

Expect turmoil.  Set your investing plan based on your needs… your liquidity and for the longer term, four or five years at least.

Invest in good value for the long term and ignore the short term sideways motion or keep and use serious stop loss protection.

Gary

Coronavirus and the Stock Market Round One is Done

Coronavirus and the stock market.  Round Two is coming.

This virus and the market faced off in the spring.  The market won.  As the chart below shows, after a huge March 2020 collapse, by early June, the DJIA was back to its December 2019 level.

stock chart

The market’s back up, but history suggests that we’ll see volatility in the ten years ahead.

Here is a chart of the Dow Jones Index for the past three decades.  The .dotcom bubble burst just before the beginning of the 2000 decade.

microtrends.com

The market then went nowhere from 2000 to 2014.   Finally it started reaching new high levels.

Such decades long sideways movement after a severe correction is nothing new in the stock market.

So everything’s in order… except the pandemic.  The ravages of the coronavirus dramatically increase the unknown and this uncertainty is the greatest purveyor  of weakness that a stock market can have.

How do we maximize the return on your savings and investments during this extremely dangerous time?

For the past four and a half years, my strategy, to protect against the next stock market crash and yet gain income and appreciation from rising share prices is to invest in an equally weighted portfolio of the value based country ETFs.

We track 46 stock markets around the world in our Purposeful Investing Course to determine which markets offer the best value so we can be in a perfect position to take advantage of stock market corrections all over the world.

Since no one knows what the future will bring, investing in value makes the most long term sense.

Our Purposeful Investing Course (Pi) teaches an easy, simple and effective approach to zeroing in on value because little time, management and guesswork is required.  You are investing in a diversified portfolio of good value indices.

Sticking to math based stock market value and country ETFs eliminates the need for hours of research aimed at picking specific shares.   Investing in an index is like investing in all the major shares of the market.  You save time because all you have to do is invest in the ETF to gain the profit potential of the entire market.

To achieve this goal of diversification the Pi portfolio consists of Country Index ETFs.

Country Index ETFs are similar to an index mutual fund but are shares normally traded on a major stock exchange that tracks an index of shares in a specific country.  ETFs do not try to beat the index they represent.  The management is passive and tries to emulate the performance of the index.

A country ETF provides diversification into a basket of equities in the country covered.  The expense ratios for most ETFs are lower than those of the average mutual fund as well so such ETFs provide diversification and cost efficiency.

Here is the Pifolio I personally held at the beginning of 2019.  Now I am updating my plan to decide when it’s best to invest more.

70% is diversified into developed markets: Austria, Canada, France, Germany, Hong Kong, Italy, Japan, Norway, Singapore, Spain and the United Kingdom.

30% of the Pifolio is invested in emerging markets: Brazil, Chile, China, Colombia, the Czech Republic, South Korea, Malaysia and Taiwan.

iShares Country ETFs make it easy to invest in each of the good value markets.

The ETFs provide incredible diversification for safety.  For example, the iShares MSCI  Japan (symbol EWJ) is a Country Index ETF that tracks the investment results the Morgan Stanley Capital Index MSCI Japan Index which is composed mainly of large cap and small cap stocks traded primarily on the Tokyo Stock Exchange mainly of companies in consumer staples, financials and materials. This ETF is non-diversified outside of Japan so an investment in the ETF is an investment in hundreds of different Japanese shares.

iShares is owned by Black Rock, Inc. the world’s largest asset manager with over $4 trillion in assets under management.

There is an iShares country ETF for almost every market.

You can create your own good value strategy.

I would like to send you, on a no risk basis, a 130 page basic training course that teaches the good value strategy I use.   I call this strategy Purposeful Investing (Pi).  You learn all the Pi strategies, what they are, how to use them and what each can do for you, your lifestyle and investing.

When you subscribe to Pi, you immediately receive a 120 page basic training course that teaches the Pi Strategy.   You learn all the Pi strategies, what they are, how to use them and what each can do for you, your lifestyle and investing.

You also begin receiving regular emailed Pifiolio updates and online access to all the Pifolio updates of the last two years.  Each update examines the current activity in a Pifolio, how it is changing, why and how the changes might help your investing or not.

You also receive a 100+ page PDF value analysis of 46 stock markets (23 developed markets and 23 emerging stock markets).  This analysis looks at the price to book, price to earnings, average yield and much more.

This year I will celebrate my 52nd anniversary of global investing and writing about global investing.  Our reports and seminars have helped readers have better lives, with less stress yet make fortunes during up and down markets for decades.  This information is invaluable to investors large and small because even small amounts can easily be invested in the good value shares we cover in our seminar.

Those five decades of experience have taught me several incredibly valuable lessons.

The first lesson is that there is always something we do not know.

The second lesson is that stock market booms and busts always eventually return to value.

Third, the only sure way to succeed is to use time not timing.

Time is your friend when you use a good value strategy.  The longer you can hold onto a well balanced good value portfolio, the better the odds of outstanding success.

A 45 year portfolio study shows that holding a diversified good value portfolio (based on a  good value strategy) for 13 month’s time, increases the probability of out performance to 70%.  However those who can hold the portfolio for five years gain a 88% probability of beating the bellwether in the market and after ten years the probability increases to 97.5%.

Subscribe to the first year of The Personal investing Course (Pi).  The annual fee is $299, but during the pandemic to introduce you to this online course  I am knocking $124.50 off the subscription.

Guarantee

Enroll in Pi.  Get the basic training, the 46 market value report and access to all the updates of the past two years.

I guarantee you’ll learn ideas about investing that are unique and can reduce stress as they help you enhance your profits through slow, worry free, easy, diversified investing.

If you are not totally happy, simply let me know in the first two months for a full no fuss full refund.

You have nothing to lose except the fear.   You gain the ultimate form of financial security as you reduce risk and increase profit potential. 

Due to the COVID-19 pandemic we have cut the subscription to $174.50.  You save $124.50!

Then because this global recovery is going to take years, we’ll maintain your subscription at just $99 a year rather than $299.  Your subscription will be autorenewed in 2021 at $99, though you can cancel at any time.

Click here to subscribe to Pi at the discounted rate of $174.50

Subscribe to Pi today and you get a year’s subscription to Pi now, get the 130 page basic training, the 120 page 46 market value analysis, access to over 100 previous Pifolio updates, plus begin receiving regular Pifolio updates throughout the year.

Gary