by Ken Nesler
As I look at some copies of the Wall Street Journal, New York Times and USA Today from October 20, 1987, all covering the previous day’s stock market drop of 508 points or 22.6% and became known as Black Monday. I kept the papers because I knew some day, I would want to read them again to remind myself of that dreadful, but challenging day. Look back, 30 years later, it seems to be a good day to do just that.
Some may recall the day as one of fear and confusion.
I remember it as one of the most interesting days of my career. Rather than panic and sell, I saw it as an opportunity to pick up stocks of solid companies at bargain prices. So, I bought. As a side note, because of the high volume, I didn’t know the actual price paid on some transactions until the next day.
How could I have been so nonchalant? The reason...I believe, was experience and cash. I wasn’t naïve. I had been trained and seasoned during the 1973-75 recession and market crash, not to mention the inflation and high interest rates of the 70s and 80s. I had also watched the market go up 22% the year earlier in 1986 followed by an additional rise of 43% through August. This good fortune at a time when the Federal Reserve was raising interest rates, which gave me an uneasy feeling. My reaction was to raise cash, which I did in late September and early October. By the time the crash came, our assets under management included a large cash position, some of which was reinvested on October 19.
Lucky to have had cash? Perhaps. Was raising so much cash, speculation or market timing? I don’t think so. You see, by 1987 I had already learned that bear markets and lower prices in general create opportunities. At the same time, bull markets and periods of higher prices should cause one to be cautious. In other words, when times are bad, look for positives and opportunities. When everything is going well, be cautious. This approach helped me in 1987 and has continued to be an underlying theme throughout my investment career, even today.
The markets milled about early on in the 3rd quarter and then climbed higher towards quarter’s end. Once again we touched new highs in the S&P 500, Dow Jones Industrial, and NASDAQ. In the 3rd quarter, nine of eleven economic sectors advanced. Energy, information technology, financials, materials, telecommunications and industrials ticked up significantly, while health care and utilities increased modestly. Consumer discretionary was flat, real estate declined mildly, and consumer stables were off significantly.
This quarter the Fed did not raise the Federal Funds Rate and reiterated its position to not increase interest rates aggressively. Bond values bobbed, weaved, and ended up more or less where they began. Bond yields extended their slow climb upwards. The yield curve, a graph of short term and long term interest rates, showed that there is not much difference between short term and long term interest rates at the moment.
9th Annual Client Appreciation Event
Please join us on Tuesday, November 14th at noon at Fleming’s near La Encantada for our 9th Annual Client Appreciation Event. We request that you RSVP by Thursday, November 9th by telephone, email, or message through the website.
About a week ago I found out that my identity *may* have been compromised due to the Equifax data breach. Equifax offered to sign me up for their identity protection program called "Trusted Id," which I accepted. Yesterday the confirmation that my request was processed came through and that I was authorized to get the identity protection up and running. I did so and activating the protection was quick. However, the software said it would take a couple of days to implement the program's full protection and reporting. That's the latest--I wanted to keep you up to date.
Professor Robert Shiller shares his views on today's stock market. He traditionally keys in on market valuation with an indicator he developed called the CAPE (cyclically adjusted price to earnings ratio). It is a good read with supporting data and is readable. Take a look and enjoy.
The data breach at EquiFax affected 143 million of us. That's a lot. The information heisted included consumers’ names, Social Security numbers, birth dates, addresses and some driver’s license numbers. This is troubling. And to hear that the breach had occurred from mid-May through July just adds to it all.
So what to do?
First determine if your information was part of the data breach. Here's a link for that. https://www.equifaxsecurity2017.com/potential-impact/.
I just went to that site and it said that my information may have been compromised. Oh dear!
Step two. If you have been affected like me, then go ahead and sign up for the rather comprehensive, paid for by EquiFax, identity protection service. It took all of two minutes to get going on it.
So don't panic, but take these two actions and then rest easy.
Here's what Clark.com has to say about it and it's worth the read. http://clark.com/personal-finance-credit/credit-agency-equifax-says-cyber-attack-may-have-exposed-personal-info-of-143-million-americans/
The New York Times has the most up to date information on the breach, and lets EquiFax have it in the process. https://www.nytimes.com/2017/09/14/your-money/equifax-answers-data-breach.html
You may have seen that the new Department of Labor (DOL) “Fiduciary Rule” came into effect on June 9th, 2017. The wide-reaching rule further defines what a fiduciary is to include anyone who helps an individual with retirement funds. What does this mean for you as a Fortress client? No changes. Fortress already is a fiduciary firm. This rule has no impact on our operations, practices, or advice. Rather, we welcome the rule because it makes the investment landscape more consumer friendly, which is good.
Our growing economy and relative calm and stability has fueled the market’s advance.
US Economic Outlook: With the resurgence of manufacturing, economic growth is placing upward pressure on prices, interest rates are moving higher, and consumer confidence is pegged at multi-year highs. These are all indicators of a healthier economy. Even under new White House Leadership, rich market valuations, and global unrest, we believe that the economic outlook will stay positive.
There are three well-known, institutionalized ways of investing your money. With the Banking Industry, you can deposit money into Certificates of Deposit and Money Markets. With the Securities Industry, you can buy Stock, Bonds, and combinations of the two. In the Insurance Industry you can purchase life insurance and annuities.
Each way of investing has its own pros and cons. However, each system believes that it is the best solution. Amusingly, each method is eager to point out the others’ shortcomings. Navigating these waters requires reflection, evaluation and balance—and dare we say guidance from fiduciaries like us.