As many of you know, I maintain a summer vegetable garden even larger than the one above. And truth be told I spend a decent bit of time thinking about the markets while I garden. After all, there are a lot of similarities between gardening and investing.
First, you need to have a plan. While my wife has been known to chide me for my sketches of what is going where, I want to know the space is being maximized for potential return. I may plant anywhere from 10-15 different types of investments as I want to have variety in my diet- and know that some plants mature faster than others. Lettuce and snap peas come in first, while the tomatoes may take all summer. These last few years the U.S. indexes have done quite well while the emerging markets funds have been, well, like a seed that still hasn’t sprouted. Some plants (investments) are altogether excluded from the garden- they may not be what we like to eat (i.e. may not be suitable for the client or match their goals).
One of the hardest things about gardening is deciding when to cut your losses. The first year I planted a garden, I can still remember staring at that empty patch of soil where I planted the spinach seeds. I kept thinking they’ll sprout eventually- but they never did. Perhaps I planted the seeds too deep, perhaps I over-watered. We’ll never know for sure. But at some point, I decided I’d better get something out of that precious few square feet of dirt- so I planted something else.
Why do I share this? Because using a metaphor can sometimes help people grasp a concept they have trouble with. Is your investment portfolio set up like a carefully tended for garden? Does it have diversity of investments? Are bad ones being pulled out? Are you patient with plants that may need more time? Do you give it careful attention in terms of regular watering/reviews? It’s a lot to think about. But next time you’re popping some carrot seeds in the ground, give it some thought.
Did you really think the first picture was my garden? This is my real garden – I got in close so it looks bigger than it really is!
The Prior Month
If you like roller coasters, then October was the month for you. The worries we have been mentioning the last few months finally manifested themselves in October. A near straight-line 8% drop to start the month in stocks, however was followed by a rocket-launch 11% recovery in the back half of the month. Net, it was a 2% gain for the S&P 500. It seemed the tide fell and then rose on the degree of Ebola hysteria present in the markets. Meanwhile, third quarter earnings have been rolling in and meeting lowered expectations. FactSet notes that with 362 of the S&P’s 500 companies reporting we’ve seen earnings growth of 7.3% with revenue growth of 3.8%. Unemployment fell again, this time to 5.8%, as the U.S. economy added 214,000 jobs in October. Interest rates on the benchmark 10-year U.S. Treasury fell to 2014 lows, at one point reaching 1.87% before closing the month at 2.34%. If you were thinking about re-financing, October was the month to do it!
After a wild October the question being asked is, “Is it over?” In a word, “Maybe.” On the one hand, it would be unusual to see so many negatives pile up only to be washed away with a paltry three weeks of downside action. And ultimately, the S&P did not even make it to the coveted 10% “correction territory” benchmark, falling about two tenths of a percentage point shy. On the other, the seasonally weak fall period is ending and most indexes have already made new all-time highs. While our quantitative easing program here at home has ended, Japan has stepped up with a big one of their own. And Europe seems at the ready as well. This should serve to keep worldwide interest rates low for the foreseeable future. Pondering all this, we’re taking a balanced approach for now- truthfully uncertain about the next step. Regardless of whether we’ve seen “the lows” or not, some backing and filling and perhaps another “mini-scare” would be par for the course. Up, up and away seems a low probability option.
Financial Tip of the Month
“Don’t let emotion rule your investing.” Decisions made when emotions are running high (whether they be positive or negative) usually come back to haunt you. Be especially careful if you have some kind of personal connection to a stock. Just because you love (or hate) a product or company doesn’t mean everyone else feels the same way. Instead use carefully reasoned analysis to make your decisions.
The arctic is classified as a desert, with only four inches of precipitation a year.
Calendar of Events
Daylight savings time is here and it’s getting cold! Indeed, the time for helping others with yard work is winding down and there’s probably just one more opportunity to join us in 2014. With that in mind, if you’re interested, we’ll be going out on the morning of November 15th and helping the elderly and disabled in Boulder county for probably the last time in 2014. E-mail me if you’re interested in joining the Chrome team.
Have a great November,
Steve Zakelj, CFP®
Chrome Asset Management