Stocks had a mixed close on low volume yesterday as most of the heavyweights watched the markets in their slippers or flipflops and pondered 2024, now just hours away… in market time. The Dow closed at an all-time high, because it feels good to not have to worry about a life-taking virus or inflation for a change… for a moment.
Fourth and goal… with just inches. If I told you on this very day last year that the S&P500 would be just inches away from an all-time high, you might have thought I was crazy. But here we are, on the last trading day of 2023… just inches away from that high. Folks, I am not over-exaggerating when I tell you that I spent most of my time in the second half of 2022 literally begging clients to be patient. I have a very intelligent and highly focused client who was convinced, after losing quite a bit of money in the first half of ’22, that his account was going to go to $0. I can’t give you details, but if it did, that would have translated to a HUGE dollar loss. I, along with his advisor, pled with him to stay the course as the worst was likely behind us. He and his wife reluctantly agreed. In the following month, stocks rallied back a bit, and I was relieved… and just as I exhaled, the market declined hitting fresh lows in early Fall, just in time for our follow-up call. That was a tough discussion.
The client asked us to develop an exotic hedging strategy to protect his positions from further losses. You see, he refused to sell, not because he thought the market would turn around, but because he did not want to pay capital gains taxes. Any hedge, however, would have been costly at that point. Either the client would lock in further losses or increase the potential for overall loss… which means he could lose more than just all his money . At that point, there was little we could do other than model-out the benefits or losses… and beg… and plead with him to be patient. I have to point out that every position in his portfolio was fundamentally solid with great upside, but they had declined with the market… as ships with a falling tide. I finally took out all the stops and showed him a simple chart of the S&P500 going back a number of years. I pointed out various recessions, natural disasters, booms, busts, wars, tragedies, and even… er, a pandemic. I showed him how the market behaved before, during, and after. He is smart, so he paid attention. I then showed him the annual returns of each year going back many years. I asked him if he would guess the average return of the S&P500 over that period and he answered quickly, because he already knew the answer. “Something like +10%, right?” I said something like, “close enough, would you be OK with an average of +10% return for the next 5 – 7 years?” To which he replied “absolutely!” I retorted, “ok, to do that, you have to be willing to accept returns that are like up +11.4%, down a hair, up +9.5%, up +19.4%, down -6.3%, up +28.9%, up +16.3%, up +26.9%, and down -20 something percent.” He shot me a puzzled look and then the light bulb lit up. “Are those the returns from the last several years,” he asked? I raised an eyebrow and nodded, to which he replied “ahhhh.” His wife then jumped in and abruptly said, “thank you, let’s talk after the new year.”
We did and things looked up as the Fed seemed ready to slow down the rate hikes. Then things got scary when a few banks began to fail. At that point we were still almost +10% above where we were when I talked them out of that toxic hedge, but things were still shaky. Thankfully, they were committed to the patient approach… and I was ready to share those numbers with them once again, if needed.
I am not going to recap 2023 just yet… it is bad karma... we still have 6 ½ half hours left in the year. I will leave you with this. If you are a long-term investor, with at least 3 years, history is on your side. If you have 5, 7, or 10 years, history is even more favorable to your success. The hardest part of winning, knowing those numbers, is staying the course. You see, success, whether on the marble-laden trading floor of the iconic New York Stock Exchange, the grassy football pitch, the kitchen sink… or life (if I can get so grand), never happens in a straight line, and this past year should be a reminder of that reality. Stay vigilant, stay focused, but most importantly, stay calm and patient. Happy New Year! I am so grateful for your ongoing support, my faithful… my patient regular readers. I wish you much health, success, happiness, family, peace, love, and, dare I say, PROFITS in 2024!
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