2017 Stock Market Update

The stock market has continued to have success. The big surprise of the year continues to be international stocks. The Matson Money International Stock fund is up 21.89% this year, compared to the Matson Money US Stock Fund which is up just 8.27%. The following is from the Matson Money quarterly update.

“The 3rd quarter of 2017 saw a continued increase in broad equity markets,  both at home and internationally. U.S. stocks grew by 4.48% as represented by  the S&P 500 index, and for a third consecutive quarter, international stocks  fared even better, with the MSCI EAFE index returning 5.47% for the quarter.  After lagging in recent quarters, small stocks surged ahead this quarter, with the MSCI EAFE Small Cap Index returning 7.52%, while the Russell 2000  Index delivered a 5.67% return.

The news cycle over the last quarter was dominated by natural disasters and escalating geopolitical tensions; specifically in rhetoric exchanged  between President Trump and North Korean leader Kim Jong Un. The  hurricanes that ravaged the Caribbean and displaced millions in Houston were great tragedies that impacted countless people and caused billions of dollars of damage. In times where events such as these elicit powerful negative  emotions and we see the massive damage and hurt that many people are going through, it can be difficult to not let that emotion bleed over into our perception of the overall economy or financial markets. It can seem intuitive to believe that the unexpected loss of billions of dollars of infrastructure and the collateral damage of lost businesses and millions of employees who are  temporarily out of work would have a tangible impact on our overall economy and therefore negatively impact financial markets, reversing the general upward trend.

However, as with many other seemingly logical intuitions  regarding the what’s and whys of stock market performance, this too is not reflected in reality. In both the current market and what we have experienced historically, the stock market has an uncanny ability to shake off bad news and move uncorrelated to whatever else may be happening in the news, in contrast to what people may expect.

When we look at negative catastrophic events that have occurred throughout history, whether it be war or natural disaster, equity markets have on average generated positive returns despite these calamities. When looking at the  subsequent 1-year return from the month in which the following event  occurred: Pearl Harbor, D-Day, the start of the Vietnam War, the eruption of Mount St. Helens, the S.F. Earthquake of 1989, 9/11, Hurricane Katrina, and Super Storm Sandy, we see an average return of 9.70% as measured by the S&P 500 Index. This included 6 positive years and 2 that were negative, or 75% positive years. Over the entire time-period for which we have data from 1926-2016, the average annualized return of the S&P was 10.04%, and 67 of the 91 years were positive, or 74% positive years. This data would  indicate that even some of the worst or most trying events in U.S. history did not result in the stock market behaving, on average, any differently than it did in any other year. Trying to predict the movement of the market based on geopolitical events or natural disasters proves to be the same folly as any other form of forecasting.

In the end, choosing a wise financial strategy, and sticking to it, can have tremendous impact on an investor’s long term financial health. Chasing performance through buying and selling is a risky game. Historically speaking, it will only reduce an investor’s real return. Relying on unbiased, non-emotional advice from a trusted investor coach to make good decisions can help an investor bridge that gap between what the average investor makes and the return of the market.”

References

  1. Matson Money. “Account Statement.” Letter to James Hancock. 18 Oct. 2017. MS.

Goldman Sachs down 5%…Buy or Sell?

If you heard that your favorite store just lowered all of their prices by 5%, you would obviously be excited and go there to buy things on sale.   But for some reason that mindset usually leaves people when it comes to stocks.  People are afraid to buy stocks that are “on sale”, but love buying stocks that just “raised their prices”.

Mark Matson, founder and CEO of Matson Money, just recently went on CNBC to discuss this topic, and a few other important investing principles.  You would think the people he is discussing this with would understand basic principles like buy low and sell high, but apparently not.

Check out the 2 minute video by clicking on this link.  http://markmatson.tv/fist-fight-on-cnbc/

By Jimmy Hancock

References

  1. Fist Fight on CNBC. Perf. Mark Matson. CNBC, 2 May 2017. Web. 3 May 2017.



2017 1st Quarter Stock Market Recap

Yes, the stock market has been doing well, but just how well and what categories did the best?   As it turns out, a big theme for the first quarter was the big returns from diversifying internationally.  Matson Money’s International Fund was up 8.02% in just 3 months.

Below is commentary from Matson Money about the 1st Quarter in the market.

The 1st quarter of 2017 built upon a strong 4th quarter and continued to provide positive returns across broad markets. Many members of the media and so-called “experts” warned of a financial downturn resulting from Donald Trump being inaugurated as President, but it seems as if these predictions were unfounded, with stocks up worldwide since President Trump took the reins. U.S. stocks performed well in the first quarter, with large stocks leading the way up 6.07% as represented by the S&P 500. However, despite the warnings of some pundits that President Trump’s protectionist policies would sink international stocks, both developed and emerging market stocks saw an even greater lift than those domestically, with the MSCI EAFE Index index up 7.39% and the MSCI Emerging Markets Index up 11.49%.

 d
This overperformance by international equities as compared to domestic equities marked a contrast to what we have seen over the last few years, and can be a great lesson for investors. Leading up to 2017, the five-year period ending in 2016 saw the S&P 500 gain 98% while the EAFE was up only 40%. Naturally, many investors fell into the trap of thinking that this was the “new normal” and that it was prudent to invest in all U.S. stocks and ignore those abroad. The only thing that is “normal” about this performance disparity is that when one invests in different asset classes with the goal of diversification, they get just that – asset classes with dissimilar price movements, which is the earmark of diversification. This time period is one of many that can highlight why this kind of diversification is a good thing and is so important for investors. Without a crystal ball to tell an investor which of the asset classes will perform better over any short-term period, it can be extremely detrimental to be over-weighted in any one and take asset class specific downside risk or miss out on a boom in another. Consider the following example of varying five-year periods of U.S. equity (S&P) performance as compared with international (EAFE):
1971-1975 – EAFE outperformed the S&P by 48%
1979-1983 – S&P outperformed the EAFE by 60%
1984-1988 – EAFE outperformed the S&P by 257%
1989-1993 – S&P outperformed the EAFE by 85%
1995-1999 – S&P outperformed the EAFE by 166%
2002-2006 – EAFE outperformed the S&P by 70%
2012-2016 – S&P outperformed the EAFE by 58%

 d
When looking at this most recent period through the lens of history, it no longer appears to be an extraordinary shift in market paradigms; rather it can be viewed as just another of the many examples of U.S. and international stocks performing differently. What IS truly  extraordinary is that during this entire period (1971-2016), both asset classes had an average annualized return of 10% per year – these returns just occurred unpredictably at different times. It can be challenging to not get caught up in a current trend, but taking a more prudent, historical outlook can prove to be rewarding. For investors who chose to forsake diversification and chase what had recently been hot, they may have missed out on potentially sizable returns.

 d
In the end, choosing a wise financial strategy – and sticking to it – can have tremendous impact on an investor’s long term financial health. Chasing performance through buying and selling is a risky game. Historically speaking, it will only reduce an investor’s real return. Relying on unbiased, non-emotional advice from a trusted investor coach to make good decisions can help an investor bridge that gap between what the average investor makes and the return of the market.

By Jimmy Hancock

References

  1. Matson Money. “Account Statement.” Letter to James Hancock. 20 Apr. 2017. MS. N.p.
  2. Globe with International Flags. Digital image. Freeimageslive.co.uk. N.p., n.d. Web. 25 Apr. 2017.