Make the right choices to gain lasting success

Stocks rallied big yesterday because people are losing their jobs! A weaker, weekly employment figure gave the bad-is-good bulls their ticket to ride – expect more of this in 2023.

The winter of our discontent? Well, technically, winter only started 9 days ago, and it hasn’t been all that bad… if you include yesterday’s rally. Starting with last winter, this has surely been a whole year- 4 seasons worth of discontent- for most investors, big and small. The “… winter of our discontent,” is from the opening lines of William Shakespeare’s play Richard III. He, along with his fellow Britons were unhappy with the then Labor Party policies. The play was written in the 1590s, and the famous line is proof that discontent is nothing new, in other words, it certainly wasn’t invented in 2022, though it may feel that way if you dare to open your 401k end-of-year statement. If you do muster the courage, or in my case, rely on your wife to do it and then attempt to interpret the look on her face, you find yourself with two choices.

Choice 1: You can choose to get upset, which is ok, because you most likely did lose a larger-than-expected amount of savings. However, if you start to blame yourself, your investment professional, your accountant… your dog, whatever, that is not good. When investors start out with that response chain, things usually get worse. What follows is typically a string of bad investment choices, ones which involve buying the best performing stocks or crypto currencies from the year past. Another oft-toxic response is to turn up your risk inappropriately to make up shortfalls. Yet another dangerous route is to double down on your failures from the last 12 months. Trust me, I have seen ‘em all . Please don’t try any of those!

Choice 2: You SHOULD open your year-end statement with an open mind. I know it will be hard, but here are some facts that will help you. Year to date, with only 1 trading day left, the S&P500, the Total Bond Market, the FAANG Index, and Bitcoin lost -19.24%, -12.81%, -40.21%, and -76.70%. What about some of our favorite companies? Apple, Microsoft, JPMorgan Chase, Proctor & Gamble, and Alphabet/Google lost -27.1%, -28.34%, -15.87%, -6.72%, and -38.52% respectively. What about sectors? Let’s start with what is considered the safest sector, Utilities and Consumer Staples. Utilities eked out a +2.55% gain (thanks to high dividends) while Staples lost about -0.15% (we can call that a breakeven). How about our favorite sectors from the past 10-years? Information Technology, Communications Services, and Consumer Discretionary lost -28.82%, -40.40%, and -37.4% respectively. None of that can even narrowly be described as acceptable. That is a nice way of saying they all stunk! What didn’t stink was Energy which returned a whopping +64.18%! Many of us had some energy, holdoffs from their former years of greatness (prior to 2015), but I am sure we all ended up wishing we owned more.

What is my point in all these mostly grisly numbers? I simply wanted to let you know that there was quite literally nowhere to hide in this past year. If you did everything right, you did your homework, your research, your diligence, and you were careful and attentive, you still would have had a tough year. However, if you choose to think like an investor with long-term focus, the picture will change somewhat. If you look back just 5 years at those investments, all those favorite stocks listed above returned as much as +206.35% (Apple) and as little as +70.1% (JPMorgan Chase). The S&P500 gained nearly +50% over that period! Looking at the sectors mentioned above, they ALL had a total positive return over that period. One thing is worth noting. The Energy Sector was perpetually in the negative until the current year, owing to rising energy costs and the war in Ukraine. In fairness, many energy companies have really done a great job at shoring up their businesses, but most of their recent success is due to market factors.

To sum up choice 2, you should recognize that not all years are winning years in the market. This past one was particularly difficult in that few if any stocks, sectors, or themes provided shelter from the storm of rising interest rates, the most hawkish Fed in a generation, and the worst inflation since the early 1980s. The opening lines of Shakespeare’s Richard III, written 428 years ago, is proof that bad seasons happen. You know from personal experience, that not every season is bad. Instead of rushing in next week and doing something rash, take a step back and remember how you have been successful prior to 2022. You did your diligence, you were thoughtful, you made appropriate investments based on your risk tolerance, and above all, you maintained a long-term view. Is it clear which choice will suit you best going forward?

YESTERDAY’S MARKETS

Stocks rallied yesterday after the weekly unemployment numbers showed a slight hint of weakness. The S&P500 gained +1.75%, the Dow Jones Industrial Average rose by +1.05%, the Nasdaq Composite Index climbed by +2.59%, and the Russell 2000 Index advanced by +2.57%. Bonds rose and 10-year Treasury Note yields lost -6 basis points to 3.81%. Cryptos declined by -0.82% and Bitcoin added +0.46%.

NEXT UP

• Next week: Monday is a market holiday but starting Tuesday things pick up in a hurry! We will get PMIs, FOMC Minutes, JOLTS Job Openings, and monthly employment numbers on Friday. All of these are market movers. Check back on Tuesday for times and details.