Over the month of June we saw the market continue to rebound. The Dow was up over 5% and the NASDAQ was up 6%. The S&P 500 and the Russell 2000 both had positive months, though, all the indexes mentioned here continue to be down for the year except the NASDAQ, which is positive at +12% through June. As we continue to study the overall market we continue to have concern about how much more it can advance. We see that both the S&P 500 and the NASDAQ are trading at high levels relative to their history. As I mentioned in a previous letter, if you graph out the indexes, they usually trade within a corridor. The top of the corridor is called the resistance level. That means that once the price of the index gets to the top of the corridor, further advances are both difficult and rare. The bottom of the corridor is called the support level. If the index falls because of an economic or political event, and it falls below its historical support level, with all other data being equal, you can normally buy in with confidence that you’re getting a pretty good deal. That’s why we study the data, because all other data is not always equal.
Our active management style of investing is not something we came to without a lot of thought and research put into it. It has always been our goal to give our clients a good, long-term return while mitigating the volatility inherent in a portfolio made up of stock and bond-type investments. ProVest was a practice that advocated buy-and-hold strategies when the financial crisis of 10/2007 – 3/2009 hit. We lived through the day-to-day uncertainty as the S&P 500 lost more than half its value. It’s easy to look back on that time, and the decade-long bull market since, and not have any anxious feelings about that 17 month period. That’s because we know how the story turned out. But I can attest to you that had you had a half-million dollar portfolio on October 9th, 2007, and then watched as that nest egg you were depending on to see you through your retirement started to melt away, you would have been less than enamored with my urgings to “stay the course” or “hang in there.” It wouldn’t have mattered how well your investments had done up to that point. As humans, we tend to measure our investment success from its high. So as client after client took over the controls and asked me to take their money and exit the market, I knew I had to do something different if I was going to be the advisor they needed me to be. So I started to research different methods of investing. I knew I wanted our clients to be able to participate in market surges. And I knew that anything that relied on an interest rate, like a bank or many insurance products, would never be able to participate in the gains that are capable of being produced in the stock and bond markets.
Active management of assets, where the assets can be invested in the market… or not, held a lot of promise. Many advisors, though, called this method of investing “market timing” and sort of poisoned the well. Market timing is predictive in nature. No one has ever been able to correctly predict short-term market moves on a consistent basis. So I knew we had to clear that hurdle. We began buying research that was good at spotting trends. If a certain sector of the market, such as utilities or technology, was moving up, our research would be able to spot that trend and report that to us. We could then overweight our client’s portfolio in the sectors that were trending well. Of course, that style is not 100% successful. And that kind of management is much more time-consuming for us, with a lot more work involved, than a normal buy-and-hold portfolio. But it does tend to make the values in our portfolios a little more stable, thereby giving our clients the courage they may need to keep their assets invested during hard times like we have recently seen. That’s why we only had two clients call us to tell us they wanted to stay out of the market during the February to May time period this year, while over 30% of seniors nationwide did so (see story below). I suspect that most advisors adhere to the buy-and-hold philosophy because they really don’t want to work that hard. Or worse, they sell their clients interest-bearing products under the guise of “safety.” If one buys an interest only product that is compared with the stock market, always beware of what the salesman may not be saying. He will normally be using your fear and lack of understanding against you.
All-in-all, we believe that our clients deserve our best efforts. If it takes more work, if it takes more research, if it costs us more, we believe our clients are worth it. Thank you for being a ProVest client. I really appreciate you, your trust and your business.