Wharton professor Jeremy Siegel is author of Stocks for the Long Run, considered one of the best contemporary books on investing. In an Nov. 26 interview he said, “The market is cheap on a long-term basis.” We cite his observation to underscore the fact that equity strategies are for long run objectives. You should have sufficient safe money and low volatility holdings to provide for shorter term needs, cash flow in retirement for at least three years, etc., so you don’t have to sell stocks during periodic downturns.
The problem for investors is “noise.” With a 24/7 news cycle, “breaking news” banners on television and your electronic devices, you constantly get mixed signals, conflicting advice, and talking heads yelling, “Do it now!” CNBC.com on Oct. 3, 2017 proclaimed, “Tesla (TSLA) shares to plunge nearly 40 percent due to weak Model 3 production, Goldman (Sachs) predicts.” The very next day, Oct. 4, 2017, CNBC.com announced, “There’s a new biggest Tesla bull on Wall Street: Analyst predicts 40 percent surge to $500 in just 12 months.” What to do? Sell? Buy? Hold?
Neither prediction hit the mark. On Oct. 4, 2017, TSLA closed at 355. At this writing on Jan. 29 Tesla stood at $293.455 per share. The stock is highly volatile based on the nature of the company (growth speculation, no dividend, a leader seen as a risk-taking superhero, Elon Musk). The 52 week share price range is 244 to 387. The latest from CNBC? “Tesla expected to report 'tiny profit' this week in the face of a falling share price and a few red flags; Tesla's shares have fallen almost 14 percent in the last 12 months; the electric car maker has $920 million in debt due March 1; questions surround how well the Model 3 can sell without the aid of a federal tax credit.”
We use Tesla commentaries merely as an example of “yin and yang,” the confusing din of noise and daily reporting. We make no recommendations regarding Tesla stock. The strategy you should embrace regarding ownership of any stock or diversified portfolio should be tailored to your overall net worth, need for cash flow to sustain your needs and goals, where you are in life relative to major life transitions and other challenges, tax posture, risk tolerance, whether you are in an “accumulation phase” in your younger working years or in a “decumulation phase” depending on your portfolio for retirement income. Decumulation or “de-accumulation,” is the opposite of “accumulation,” the process of building wealth during your working career.
Looking at the big picture, what now? During the recent cold and rain in Atlanta, this writer was floating around the eastern Caribbean, as far south as Trinidad and Tobago. On a gorgeous sunny day, at times if you looked far enough across the vast blue water, you could see a rainstorm moving in the distance. Even on the most glorious of days, gazing at the horizon, Mr. Market will see thunderstorms and gales as a worrisome possibility.
The S&P 500 Index reached an all-time high apex in late September of last year, then as one analyst noted, it fell off of “a mountain too high.” Interestingly, key U. S. indexes have been climbing back, ignoring the Pelosi-Trump standoff at the OK Corral, the government shutdown, tariff and interest rate concerns, some slowing of corporate earnings, weaker growth in China and other overseas economies, Brexit, debt levels, etc.
The overall U.S. economy is in good shape. Economic growth and corporate earnings in America may be slowing but they are still growing, as Professor Siegel observed. Leading indicators suggest a fairly positive outlook for the next several quarters. With the drop-in market values in fourth quarter 2018, some investors took advantage of selloff anxieties, moving the market upward since late December. A January 2019 report from City National Rochdale indicated, “Based on consensus expectations for 2019 earnings growth, the S&P 500 was trading at 14.4 times earnings at year-end, a meaningful discount from the 15-year median of 16.5.”
Stocks are “for the long run” and noise and periodic declines should not derail your long-term customized plan. City National in their outlook paper noted that during the Eurozone debt crisis and U.S. economic worries in 2011, “stocks at one point fell 19.4 percent, only to rebound 33 percent over the next 12 months.”
The cure for noise? Book a cruise and turn off the television! Stick with your plan!
Lewis Walker, CFP®, is a financial life planning strategist at Capital Insight Group; 770-441-3553. Securities and advisory services offered through The Strategic Financial Alliance, Inc. (SFA). Lewis Walker is a registered representative and investment adviser representative of SFA which otherwise is unaffiliated with Capital Insight Group. He is a Gallup Certified Clifton Strengths Coach and a Certified Exit Planning Advisor (CEPA®).