Fear This


What would you do if the Dow dropped 5,000 points tomorrow?

Really?  Be honest with yourself.

I know how I would react because I remember a phone call.

My mother-in-law.

The least investment oriented person in the world but… even she was in a panic.

That call was Oct. 19, 1987.

The Dow Jones Industrial Index had crashed more than 20% in one day.

She wanted to know, “will this crash get worse?”

The truth?

I did not know.

When it comes to investing…  there is always some risk.

geese

Investments are like a flock of geese.

We know they go north in spring.

But exactly when they fly is a mystery.

We know they go south in the fall.

Yet not the exact day.

Nor can we say precisely which goose will lead… for how long…  at what time.

The movement of geese and the price movements of equities are both ruled by laws of nature that we can never totally know.

The chances of seeing a gaggle of geese migrating south in October is more likely, but ask any hunter, photographer or bird watcher sitings are hardly assured… especially at any specific time.

When it comes to investing…  there is always something we do not know.

There are, however, three things we do know about the stock market.

#1: Periods of high performance are followed by periods of low performance (and vice versa).

#2: Periods of low performance move more quickly that periods of high performance and usually start with a sudden drop.

#3: We are more likely to see a period of low performance begin in September or October.

We increased volatility in September as the DJI remains near an all time high .

Now we face October.

Extensive research shows that basically in all major equity markets, nearly all returns are achieved from the beginning of November through the end of May.   October is often the bewitching month for the stock market.

Will the stock market be good or bad this month?

We do not know, but we do know that another law of nature, one that prepares us as humans to survive, leaves most of us ill prepared emotionally to trade in shares.

The Wall Street Journal article “Will You Be Ready When the Stock Market Crashes Again?” (1) dramatizes our human frailties when it tells this true story.

With U.S. stocks near all-time highs, election jitters, the President testing positive for Coronavirus and the potential for an expanded pandemic,  let’s slip back to October, 33 years ago to Friday, Oct. 16, 1987.

The article said: James O’Shaughnessy, a young investor in St. Paul, Minn., has made a “five-figure” bet on stock-index put options, a way of profiting from a sharp fall in price on a basket of big U.S. stocks. Plugging his phone into a modem that dials up a stock-quotation service, he grows more and more nervous as the day goes on and the Dow Jones Industrial Average falls a record 108.35 points on unprecedented volume of nearly 339 million shares.

The selling is “completely overdone,” he thinks: Stocks are bound to bounce back big on Monday “and then I’ll get killed” for hanging on to the bearish bet. “A feeling of panic washed over my entire body,” Mr. O’Shaughnessy says. “I’ve just got to get out.” He calls his broker a half-hour before the market closes and sells it all.

Humans have a bias against risk.

Feelings that we’ll “get killed” for holding our bets are natural. Panic washes over our entire bodies. This emotion creates a performance gap.  Investors overall earn less than the sector they invest in.

This performance gap is very real.  We should face this fact and prepare for it.

The WSJ article tells how O’Shaughnessy missed a huge opportunity.  On October 17, 1987 he sold his his puts, to avert a huge loss.  The next day the Dow drops 208 points in the first 90 minutes, of trading.

A wave of global selling caused the Dow to fallen 22.6%, “the worst day in Wall Street history,”.   That’s the equivalent of a 5,000 point drop today.  He lost a 1,000% one day profit!

The article continues: You can’t survive a market crash if you think it can’t happen. And something like Oct. 19, 1987, will happen again. In fact, it already has: On May 6, 2010, many stocks dropped 60% or more in a flash, although they bounced right back. On Aug. 24, 2015, the Dow fell more than 1,000 points, or 7%, in six minutes, before closing down nearly 4% for the day. Between the market’s peak in October 2007 and its bottom on March 9, 2009, the S&P 500 fell 55.2%, even after counting reinvested dividends.

Take it from Mr. O’Shaughnessy, who today manages nearly $6 billion at O’Shaughnessy Asset Management in Stamford, Conn. Even though he based it on factors he no longer believes in, his original analysis was absolutely right: The stock market was overvalued. Between September 1986 and the end of August 1987, stocks had gone from trading at 16 times earnings to a price/earnings ratio of 21.4, a 33% rise that put the market’s P/E at its highest level since the end of 1961.

His emotional reaction, however, was dead wrong. Had Mr. O’Shaughnessy held his ground for one more day, he would have made roughly 10 times his money, he recalls.

No one knows when the super heated US stock market will begin its next bear trend.

What we do know is the value of the US market compared to its history and to other stock markets around the world.

The turbulence caused by the pandemic, and the US heading toward the election makes this a more likely time.

Yet we cannot be sure.

We can still see profits and growth in US shares and we will… until we won’t.

So have a strategy and do not panic if the market gets slaughtered in October.  

All stock markets have risk and volatility. Plan for this fact.

My strategy invests in ETFs that invest in good value markets, based on their price-to-book,  P/E ratio and average dividend.

The numbers below from Keppler Asset Management, another source of data we follow in our Purposeful Investing Course,  shows that the price-to-book of the MSCI US Share Index at 4.11 price-to-book, barely below the super inflated price to book of 4.23 in December 1999.

keppler

 

Remain alert.  Short-term trading algorithms can cause market trends to shift at astounding speed.

Prepare now what you will do if the markets panic.

Create a plan based on math based good value economic data.

Include watching the price of gold.

When the crash comes, stick to your plan.

Do not panic.

Turn on the auto pilot and normally add to your position.

Do not let feelings influence you too much.  Use logic.

Gary

Add Safety & Get Paid 154% More

Get paid more now!

Current markets have turned economic history upside down.  Normally bonds pay the highest interest rates and add safety to a portfolio.  Not right now.

This chart from the New York Times article “The Mystery of High Stock Prices” (1) shows that equities pay a higher yield than bonds.

wsj.com

Most Important, Get Paid the Most Now!

Just because US stocks pay more than dollar denominated bonds, does not mean they offer the best income deal.  In fact the chart below shows that US shares pay one of the lousiest yields of the 46 stock markets we monitor around the world.

The US MSCI Index pays a modest 1.91%.  That’s a terrible yield, but better than the 1.6% you can get in AA rated corporate bonds.

Nine solid, top value stock markets (shown below) not only add diversification and the best long term profit potential, they pay 71% higher yield, 3.27% compared to the US yield of 1.91%.

This is why my core stock portfolio consists of a handful of top value share ETFs and this position has hardly changed in five years. 

Let me explain why this strategy adds safety, increases long term appreciation potential and pays almost double short term income right now.

In a moment, I’ll show how to push that yield to 4.07% per annum without adding additional risk.

keppler62020

During the past five years, I have been steadily accumulating the same good value ETFs.  I have traded only three times, so my trading costs, my fuss, fiddle and time spent have been kept to an absolute minimum.

I have been investing in iShare country ETFs.  Each one invests in the MSCI Index of one of the top (or neutral in the case of Canada and Australia) value markets above.

My strategy protects against stock market volatility and yet has potential for the best gains long term from rising share prices by holding an equally weighted portfolio of the best value based country ETFs.

The Purposeful Investing Course tracks 46 stock markets around the world into determine which markets offer the best value.

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

Plus Value ETFs are Safer

The people who dominate stock markets include a pack of thieves.  This fact has always been true.  We were recently reminded of this fact when Wirecard AG, one of Europe’s most prestigious companies, listed on Germany’s premier stock-market index, the Dax 30 fooled everyone including its top grade, longtime auditor, Ernst & Young GMBH.

The shares in German fintech company Wirecard AG (symbol WDI fell 63.74% as it filed for insolvency proceedings, after revealing that more than $2 billion in cash missing from its balance sheet was all a fraud.  The company’s market value fell to less than €500 million from almost €13 billion in a week.

Investors have seen this type of rip off again and again, really big scams from Enron to Bernie Madoff and these are just the tip of the iceberg.

Shares in stock markets are manipulated all the time.  Stock markets (in fact almost all types of markets) are led by sharks plain and simple.  Count on this fact.  This is the nature of the beast and the number one goal of many big businesses is to take as much of your money as they can to line their pockets.

In the Wirecard AG example many  thousands of investors have seen their hard work, their thrift, their security and hopes for the future disappear, even though they seemingly did everything right by investing in a blue chip, new era, high tech company.

A study of 92 years of investment returns shows that, despite the fraud and cheating and deceit, stock markets are still a good way to make your money grow… if you invest long term and diversify.

keppler

Our Pi strategy makes it harder for cheaters to grab your wealth because it’s very hard to manipulate an entire stock market, much less a dozen or so stock markets around the world.

Manipulators have a hard time tricking an entire market, especially larger markets.  If you get the best value country ETFs, your chances of long term profits improve.

Our Purposeful Investing Course (Pi) teaches an 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 iShare Country Index ETFs managed by Black Rock, Inc.

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.

I am updating my plan to increase my average yield to as much as 4.07%.

My developed market portfolio has been diversified into nine developed markets: Austria, Germany, Hong Kong, Italy, Japan, Norway, Singapore, Spain and the United Kingdom.

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

The average yield of these nine markets combined was 3.27% as of June 2020.  By replacing the three lowest yielding markets, Austria (.64%), Germany (1.83%)  and Japan (2.51%)  with two better yielding neutral markets Australia (4.57%) and Canada (3.54%) the average annual yield on the entire portfolio rises to 4.07%.

4.07% is 154% higher than the 1.6% you can currently earn on AA rated corporate bonds!

The ETFs provide higher income and incredible diversification for safety, plus the highest long term profit potential.

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.

Here’s how 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.  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 of all 46 markets.

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 the Pi course.

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 to introduce you to this online, course that is based on real time investing, 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, plus all new updates over the next year.

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 from the pandemic 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

(1) www.nytimes.com: mystery of high stock market prices

(1)  wsj.com: Will you be ready when the stock market crashes-again