June 8, 2025 • 36 mins
Wall Street has us all on edge right now, so we called in one of the smartest people we know when it comes to stock market to help us make sense of it all, Sam Stovall. Sam is CFRA's Chief Strategist and a market historian that knows his stuff! He joins us in this episode to discuss:
- What stock market history tells us about the shaky situation we're in today
- What tariffs really have to do with the stock market and economy
- The 'rebalance' rule
- Mid-term election tailwinds
- Where the federal reserve fits into all of this
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:02):
So the stock market is crashing.
Terrorists are crazy.
Looks like we might be headed fora recession, and our president
is fighting with the Fed.
Help us make some sense of this, Sam.
Well first off, what I attemptto do is to try to stop investors
from allowing their emotions tobe their portfolio's worst enemy.
I always like to say that the best bitof investment advice I ever got came
(00:25):
from Clint Eastwood when he was playingDirty Harry in the movie Magnum Force.
He kept mumbling through grit teeth.
A man's got to know his limitations.
will this cause us to fall into recession?
Because that is whatinvestors worry about.
Bull markets don't die ofold age, they die of fright.
(00:47):
And what they're mostafraid of is recession.
We have had 13 recessions since World WarII, the S&P 500 has fallen an average of
28% during these recessionary periods.
And basically there's no place tohide whether you look at the S&P
500, the NASDAQ, the Russell 2000of small cap stocks or the MSCIEFA,
(01:10):
the International Developed MarketsBenchmark, they have all posted declines
in excess of that 28% for the S&P 500.
I think that a lot of times peoplejust have too much information
at their disposal and as a resultthey become frozen by indecision.
(01:30):
I mean, in some ways I feel that way,and I feel that because of my indecision,
my favorite color should be plaid.
So also, people are emotional andso they say, if I buy something,
I want it to go up right away.
If I sell it, I want itto go down right away.
But most people today are soimpatient, they get upset if they
(01:50):
miss a slot in a revolving door.
So you have to understand yourself.
What was it?
This Old House On PBS, they wouldsay measure twice, cut once.
And so my suggestion to investorsis, look inwardly first.
(02:37):
Hello and welcome backto Catching Up to Fi.
I am Bill Yount with Jackie CummingsKosky, who's wearing a special shirt
today that we're gonna talk about.
But we have an awesome guest todaywho's in the mass media quite a
bit, and I've learned a little bitabout him researching for this show.
But Jackie is gonna be the onethat introduces her friend.
Yes, I am so happy to have our next guest.
(02:58):
Well, for two reasons.
He is like one of the smartest people Iknow when it comes to the stock market,
but also he's a passionate financialliteracy advocate just like us, Bill.
Let's get into it.
We've asked ourselves a question.
So is it time to bail or buy?
Are we headed for recession?
Well, our guest is a brilliant expert,like I mentioned on the stock market and
(03:18):
he's gonna help us answer these questions.
Plus we'll give you some of his reallybad humor to take the edge off a little
bit 'cause we're all on edge right now.
So, Sam Stovall, CFP is ChiefInvestment Strategist at the Center
for Financial Research and Analysis,better known as CFRA This is an
independent equity research firm.
So in this role he focuses on markethistory and valuations, as well
(03:43):
as industry momentum strategies.
He also makes regular appearances onCNBC, Bloomberg, Fox Business and other
major news outlets prior to joining CFRA.
Sam was Managing Director andChief Investment Strategist at
S&P Global for more than 27 years.
Guys, he's been around,he knows his stuff.
(04:04):
He's also served as editor in chiefat Angus Research in New York City.
So he is the author of these twobooks, the Seven Rules of Wall
Street, which is right behind me.
I have my signed copy, Sam andStandard & Poor's Sector Investings.
Sam's volunteer work focuses onfinancial literacy and he shares
our passion for teaching others.
(04:24):
He's a board member emeritusof WISE, which stands for
Working in Support of Education.
This is an educational nonprofitthat aims to improve the lives of
young people through programs thatdevelop financial literacy and
readiness for college and careers.
Sam Stovall, welcome to Catching Up to Fi.
(04:45):
Hey Jackie.
Good to talk to you again.
Nice to meet you, Bill.
Yeah, it's nice to meet you too.
We're all here about late startersand we wanna get your thoughts on
that too because as you may notknow, me as an emergency physician,
I was a paycheck to paycheck guy thatgot a late start at around age 50.
So I had to catch up to all theinformation that you knew all your life.
(05:05):
And I've been a practicing independentDIY investor for the last 7, 8, 9 years.
So I'm very interested in what youhave to say about market history
because my market history is alittle bit shortsighted, being only
involved in it the last nine years.
I think I might have been inthe market before you did Bill,
or at least started waking up.
(05:25):
But before we get into that, Sam,tell us a little bit more about your
passion for financial literacy andyour involvement in WISE, because I
think that's an amazing organization.
Well, I went to Muhlenberg College inAllentown, Pennsylvania, and I graduated
with a degree in history and education.
So I was certified to teach socialstudies on the secondary level.
(05:48):
My other passions were I was going tocoach football and grow a potbelly.
And the only thing I can say I'veaccomplished is that I've grown that
Potbelly, knowing that I enjoy teachingand sharing my knowledge with others
I actually feel like that's what Ido at my job at CFRA, what I did when
I was at Standard & Poor's and whatI do outside of my business career.
(06:10):
And that is working with WISE, workingwith the students at Muhlenberg College
where I'm on the board of trustees.
So really just trying to share,because people were so kind
to me when I was growing up.
Do you work with just mainlyone school, which I know about
Cardinal Spelman wearing the shirt.
Shout out to Mr. Schombergand his students.
But do you work with other highschools in the New York area?
(06:32):
Like how are you doing that these days?
Well, these days I'm not.
Really, it's just CardinalSpelman that I'm doing.
Prior to Covid, however ,sure Ispoke to the high school for business
and finance in lower Manhattan.
Spoke to Aviation High school inQueens, and even would go around the
country and visit with friends who wereteachers at those different schools,
(06:55):
and then I would come in and do somefinancial literacy, volunteering,
answering questions, et cetera.
I've had the opportunity to joinWISE, whenever they go to the floor
of the New York Stock Exchange.
Ringing the bell to award the studentsthat score quite highly on the WISE exam.
Well, I love it.
And you're just a man after my own heart,meeting with these teachers, coming into
(07:16):
the classroom , we need more of thatbecause you have such a deep knowledge
and for you to be able to give back atsuch an early age makes a huge difference.
so So, thank you for doing that, we willdefinitely drop a link in the show notes.
And again, that is WISE.
It's got an exclamation where the eye is.
But if you wanna support thatorganization, we'll definitely
share that information for you.
(07:37):
So now back to the topic on hand.
It's been a very tense year,right, to say the least.
So the stock market is crashing.
Terrorists are crazy.
Looks like we might be headed fora recession, and our president
is fighting with the Fed.
Help us make some sense of this, Sam.
Well first off, what I attemptto do is to try to stop investors
(08:00):
from allowing their emotions tobe their portfolio's worst enemy.
I always like to say that the best bitof investment advice I ever got came
from Clint Eastwood when he was playingDirty Harry in the movie Magnum Force.
He kept mumbling through grit teeth.
A man's got to know his limitations.
So, what I try to do is toteach investors to say, look.
(08:21):
The reason that you are investing,usually it's for retirement, but
it's really deferred consumption.
You wanna make sure that the money you'reputting away today that you would've
used to buy food, beverage, whateverwill grow with inflation and beyond
to therefore outpace both inflationand taxes so that you can afford
(08:42):
that when you do go into retirement.
The best way of doing that is byowning equities, either by owning
stocks individually or owningthem through mutual funds or ETFs.
What I try to do is really calminvestors nerves by teaching
them about stock market history.
The S&P 500 fell around 19% fromFebruary 19th through April 8th.
(09:08):
And amazingly, people thoughtthe world was coming to an end.
But interestingly the averagedecline in a recession induced
bear market has been more like 34%.
And bear markets without recessionshave declined an average of 28%.
So in a sense, we got off fairlyeasy if we believe that the bottom
(09:30):
has already been put in place,which I think is a good likelihood.
And the reason that I say that isbecause I monitor indicators that show
bullishness as well as bearishness.
They were all trading atextreme bearish levels.
And as Baron Rothschild oncesaid, the best time to buy is
when there's blood in the streets.
(09:51):
Oh my goodness.
Blood in the streets.
I refer to this market YoYo market.
It seems like, we're taught thatpoliticS&P arties shouldn't really
influence the market maybe in thelong term, but in the short term,
it depends a little bit on what ouradministration says about whatever
it is, tariffs or the Fed, and thatwe watch it just bounce up and down.
(10:12):
I've never seen that before.
Have you?
Well, history says that we have hadsituations like that back in 1993.
We had what was called HillaryGate at the time, which was the new
Clinton Administration looking to makesome major changes with healthcare.
And that Threw thatsector into a tailspin.
Pharmaceuticals in particular.
(10:32):
In 1961, you had a battle betweenPresident Kennedy and US Steel, which
triggered a 28% bear market because USSteel wanted to raise the price because it
felt that we were coming out of recessionand that they could get the higher prices.
Well, President Kennedy didn'twant anything to do with that
(10:52):
and started a spat, if you will,between himself and US Steel.
Wall Street did not like the factthat the president was trying to
dictate what businesses should do.
So in some ways you could say it's alittle bit similar with President Trump
looking to coerce Fed Chair Powellinto cutting interest rates as well
as taking a very Draconian approachto adjusting trade policy with our
(11:18):
trading partners around the globe.
that comes back to tariffs andI've never been through tariffs.
If it was back in the 1930s where itwas what, Smoot Smalley or something
like that, where there was a policythat caused similar disruption
and made the depression worse.
So, that to me is the only historicalpoint that I have to stand on.
I'm just not sure what to expect.
(11:38):
Can you expect anything from this?
Like I said, to me it's a yo-yo.
You're absolutely right, Bill.
Yeah.
It is a yo-yo primarily because what issaid on one day is walked back on the
next day, either by the one who said itoriginally or by one of his team members.
So what happens is investors are saying,well, what am I supposed to be doing?
(12:00):
If there's uncertainty, then thatis what investors don't like at all.
Sure, there's uncertainty as to how mucha company is going to earn, et cetera.
But when policies are being adjustedthat stop companies from being able
to make plans for how they're goingto operate within these confinements,
(12:21):
then that ends up being a problem.
So I think when companies are gonna bereporting their profits for the first
quarter of this year what analysts arehoping for is some guidance for the second
quarter and for the rest of the year.
Unfortunately, they'reprobably not going to get it.
Or management will sound like twohanded economists, meaning, on the
one hand this, but on the other handthat, so if the tariffs continue to be
(12:46):
that yo-yo, then I don't think they'regonna offer much guidance at all.
So we need more clarityfrom a trade perspective.
Correct me if I'm wrong, Sam.
But I think Bill meant SmootHolly, like, Bill, didn't you
watch Ferris Bueller's Day Off?
Come on.
I did best I could.
Did I get it right, Sam?
Smoot Holly?
(13:06):
And that's all about tradesand tariffs and stuff?
Yes, the Smoot-Hawley tariff of1930 basically felt that because the
economy was slipping into recessionnot just in the US but globally the
thought was we're gonna focus onourselves in a sense, become insular
put up trading barriers so that wecan purchase our own goods, et cetera.
(13:29):
But what they did not really know,and most economists had told them
that was the wrong thing to do, wasthat it would end up causing other
countries to raise their barriers.
Back then, the US probably traded.
lot less with overseaspartners than they do today.
Right now the estimate is that about 40to 45% of the revenues for companies in
(13:51):
the S&P 500 come from overseas operations.
And there are some industries likeretail in particular footwear, clothing,
apparel where 90% plus of thoseitems to be sold come from overseas.
So what you're really doing is in asense, signing the death knell for many
(14:12):
of these small and medium sized companies.
Well, it seems like we're practicingisolationism in a globalized economy
and trying to turn back the clock.
Is that a correct assumption?
Yes, it is.
And a lot of people, especially ifthey're political and they're trying to
make a point with their constituency,is to say, we shouldn't be offshoring
(14:32):
any of our manufacturing or ouroperations, but actually that's what
England did back in the 16, 17 hundreds.
It shored its manufacturingto New England, the colonies.
Then when it became too expensiveto do in New England, it off shored
that manufacturing to the Carolinas.
When the Carolinas became too expensive,then that was offshore to Mexico.
(14:56):
So essentially low or no skilledlabor seeks out the lowest common
denominator or the lowest cost.
And so that's why many of theseoperations were sent overseas because
the cost per hour is $6 in some countriesversus $46 per hour here in the US.
(15:16):
So there is quite a difference, and that'swhy businesses made those decisions.
So Sam, I'm gonna ask you toget out your crystal ball.
So for Terrace, okay.
How do you think this is going to,shake out, like you have a little bit
more knowledge, history and decades ofresearching and understanding this stuff.
(15:40):
How do you think this ends?
Well I'm gonna cheat and, parrot whatCFRA's Washington Analysis Group, which
is a political strategy arm of CFRAand what they have concluded is we'll
probably end up not having 245%, 145% orless tariffs in China, probably down to
(16:03):
about 10% for a majority of our tradingpartners, to bring everything down
to a more equal level playing field.
And so I think that there will be sometariffs, but it'll probably be closer
to that 10% level that was initiallymentioned, and certainly not the 100%
plus that we currently have on China.
(16:26):
Okay, but you believe it's mainlythis uncertainty right now.
One thing, one day,another thing the next day.
Ooh, I didn't mean to say that.
Or whatever.
You think that's the main reason for this.
Like they was saying this yo-yo marketthat people are not sure what to do
and it's up 5% one day and the nextday it's up 4% just all over the place.
Now I, I think the uncertainty is leadingto the next question, which is, will
(16:50):
this cause us to fall into recession?
Because that is whatinvestors worry about.
Bull markets don't die ofold age, they die of fright.
And what they're mostafraid of is recession.
We have had 13 recessions since World WarII, the S&P 500 has fallen an average of
28% during these recessionary periods.
(17:13):
And basically there's no place tohide whether you look at the S&P
500, the NASDAQ, the Russell 2000of small cap stocks or the MSCIEFA,
the International Developed MarketsBenchmark, they have all posted declines
in excess of that 28% for the S&P 500.
And when you look at the sectors withinthe S&P 500, since 1990, whenever
(17:38):
you have had declines of 10% or more,there has been no place to hide either.
All sectors have posted average declines.
Of course the cynics would say whenthe going gets tough, the tough
go eating, smoking and drinking.
And if they overdo it, theyhave to go to the doctor.
So food, beverage, tobacco andhealthcare end up falling less than
(18:01):
your more cyclical sectors likeindustrials, financials, and technology.
Wow.
So just to have a very clear definitionof a recession, what is the, I
guess the technical definition?
Well, a rule of thumb is twosuccessive quarters of GDP decline.
That was a rule of thumb generatedby an economist named Arthur.
(18:24):
Or Oaken, however you pronounce it.
He was an economic advisor toPresidents Kennedy and Johnson, and
that works about 99% of the time.
It did not work during one of therecessions in the early 1980s.
The official arbiter of recessions,however, is the Business Cycle Dating
Committee, found within the NationalBureau of Economic Research, NBER.
(18:50):
So you can find the informationthere, nber.gov, and there,
you can see what they look at.
But it's primarily industrialproduction, which is the output of
all factories, mines, and utilities.
They look to retail sales.
The consumer represents70% of the US economy.
(19:11):
It looks to GDP it looks to aVAR and as well as employment.
And they look at all of thosedifferent factors, and then they
tell us usually about six monthsafter we have fallen into recession.
Oh, the speed bump we hit six months ago?
Well, that was the beginning of arecession, but the interesting thing is
that the stock market anticipates thestart of recession by about six months.
(19:36):
So if that holds true this time aroundthen maybe we end up falling into
a recession in August of this year.
And recessions tend to lastabout 10 months on average.
I think a lot of times when people aretalking about how bad the stock market's
doing or how volatile it is or whateverthey're almost immediately talking about
(19:59):
a recession, but you're making it clearthat a recession is, maybe the market
might be one indicator, but you've gotso many other economic indicators that
you use as a measurement to say whetheror not we're in a recession or the
likelihood of heading to a recession.
Exactly.
And also when we fall into recession,then yeah, we typically are looking
(20:22):
at a bear market, as I mentionedwith the average decline being close
to 30%, I. But we've only had 14bear markets since World War II.
We have had 25 corrections, which aredeclines of 10 to 20% that then turn
around and get back to break even.
And we've had 65 pullbacks or declinesof five to 10% then get back to
(20:47):
breakeven before going even lower.
The funny thing is that the NobelLaureate Economist, Paul Samuelson once
said, the stock market has anticipatednine of the last five recessions.
So basically I like to say that investorsare no better than hyperactive first
graders playing musical chairs, alwaystrying to out anticipate the other as
(21:10):
to when the music will start or stop.
So if Wall Street starts to get nervous.
Then it's like, oh my gosh, we're gonnaend up in some sort of a correction or
a bear market because of a recession.
And then you find out false alarm.
It was just a hiccup somethingthat we worried about, but
really was not the case.
And what's amazing then is the speed withwhich the market gets back to break even.
(21:35):
In those 65 pullbacks that we've hadsince World War II, the market has
taken only one and a half months onaverage to recoup everything that
it lost in that five to 10% decline.
Better yet, if you look at all ofthe declines from ten two as much as
19.9%, we've gotten back to break evenin an average of only four months.
(21:58):
So more than 85% of all declinesof up to 20% got back to break even
in an average of only four months.
So as you had asked me early on, Jackie,the answer is because of that, you are
better off buying than you are bailing.
Right, right.
So you're right with that.
So I guess right now thinkingabout like more recent history.
(22:22):
We're emotional creatures.
We talk a lot about how you feeland we wanna validate that your
feelings make sense and it's normal.
But there any recent I don't knowif I should call it a recession,
but are there any recent marketdrops that have been this volatile,
this wild that you can point us to?
(22:43):
Well, 2020 was a good example because wereally had nothing to compare it with.
The current one, we're comparing itto the Smoot-Hawley tariff of 1930.
Well, the Pandemic, the Covidpandemic, we have to go back to 1920.
So instead of 1930 with Smoot Hawley,it's 1920 with the Spanish influenza.
But in 2020 we had the pandemic, theS&P was down 33%, yet it took us only
(23:10):
five months to recover everythingwe lost in that 33% decline that
occurred in about a month and a half.
So, we exhibited the glide path of acrowbar from February into March of 2020,
and then climbed right out of it fivemonths later, and we're back to the races.
(23:30):
So I would say, yeah, we've had afairly recent example of incredibly
high volatility, a very steepdecline that then it was a V-shaped
sell down and then recovery.
Normally you say that the bull markettakes the stairs, but the bear market
takes the elevator because I believe fearis a much greater motivator than greed.
(23:56):
And I say that because going backto World War II, if you look at the
volatility during declines of 20%or more, 44% of all trading days
have seen 1% volatility or more.
Yet during bull market periods,the average is only 15%.
(24:17):
So 15% of trading days during bullmarkets experience volatility of 1%
or more, yet 44% during bear markets.
I mean, we've had so many dips recentlyand people talk about buying the
dip, but to me, buying the dip meansyou've had cash on the sidelines
that should be invested already, andit's almost like timing the market.
(24:40):
How do you feel about buying the dip?
Well, it's frequently peoplewill be asking, what do I do?
What do I do?
And you can say that you can buy thedip by rebalancing your portfolio
because if your portfolio has cash orhas bonds in it, then the percentage
of the cash and the bonds in thatportfolio has risen as the percentage
(25:02):
of equities has declined in price.
So in a sense you can by saying,I'm going to rebalance, go back to
the allocation that my advisor andmyself had decided upon based on
my time horizon, risk tolerance.
Then, you can say, okay, wellthen I am buying this dip.
Or if you do have cash on the sidelines,some people feel comfortable having dry
(25:24):
powder 5% of their portfolio, 10% ormaybe even a little bit more because
maybe they don't reinvest their dividends.
They let the dividends accumulate, sothey have this dry powder with which to
make investments during times of decline.
Yes, I agree that you end up in asense timing the market by saying,
(25:45):
well, if I buy the dip, will Ihave to know when to buy the dip?
The average pullback is 7%.
The average correction is 14%.
The average bear marketduring recessions is 28%.
So you could almost call thatthe 7% solution; that at every 7%
decline threshold is when you haveto put some more money to work.
(26:09):
And so there are a variety ofthings that investors can do to make
themselves feel as if they're doingsomething, whereas another good
suggestion is don't do anything.
There's a time to buy, there's a time tosell, and there's a time to go fishing.
And usually when the market is tanking,that's a good time to go fishing.
I mean, you talk about rebalancing andtypically I've rebalanced in January,
(26:32):
but I seem to get burned by rebalancingat more of a high, and you have some
historical information on seasonalinvesting that I'm interested in.
Is there a better timetypically to rebalance or is
it just pick a day and do it?
Well seasonally yes.
What we find is that there's an oldsaying of sell in May and go away.
(26:52):
Because from April 30th through October31st, the S&P since World War II has
gained an average of less than 2%, yetfrom November 1st through April 30th, the
S&P has gained an average of close to 7%.
And so gee, 7% versus 2%, you could say,well then that's a good reason to, maybe
(27:16):
look to be buying back into the marketat the end of September or into October.
September is by far the worst monthof the year, posting not only the
lowest return, but also the market hasfallen more frequently in September
than any other month of the year.
Now, some people might be worried aboutbuying into October because October
(27:37):
has experienced 35% more volatilitythan the other 11 months on average.
So it depends on how brave you are,but history would tell you that,
now you probably wanna be buying inthe end of September, because also,
especially during midterm electionyears, which would be 2026, the second
(27:59):
and third quarters traditionally havedeclined because of the uncertainty
leading up to the midterm elections.
Yet interestingly, from October 31 ofmidterm election years until October
31 of the year after, the market hasnever declined, and it has posted an
average advance of about 15% or so.
(28:21):
So instead of Bill rebalancing inJanuary, do you think that's a good idea?
Or there might be a better monthhe might wanna do it once a year.
Well could be the end of Septemberbecause usually that period is weak.
Actually if you look to a publicationcalled the Stock Traders Almanac,
typically September ends up lookinglike a square root sign where
(28:44):
you come in, it drops, and thenheads higher before closing out.
So usually around mid-Octoberis possibly the best time to be
adding to your equity portfolio.
All right, bill.
There you go.
Well, maybe I'll change, but this isagain, sort of a market timing discussion,
and this is based on statistical analysis,which some people poo poo a little
(29:08):
bit and just say, just keep buying.
Don't pay attention to anything.
And statistical analysis, looking attrends and whatnot can throw you off.
Is that true?
Yes.
I think that a lot of times peoplejust have too much information
at their disposal and as a resultthey become frozen by indecision.
I mean, in some ways I feel that way,and I feel that because of my indecision,
(29:32):
my favorite color should be plaid.
So also, people are emotional andso they say, if I buy something,
I want it to go up right away.
If I sell it, I want itto go down right away.
But most people today are soimpatient, they get upset if they
miss a slot in a revolving door.
So you have to understand yourself.
(29:53):
What was it?
This Old House On PBS, they wouldsay measure twice, cut once.
And so my suggestion to investorsis, look inwardly first.
Find out what kind of an investor youare, do you wanna do the driving or do
you want somebody else to do the driving?
If you are emotional, then embrace arules-based investment approach and
(30:16):
have that approach basically tell you.
Don't think, just do what I tell you.
That's pretty cool, and I think alot of us do kind of get ourselves
in trouble trying to time the market,and the best advice we've been
given by many professionals is pickthe strategy that works for you,
but the key is to stick with it.
You can't be hopping, like you said, theplaid thing, you're all over the place.
(30:38):
You had mentioned something that I hadstarted doing many, many years ago.
We also know each other through BetterInvesting, and you've done a lot of talks
there, but I don't reinvest my dividends.
I don't have them automaticallyreinvested, but when they pay
out, they sit in my account.
So when there's opportunities likethis, that is when I deploy that
cash, so I don't take it out ofthe account, I just don't want it
(31:00):
automatically reinvested back into theindex fund or the stock or whatever.
And that did make me feel good,like I was doing something because
I don't have gobs of money.
But when I have a few crumbsthat's been dropping from these
dividends, then I'll reinvest themwhen I feel like it's a good time.
So thank you for validating.
Well, you're talkingabout a taxable account.
(31:21):
Let's be clear here too, because Iautomatically have things reinvested
in my tax protected accounts because Idon't need the cash there to redeploy.
In a taxable account, it also keeps youfrom wash sale rules if you end up wanting
to tax lost harvest if you reinvest.
Right.
That's a good point, Bill, that inan after tax account, if you decide
to sell something because it's downand then you get a dividend after
(31:43):
you sold it, then there is, for thatportion of the dividend, it gets
taken out of the being able to writeit off your taxes, but you can still
benefit it's a personal decision.
But whether it's a tax deferred or ataxable account, by having dividends
go into a money market, you can thenchoose when to deploy that cash.
(32:03):
But that is your decision as aninvestor because you might say,
well, I don't know when to deploy it.
I'm not a good market timer, soI'm not gonna try to time it.
I'll let the market time for meand , in a sense, dollar cost averaging
by reinvesting those dividends.
Yeah.
And when you have the dividendsjust come out, even at a taxable
account, you not only can determinelike when you wanna get it back in,
(32:25):
but what you wanna put it back in.
You may not want it back into thesame index fund or the same stock
or whatever, but again, back to thewhole point, pick your strategy,
stick with it, and stay the course.
And that is so much easier said than done.
But I think the more we normalize andtalk about these things, that there isn't
anything you have to do because theseswings are so quick who can catch them?
(32:49):
I don't reinvest my dividends in a taxableaccount, but I make sure at the end of
the month or when they come due quarterlyor monthly, I go back in and invest them.
I don't wanna let cash drag
Correct.
You,
do we have have questionsabout the Federal Reserve?
Give us a definition of the FederalReserve because we've been hearing
about more than we ever have before.
Well, the Federal Reservewas started in 1912.
(33:11):
The act was approved, and then theFederal Reserve was populated in 1914.
The result, or the reason that wecame up with a Federal Reserve was
the Financial Panic of 1907-1908.
And, basically JP Morgan brought all ofthe other bankers into a room, locked
the door and said, you're not leavinguntil we come up with a solution.
(33:33):
And the solution was that they putmoney into the market to stabilize,
but at the same time, the governmentconcluded we need to have a central bank.
And that was when the Fed was created.
It has two mandates employment andinflation, keeping inflation down,
keeping employment up, which issort of hard to juggle both but
(33:54):
that's what the Fed tries to do.
And, it's always very easy to be a Mondaymorning quarterback to say that the Fed
has not done a good job because theyhave to take their time to make sure
that they are not playing whack-a-moleand making changes too quickly.
Our current president wants tosee interest rates come down.
Is that to try and offset the effectof tariffs drop in the market.
(34:15):
Yes I believe it would be to alsodefray the possibility of recession.
Uh, and just to get the consumersmore willing to go out and spend.
Sam, you've been very helpfulto us talking about current
market conditions and history.
We really appreciate your insights andthe crystal ball that you bring to bear
that the rest of us find pretty cloudy.
I want to thank you on behalfof Jackie and myself for joining
(34:39):
us today on Catching Up to Fi.
We hope to see you again inthe future to talk again about
current market conditions.
I look forward to it.
Bill.
Nice to meet you Jackie.
Always a pleasure to see you.
All right, you have agreat rest of your day.
We'll see you next timeon Catching Up to Fi
So the stock market is crashing.
Terrorists are crazy.
Looks like we might be headed fora recession, and our president
is fighting with the Fed.
Help us make some sense of this, Sam.
Well first off, what I attemptto do is to try to stop investors
from allowing their emotions tobe their portfolio's worst enemy.
I always like to say that the best bitof investment advice I ever got came
(00:25):
from Clint Eastwood when he was playingDirty Harry in the movie Magnum Force.
He kept mumbling through grit teeth.
A man's got to know his limitations.
will this cause us to fall into recession?
Because that is whatinvestors worry about.
Bull markets don't die ofold age, they die of fright.
(00:47):
And what they're mostafraid of is recession.
We have had 13 recessions since World WarII, the S&P 500 has fallen an average of
28% during these recessionary periods.
And basically there's no place tohide whether you look at the S&P
500, the NASDAQ, the Russell 2000of small cap stocks or the MSCIEFA,
(01:10):
the International Developed MarketsBenchmark, they have all posted declines
in excess of that 28% for the S&P 500.
I think that a lot of times peoplejust have too much information
at their disposal and as a resultthey become frozen by indecision.
(01:30):
I mean, in some ways I feel that way,and I feel that because of my indecision,
my favorite color should be plaid.
So also, people are emotional andso they say, if I buy something,
I want it to go up right away.
If I sell it, I want itto go down right away.
But most people today are soimpatient, they get upset if they
(01:50):
miss a slot in a revolving door.
So you have to understand yourself.
What was it?
This Old House On PBS, they wouldsay measure twice, cut once.
And so my suggestion to investorsis, look inwardly first.
(02:37):
Hello and welcome backto Catching Up to Fi.
I am Bill Yount with Jackie CummingsKosky, who's wearing a special shirt
today that we're gonna talk about.
But we have an awesome guest todaywho's in the mass media quite a
bit, and I've learned a little bitabout him researching for this show.
But Jackie is gonna be the onethat introduces her friend.
Yes, I am so happy to have our next guest.
(02:58):
Well, for two reasons.
He is like one of the smartest people Iknow when it comes to the stock market,
but also he's a passionate financialliteracy advocate just like us, Bill.
Let's get into it.
We've asked ourselves a question.
So is it time to bail or buy?
Are we headed for recession?
Well, our guest is a brilliant expert,like I mentioned on the stock market and
(03:18):
he's gonna help us answer these questions.
Plus we'll give you some of his reallybad humor to take the edge off a little
bit 'cause we're all on edge right now.
So, Sam Stovall, CFP is ChiefInvestment Strategist at the Center
for Financial Research and Analysis,better known as CFRA This is an
independent equity research firm.
So in this role he focuses on markethistory and valuations, as well
(03:43):
as industry momentum strategies.
He also makes regular appearances onCNBC, Bloomberg, Fox Business and other
major news outlets prior to joining CFRA.
Sam was Managing Director andChief Investment Strategist at
S&P Global for more than 27 years.
Guys, he's been around,he knows his stuff.
(04:04):
He's also served as editor in chiefat Angus Research in New York City.
So he is the author of these twobooks, the Seven Rules of Wall
Street, which is right behind me.
I have my signed copy, Sam andStandard & Poor's Sector Investings.
Sam's volunteer work focuses onfinancial literacy and he shares
our passion for teaching others.
(04:24):
He's a board member emeritusof WISE, which stands for
Working in Support of Education.
This is an educational nonprofitthat aims to improve the lives of
young people through programs thatdevelop financial literacy and
readiness for college and careers.
Sam Stovall, welcome to Catching Up to Fi.
(04:45):
Hey Jackie.
Good to talk to you again.
Nice to meet you, Bill.
Yeah, it's nice to meet you too.
We're all here about late startersand we wanna get your thoughts on
that too because as you may notknow, me as an emergency physician,
I was a paycheck to paycheck guy thatgot a late start at around age 50.
So I had to catch up to all theinformation that you knew all your life.
(05:05):
And I've been a practicing independentDIY investor for the last 7, 8, 9 years.
So I'm very interested in what youhave to say about market history
because my market history is alittle bit shortsighted, being only
involved in it the last nine years.
I think I might have been inthe market before you did Bill,
or at least started waking up.
(05:25):
But before we get into that, Sam,tell us a little bit more about your
passion for financial literacy andyour involvement in WISE, because I
think that's an amazing organization.
Well, I went to Muhlenberg College inAllentown, Pennsylvania, and I graduated
with a degree in history and education.
So I was certified to teach socialstudies on the secondary level.
(05:48):
My other passions were I was going tocoach football and grow a potbelly.
And the only thing I can say I'veaccomplished is that I've grown that
Potbelly, knowing that I enjoy teachingand sharing my knowledge with others
I actually feel like that's what Ido at my job at CFRA, what I did when
I was at Standard & Poor's and whatI do outside of my business career.
(06:10):
And that is working with WISE, workingwith the students at Muhlenberg College
where I'm on the board of trustees.
So really just trying to share,because people were so kind
to me when I was growing up.
Do you work with just mainlyone school, which I know about
Cardinal Spelman wearing the shirt.
Shout out to Mr. Schombergand his students.
But do you work with other highschools in the New York area?
(06:32):
Like how are you doing that these days?
Well, these days I'm not.
Really, it's just CardinalSpelman that I'm doing.
Prior to Covid, however ,sure Ispoke to the high school for business
and finance in lower Manhattan.
Spoke to Aviation High school inQueens, and even would go around the
country and visit with friends who wereteachers at those different schools,
(06:55):
and then I would come in and do somefinancial literacy, volunteering,
answering questions, et cetera.
I've had the opportunity to joinWISE, whenever they go to the floor
of the New York Stock Exchange.
Ringing the bell to award the studentsthat score quite highly on the WISE exam.
Well, I love it.
And you're just a man after my own heart,meeting with these teachers, coming into
(07:16):
the classroom , we need more of thatbecause you have such a deep knowledge
and for you to be able to give back atsuch an early age makes a huge difference.
so So, thank you for doing that, we willdefinitely drop a link in the show notes.
And again, that is WISE.
It's got an exclamation where the eye is.
But if you wanna support thatorganization, we'll definitely
share that information for you.
(07:37):
So now back to the topic on hand.
It's been a very tense year,right, to say the least.
So the stock market is crashing.
Terrorists are crazy.
Looks like we might be headed fora recession, and our president
is fighting with the Fed.
Help us make some sense of this, Sam.
Well first off, what I attemptto do is to try to stop investors
(08:00):
from allowing their emotions tobe their portfolio's worst enemy.
I always like to say that the best bitof investment advice I ever got came
from Clint Eastwood when he was playingDirty Harry in the movie Magnum Force.
He kept mumbling through grit teeth.
A man's got to know his limitations.
So, what I try to do is toteach investors to say, look.
(08:21):
The reason that you are investing,usually it's for retirement, but
it's really deferred consumption.
You wanna make sure that the money you'reputting away today that you would've
used to buy food, beverage, whateverwill grow with inflation and beyond
to therefore outpace both inflationand taxes so that you can afford
(08:42):
that when you do go into retirement.
The best way of doing that is byowning equities, either by owning
stocks individually or owningthem through mutual funds or ETFs.
What I try to do is really calminvestors nerves by teaching
them about stock market history.
The S&P 500 fell around 19% fromFebruary 19th through April 8th.
(09:08):
And amazingly, people thoughtthe world was coming to an end.
But interestingly the averagedecline in a recession induced
bear market has been more like 34%.
And bear markets without recessionshave declined an average of 28%.
So in a sense, we got off fairlyeasy if we believe that the bottom
(09:30):
has already been put in place,which I think is a good likelihood.
And the reason that I say that isbecause I monitor indicators that show
bullishness as well as bearishness.
They were all trading atextreme bearish levels.
And as Baron Rothschild oncesaid, the best time to buy is
when there's blood in the streets.
(09:51):
Oh my goodness.
Blood in the streets.
I refer to this market YoYo market.
It seems like, we're taught thatpoliticS&P arties shouldn't really
influence the market maybe in thelong term, but in the short term,
it depends a little bit on what ouradministration says about whatever
it is, tariffs or the Fed, and thatwe watch it just bounce up and down.
(10:12):
I've never seen that before.
Have you?
Well, history says that we have hadsituations like that back in 1993.
We had what was called HillaryGate at the time, which was the new
Clinton Administration looking to makesome major changes with healthcare.
And that Threw thatsector into a tailspin.
Pharmaceuticals in particular.
(10:32):
In 1961, you had a battle betweenPresident Kennedy and US Steel, which
triggered a 28% bear market because USSteel wanted to raise the price because it
felt that we were coming out of recessionand that they could get the higher prices.
Well, President Kennedy didn'twant anything to do with that
(10:52):
and started a spat, if you will,between himself and US Steel.
Wall Street did not like the factthat the president was trying to
dictate what businesses should do.
So in some ways you could say it's alittle bit similar with President Trump
looking to coerce Fed Chair Powellinto cutting interest rates as well
as taking a very Draconian approachto adjusting trade policy with our
(11:18):
trading partners around the globe.
that comes back to tariffs andI've never been through tariffs.
If it was back in the 1930s where itwas what, Smoot Smalley or something
like that, where there was a policythat caused similar disruption
and made the depression worse.
So, that to me is the only historicalpoint that I have to stand on.
I'm just not sure what to expect.
(11:38):
Can you expect anything from this?
Like I said, to me it's a yo-yo.
You're absolutely right, Bill.
Yeah.
It is a yo-yo primarily because what issaid on one day is walked back on the
next day, either by the one who said itoriginally or by one of his team members.
So what happens is investors are saying,well, what am I supposed to be doing?
(12:00):
If there's uncertainty, then thatis what investors don't like at all.
Sure, there's uncertainty as to how mucha company is going to earn, et cetera.
But when policies are being adjustedthat stop companies from being able
to make plans for how they're goingto operate within these confinements,
(12:21):
then that ends up being a problem.
So I think when companies are gonna bereporting their profits for the first
quarter of this year what analysts arehoping for is some guidance for the second
quarter and for the rest of the year.
Unfortunately, they'reprobably not going to get it.
Or management will sound like twohanded economists, meaning, on the
one hand this, but on the other handthat, so if the tariffs continue to be
(12:46):
that yo-yo, then I don't think they'regonna offer much guidance at all.
So we need more clarityfrom a trade perspective.
Correct me if I'm wrong, Sam.
But I think Bill meant SmootHolly, like, Bill, didn't you
watch Ferris Bueller's Day Off?
Come on.
I did best I could.
Did I get it right, Sam?
Smoot Holly?
(13:06):
And that's all about tradesand tariffs and stuff?
Yes, the Smoot-Hawley tariff of1930 basically felt that because the
economy was slipping into recessionnot just in the US but globally the
thought was we're gonna focus onourselves in a sense, become insular
put up trading barriers so that wecan purchase our own goods, et cetera.
(13:29):
But what they did not really know,and most economists had told them
that was the wrong thing to do, wasthat it would end up causing other
countries to raise their barriers.
Back then, the US probably traded.
lot less with overseaspartners than they do today.
Right now the estimate is that about 40to 45% of the revenues for companies in
(13:51):
the S&P 500 come from overseas operations.
And there are some industries likeretail in particular footwear, clothing,
apparel where 90% plus of thoseitems to be sold come from overseas.
So what you're really doing is in asense, signing the death knell for many
(14:12):
of these small and medium sized companies.
Well, it seems like we're practicingisolationism in a globalized economy
and trying to turn back the clock.
Is that a correct assumption?
Yes, it is.
And a lot of people, especially ifthey're political and they're trying to
make a point with their constituency,is to say, we shouldn't be offshoring
(14:32):
any of our manufacturing or ouroperations, but actually that's what
England did back in the 16, 17 hundreds.
It shored its manufacturingto New England, the colonies.
Then when it became too expensiveto do in New England, it off shored
that manufacturing to the Carolinas.
When the Carolinas became too expensive,then that was offshore to Mexico.
(14:56):
So essentially low or no skilledlabor seeks out the lowest common
denominator or the lowest cost.
And so that's why many of theseoperations were sent overseas because
the cost per hour is $6 in some countriesversus $46 per hour here in the US.
(15:16):
So there is quite a difference, and that'swhy businesses made those decisions.
So Sam, I'm gonna ask you toget out your crystal ball.
So for Terrace, okay.
How do you think this is going to,shake out, like you have a little bit
more knowledge, history and decades ofresearching and understanding this stuff.
(15:40):
How do you think this ends?
Well I'm gonna cheat and, parrot whatCFRA's Washington Analysis Group, which
is a political strategy arm of CFRAand what they have concluded is we'll
probably end up not having 245%, 145% orless tariffs in China, probably down to
(16:03):
about 10% for a majority of our tradingpartners, to bring everything down
to a more equal level playing field.
And so I think that there will be sometariffs, but it'll probably be closer
to that 10% level that was initiallymentioned, and certainly not the 100%
plus that we currently have on China.
(16:26):
Okay, but you believe it's mainlythis uncertainty right now.
One thing, one day,another thing the next day.
Ooh, I didn't mean to say that.
Or whatever.
You think that's the main reason for this.
Like they was saying this yo-yo marketthat people are not sure what to do
and it's up 5% one day and the nextday it's up 4% just all over the place.
Now I, I think the uncertainty is leadingto the next question, which is, will
(16:50):
this cause us to fall into recession?
Because that is whatinvestors worry about.
Bull markets don't die ofold age, they die of fright.
And what they're mostafraid of is recession.
We have had 13 recessions since World WarII, the S&P 500 has fallen an average of
28% during these recessionary periods.
(17:13):
And basically there's no place tohide whether you look at the S&P
500, the NASDAQ, the Russell 2000of small cap stocks or the MSCIEFA,
the International Developed MarketsBenchmark, they have all posted declines
in excess of that 28% for the S&P 500.
And when you look at the sectors withinthe S&P 500, since 1990, whenever
(17:38):
you have had declines of 10% or more,there has been no place to hide either.
All sectors have posted average declines.
Of course the cynics would say whenthe going gets tough, the tough
go eating, smoking and drinking.
And if they overdo it, theyhave to go to the doctor.
So food, beverage, tobacco andhealthcare end up falling less than
(18:01):
your more cyclical sectors likeindustrials, financials, and technology.
Wow.
So just to have a very clear definitionof a recession, what is the, I
guess the technical definition?
Well, a rule of thumb is twosuccessive quarters of GDP decline.
That was a rule of thumb generatedby an economist named Arthur.
(18:24):
Or Oaken, however you pronounce it.
He was an economic advisor toPresidents Kennedy and Johnson, and
that works about 99% of the time.
It did not work during one of therecessions in the early 1980s.
The official arbiter of recessions,however, is the Business Cycle Dating
Committee, found within the NationalBureau of Economic Research, NBER.
(18:50):
So you can find the informationthere, nber.gov, and there,
you can see what they look at.
But it's primarily industrialproduction, which is the output of
all factories, mines, and utilities.
They look to retail sales.
The consumer represents70% of the US economy.
(19:11):
It looks to GDP it looks to aVAR and as well as employment.
And they look at all of thosedifferent factors, and then they
tell us usually about six monthsafter we have fallen into recession.
Oh, the speed bump we hit six months ago?
Well, that was the beginning of arecession, but the interesting thing is
that the stock market anticipates thestart of recession by about six months.
(19:36):
So if that holds true this time aroundthen maybe we end up falling into
a recession in August of this year.
And recessions tend to lastabout 10 months on average.
I think a lot of times when people aretalking about how bad the stock market's
doing or how volatile it is or whateverthey're almost immediately talking about
(19:59):
a recession, but you're making it clearthat a recession is, maybe the market
might be one indicator, but you've gotso many other economic indicators that
you use as a measurement to say whetheror not we're in a recession or the
likelihood of heading to a recession.
Exactly.
And also when we fall into recession,then yeah, we typically are looking
(20:22):
at a bear market, as I mentionedwith the average decline being close
to 30%, I. But we've only had 14bear markets since World War II.
We have had 25 corrections, which aredeclines of 10 to 20% that then turn
around and get back to break even.
And we've had 65 pullbacks or declinesof five to 10% then get back to
(20:47):
breakeven before going even lower.
The funny thing is that the NobelLaureate Economist, Paul Samuelson once
said, the stock market has anticipatednine of the last five recessions.
So basically I like to say that investorsare no better than hyperactive first
graders playing musical chairs, alwaystrying to out anticipate the other as
(21:10):
to when the music will start or stop.
So if Wall Street starts to get nervous.
Then it's like, oh my gosh, we're gonnaend up in some sort of a correction or
a bear market because of a recession.
And then you find out false alarm.
It was just a hiccup somethingthat we worried about, but
really was not the case.
And what's amazing then is the speed withwhich the market gets back to break even.
(21:35):
In those 65 pullbacks that we've hadsince World War II, the market has
taken only one and a half months onaverage to recoup everything that
it lost in that five to 10% decline.
Better yet, if you look at all ofthe declines from ten two as much as
19.9%, we've gotten back to break evenin an average of only four months.
(21:58):
So more than 85% of all declinesof up to 20% got back to break even
in an average of only four months.
So as you had asked me early on, Jackie,the answer is because of that, you are
better off buying than you are bailing.
Right, right.
So you're right with that.
So I guess right now thinkingabout like more recent history.
(22:22):
We're emotional creatures.
We talk a lot about how you feeland we wanna validate that your
feelings make sense and it's normal.
But there any recent I don't knowif I should call it a recession,
but are there any recent marketdrops that have been this volatile,
this wild that you can point us to?
(22:43):
Well, 2020 was a good example because wereally had nothing to compare it with.
The current one, we're comparing itto the Smoot-Hawley tariff of 1930.
Well, the Pandemic, the Covidpandemic, we have to go back to 1920.
So instead of 1930 with Smoot Hawley,it's 1920 with the Spanish influenza.
But in 2020 we had the pandemic, theS&P was down 33%, yet it took us only
(23:10):
five months to recover everythingwe lost in that 33% decline that
occurred in about a month and a half.
So, we exhibited the glide path of acrowbar from February into March of 2020,
and then climbed right out of it fivemonths later, and we're back to the races.
(23:30):
So I would say, yeah, we've had afairly recent example of incredibly
high volatility, a very steepdecline that then it was a V-shaped
sell down and then recovery.
Normally you say that the bull markettakes the stairs, but the bear market
takes the elevator because I believe fearis a much greater motivator than greed.
(23:56):
And I say that because going backto World War II, if you look at the
volatility during declines of 20%or more, 44% of all trading days
have seen 1% volatility or more.
Yet during bull market periods,the average is only 15%.
(24:17):
So 15% of trading days during bullmarkets experience volatility of 1%
or more, yet 44% during bear markets.
I mean, we've had so many dips recentlyand people talk about buying the
dip, but to me, buying the dip meansyou've had cash on the sidelines
that should be invested already, andit's almost like timing the market.
(24:40):
How do you feel about buying the dip?
Well, it's frequently peoplewill be asking, what do I do?
What do I do?
And you can say that you can buy thedip by rebalancing your portfolio
because if your portfolio has cash orhas bonds in it, then the percentage
of the cash and the bonds in thatportfolio has risen as the percentage
(25:02):
of equities has declined in price.
So in a sense you can by saying,I'm going to rebalance, go back to
the allocation that my advisor andmyself had decided upon based on
my time horizon, risk tolerance.
Then, you can say, okay, wellthen I am buying this dip.
Or if you do have cash on the sidelines,some people feel comfortable having dry
(25:24):
powder 5% of their portfolio, 10% ormaybe even a little bit more because
maybe they don't reinvest their dividends.
They let the dividends accumulate, sothey have this dry powder with which to
make investments during times of decline.
Yes, I agree that you end up in asense timing the market by saying,
(25:45):
well, if I buy the dip, will Ihave to know when to buy the dip?
The average pullback is 7%.
The average correction is 14%.
The average bear marketduring recessions is 28%.
So you could almost call thatthe 7% solution; that at every 7%
decline threshold is when you haveto put some more money to work.
(26:09):
And so there are a variety ofthings that investors can do to make
themselves feel as if they're doingsomething, whereas another good
suggestion is don't do anything.
There's a time to buy, there's a time tosell, and there's a time to go fishing.
And usually when the market is tanking,that's a good time to go fishing.
I mean, you talk about rebalancing andtypically I've rebalanced in January,
(26:32):
but I seem to get burned by rebalancingat more of a high, and you have some
historical information on seasonalinvesting that I'm interested in.
Is there a better timetypically to rebalance or is
it just pick a day and do it?
Well seasonally yes.
What we find is that there's an oldsaying of sell in May and go away.
(26:52):
Because from April 30th through October31st, the S&P since World War II has
gained an average of less than 2%, yetfrom November 1st through April 30th, the
S&P has gained an average of close to 7%.
And so gee, 7% versus 2%, you could say,well then that's a good reason to, maybe
(27:16):
look to be buying back into the marketat the end of September or into October.
September is by far the worst monthof the year, posting not only the
lowest return, but also the market hasfallen more frequently in September
than any other month of the year.
Now, some people might be worried aboutbuying into October because October
(27:37):
has experienced 35% more volatilitythan the other 11 months on average.
So it depends on how brave you are,but history would tell you that,
now you probably wanna be buying inthe end of September, because also,
especially during midterm electionyears, which would be 2026, the second
(27:59):
and third quarters traditionally havedeclined because of the uncertainty
leading up to the midterm elections.
Yet interestingly, from October 31 ofmidterm election years until October
31 of the year after, the market hasnever declined, and it has posted an
average advance of about 15% or so.
(28:21):
So instead of Bill rebalancing inJanuary, do you think that's a good idea?
Or there might be a better monthhe might wanna do it once a year.
Well could be the end of Septemberbecause usually that period is weak.
Actually if you look to a publicationcalled the Stock Traders Almanac,
typically September ends up lookinglike a square root sign where
(28:44):
you come in, it drops, and thenheads higher before closing out.
So usually around mid-Octoberis possibly the best time to be
adding to your equity portfolio.
All right, bill.
There you go.
Well, maybe I'll change, but this isagain, sort of a market timing discussion,
and this is based on statistical analysis,which some people poo poo a little
(29:08):
bit and just say, just keep buying.
Don't pay attention to anything.
And statistical analysis, looking attrends and whatnot can throw you off.
Is that true?
Yes.
I think that a lot of times peoplejust have too much information
at their disposal and as a resultthey become frozen by indecision.
I mean, in some ways I feel that way,and I feel that because of my indecision,
(29:32):
my favorite color should be plaid.
So also, people are emotional andso they say, if I buy something,
I want it to go up right away.
If I sell it, I want itto go down right away.
But most people today are soimpatient, they get upset if they
miss a slot in a revolving door.
So you have to understand yourself.
(29:53):
What was it?
This Old House On PBS, they wouldsay measure twice, cut once.
And so my suggestion to investorsis, look inwardly first.
Find out what kind of an investor youare, do you wanna do the driving or do
you want somebody else to do the driving?
If you are emotional, then embrace arules-based investment approach and
(30:16):
have that approach basically tell you.
Don't think, just do what I tell you.
That's pretty cool, and I think alot of us do kind of get ourselves
in trouble trying to time the market,and the best advice we've been
given by many professionals is pickthe strategy that works for you,
but the key is to stick with it.
You can't be hopping, like you said, theplaid thing, you're all over the place.
(30:38):
You had mentioned something that I hadstarted doing many, many years ago.
We also know each other through BetterInvesting, and you've done a lot of talks
there, but I don't reinvest my dividends.
I don't have them automaticallyreinvested, but when they pay
out, they sit in my account.
So when there's opportunities likethis, that is when I deploy that
cash, so I don't take it out ofthe account, I just don't want it
(31:00):
automatically reinvested back into theindex fund or the stock or whatever.
And that did make me feel good,like I was doing something because
I don't have gobs of money.
But when I have a few crumbsthat's been dropping from these
dividends, then I'll reinvest themwhen I feel like it's a good time.
So thank you for validating.
Well, you're talkingabout a taxable account.
(31:21):
Let's be clear here too, because Iautomatically have things reinvested
in my tax protected accounts because Idon't need the cash there to redeploy.
In a taxable account, it also keeps youfrom wash sale rules if you end up wanting
to tax lost harvest if you reinvest.
Right.
That's a good point, Bill, that inan after tax account, if you decide
to sell something because it's downand then you get a dividend after
(31:43):
you sold it, then there is, for thatportion of the dividend, it gets
taken out of the being able to writeit off your taxes, but you can still
benefit it's a personal decision.
But whether it's a tax deferred or ataxable account, by having dividends
go into a money market, you can thenchoose when to deploy that cash.
(32:03):
But that is your decision as aninvestor because you might say,
well, I don't know when to deploy it.
I'm not a good market timer, soI'm not gonna try to time it.
I'll let the market time for meand , in a sense, dollar cost averaging
by reinvesting those dividends.
Yeah.
And when you have the dividendsjust come out, even at a taxable
account, you not only can determinelike when you wanna get it back in,
(32:25):
but what you wanna put it back in.
You may not want it back into thesame index fund or the same stock
or whatever, but again, back to thewhole point, pick your strategy,
stick with it, and stay the course.
And that is so much easier said than done.
But I think the more we normalize andtalk about these things, that there isn't
anything you have to do because theseswings are so quick who can catch them?
(32:49):
I don't reinvest my dividends in a taxableaccount, but I make sure at the end of
the month or when they come due quarterlyor monthly, I go back in and invest them.
I don't wanna let cash drag
Correct.
You,
do we have have questionsabout the Federal Reserve?
Give us a definition of the FederalReserve because we've been hearing
about more than we ever have before.
Well, the Federal Reservewas started in 1912.
(33:11):
The act was approved, and then theFederal Reserve was populated in 1914.
The result, or the reason that wecame up with a Federal Reserve was
the Financial Panic of 1907-1908.
And, basically JP Morgan brought all ofthe other bankers into a room, locked
the door and said, you're not leavinguntil we come up with a solution.
(33:33):
And the solution was that they putmoney into the market to stabilize,
but at the same time, the governmentconcluded we need to have a central bank.
And that was when the Fed was created.
It has two mandates employment andinflation, keeping inflation down,
keeping employment up, which issort of hard to juggle both but
(33:54):
that's what the Fed tries to do.
And, it's always very easy to be a Mondaymorning quarterback to say that the Fed
has not done a good job because theyhave to take their time to make sure
that they are not playing whack-a-moleand making changes too quickly.
Our current president wants tosee interest rates come down.
Is that to try and offset the effectof tariffs drop in the market.
(34:15):
Yes I believe it would be to alsodefray the possibility of recession.
Uh, and just to get the consumersmore willing to go out and spend.
Sam, you've been very helpfulto us talking about current
market conditions and history.
We really appreciate your insights andthe crystal ball that you bring to bear
that the rest of us find pretty cloudy.
I want to thank you on behalfof Jackie and myself for joining
(34:39):
us today on Catching Up to Fi.
We hope to see you again inthe future to talk again about
current market conditions.
I look forward to it.
Bill.
Nice to meet you Jackie.
Always a pleasure to see you.
All right, you have agreat rest of your day.
We'll see you next timeon Catching Up to Fi
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