The Fagan Financial Report

June 15th, 2025.

Episode Transcript

Speaker 1 (00:00):
Good morning, and welcome to the Capital District's Money and
Investment Program. You're listening to the Fagan Financial Report of
Dennis Fagan, sitting here with my son Aaron, as we
do every Sunday right here in News Talk eight ten
on one oh three one WGY. We're recording this Friday
midday or so. The market's are down eleven thirty exactly.
Market's down on the strike in Iran by Israeli forces.

Speaker 2 (00:23):
Rockets eleven thirty.

Speaker 1 (00:26):
So we'll see how that plays out. Just when you
look at the trade talks, look at Ai, you look
at the Ukraine and Russia. A lot of things going
on right now, swirling about in the United States and
also swirling about the world. So but the market has
been resilient coming into today and including today, the market
was up around you know, three or four percent for
the year. If you annualize that that out you're talking

(00:48):
with dividends, maybe seven or eight percent. You're also talking
and this having been down about twenty percent through April eighth,
we're also up about points six or point seven percent
of the SMP thus far this week.

Speaker 3 (01:03):
So I think, you know, most investors are getting used to.

Speaker 1 (01:08):
The the a lot of activity or a lot of
a lot of chaos really around the market.

Speaker 4 (01:15):
You know, yeah, yeah, you know, I was listening to
a podcast.

Speaker 2 (01:17):
I forget which one it was the other day, but
it was just a hypothetical question. But you know, one
of the one of the I think it was Ben
Carlson and Michael Badnik, but they one of them was like,
you know, are the are the days of the fifty
percent market crashes over? And I'm not saying it is
or isn't, but that was that was the question he posed,
Is that have investors gotten smart enough to know that

(01:42):
the market does come back and you buy the dip,
market goes down twenty percent, you buy the dip. You know,
so you know it's you know, you can't you can't
predict you know, what happens going forward. And you know,
I'm thirty, I'm thirty five, and when we thirty six,
and obviously in my lifetime there's going to be some
major events that do happen. But you know, I I
think it's hard as investors to separate out you know,

(02:04):
what is something that warrants a bit of a change
in your portfolio? And you know, the classic just stay
the course you know, and it's hard not to, you know,
just with the rapidity, rapidness, I guess that we saw
the SMP go down twenty percent and gain everything back
and then a little bit some Is it even worth

(02:24):
getting out of the market if you just miss a
month now, you know, you can affect your returns drastically.
Look what happened, you know in April when the market
was up ten percent in one day. Now, I think
the risk of just missing something like that, it's hard
to see.

Speaker 4 (02:41):
It's hard to.

Speaker 2 (02:42):
Raise cash when it's hard to raise cash if your
objective is you know, if you're if you have a
sixty forty portfolio, and you know, I do think at
times when the market runs up, you do go down
to you know, fifty, you know, between fifty and sixty.
But you know it's really when you start making wholesale
move changes, you know, you can really really affect your

(03:02):
financial life. You know, you could missed one day this
year and be down ten percent.

Speaker 1 (03:07):
Yeah, you know, and that is a good lesson really
for investors out there. A couple points that I would
make based upon what you just said is I think
one of the couple things is one is you know,
if the market. No, I don't think the days of
a fifty percent pullback are over. I think why this
wasn't a fifty percent pullback and was twenty was because

(03:29):
it was not founded in current economic weakness. I think
when we were talking about seven and eight, you're talking
about the fundamentals of the US economy really being called
into question in the global economy. And I think you're
going to suffer those from time to time. That's almost
a generational bear market. And I don't think those are over.
And if you're thirty five or thirty six, you know,
count on another one within the next twenty or thirty years.

(03:52):
But maybe you have one in your lifetime like that,
or two in your lifetime, two in your adult lifetime,
or your earnings lifetime like that.

Speaker 2 (03:59):
Even you know, we've even seen you know, just in
about a decade though fifteen years we did see that,
you know, eleven years really we did see COVID.

Speaker 4 (04:08):
You know, it was down about thirty four percent.

Speaker 2 (04:10):
So you know, you have fifty plus fifty two percent
d on thirty four percent draw down the market.

Speaker 4 (04:15):
You know, it does come back over time.

Speaker 1 (04:17):
So I mean the one and O seven and O eight,
I think it concluded in March of nine, was eighteen
months or so. It began in October of seven, so
eighteen months. It's almost like water torture. Yeah, you know,
I think when the market goes down, and I think
Tom Lee has done some interesting work on that, and

(04:39):
there's been fifteen or sixteen what he would call waterfall
type of pullbacks in the market where a good the
prime example.

Speaker 3 (04:49):
Two examples.

Speaker 1 (04:50):
One that just occurred really in a month or two
the market was down twenty percent, and also with COVID,
the market peaked on February nineteenth or so, twenty twenty,
and then by March twentieth or so was down thirty
three percent.

Speaker 3 (05:06):
Your emotions don't even catch up with your.

Speaker 1 (05:11):
Your strategy, meaning that eventually, you know, seven and eight,
you know, you know, six three months go by six months,
twelve months, all of a sudden, you're making changes to
your portfolio because you're weary. All of a sudden, you're
making changes to your portfolio because your hope is going.
When things decline so quickly, you know, you haven't moved

(05:33):
during to that next stage of grief so to speak.
You know what I mean, You're in hope and then
you're rewarded right away. You know, the market v shaped
back in twenty twenty, and it pretty much v shaped
earlier this year. So I think that that's the difference
a long drawn out bear market, whether it's twenty or
thirty percent. I think some are more app to make
mistakes during the long drawn out one. Others are more

(05:55):
app to make mistakes during the shorter one because they fear,
oh my gosh, this is that, this is the end.
You know that that Let's you know, other than talk
about the economic data, we can circle back to that.

Speaker 3 (06:05):
Let's go into that.

Speaker 1 (06:06):
You know, Ben Carlson did do a piece that said
from and this was a piece done by Michael Michael
m A U b O U SSI N so i'll
call Malbusen.

Speaker 3 (06:17):
As a research piece.

Speaker 1 (06:18):
And this was from Ben Carlson's post on May thirtieth
about the drawdowns and recoveries of individual stocks. He looked
at sixty five hundred stocks in a forty year period
from nineteen eighty five to twenty twenty four and discovered
the median draw down was an astounding eighty five percent.
So thirty two hundred and fifty stocks went down eighty

(06:39):
five the median draw down, which means number of stocks
going at least that was eighty five percent, So thirty
two to fifty went down. Fifty four percent of these
stocks never managed to recover their previous peaks. Fifty four
percent never recovered those those previous peaks.

Speaker 3 (06:58):
So that goes kind of goes back to what you
were saying.

Speaker 1 (07:01):
You know, you know that, you know, having a plan,
having discipline, being able to survive these types of pullbacks,
if you want to call it a pullback, and the
market's always ended up going higher, which is why you
would call it a pullback, But that also.

Speaker 3 (07:17):
Implies something that's not really.

Speaker 1 (07:20):
You know, painful, but indeed something like like that is,
you know, so I think there are some things you
can do to kind of mitigate that that and we're
talking a little bit about it off the air, but
certainly to maintain a disciplined approach and not let emotions
get carried away. And if you don't have a disciplined approach,
you're going to get emotional on both sides.

Speaker 3 (07:42):
You're going to get going to get bullishly.

Speaker 1 (07:43):
Emotional at the wrong time, and you're going to get
barishly emotional at the wrong time.

Speaker 3 (07:47):
So you have to have discipline.

Speaker 1 (07:48):
And one of the things that I would say, and
I know you want to talk a little bit about,
you know, adding the VIX to somebody's portfolio would be,
you know, acid allocation model that works for the longer term.

Speaker 3 (07:58):
The other thing I would say, and then no, before
I forget, is that here's what I would do. If
the market pulls down twenty percent, that's what you want
to look at.

Speaker 1 (08:08):
How long does it take? Really, what's the what's the
odds of you making money from that point? You're not
gonna You're not gonna no one sells it the high,
so maybe you maybe you sell down ten percent. A good,
good exercise would be, well, how long does it take
after historical market pullbacks of ten percent?

Speaker 3 (08:26):
Does it take?

Speaker 1 (08:27):
What's the odds of you making money from that point
over what period? Then do twenty percent and then twenty
five percent, And I think you'll see, once the market's
down twenty or twenty five percent, the chances of you
making money over the next three, four or five years
are very very high. You know, probably in the ninety yeah,
ninety yeah, I would think, you know, but we should
I'll do that work over this week and maybe talk
about it next week on the show, assuming that something

(08:50):
more pressing doesn't come up.

Speaker 3 (08:52):
But what are some other things that you can do?

Speaker 2 (08:54):
You talked about you know, I think I think a
lot of times in markets like these, and we saw
it a lot during COVID. You know, people you know,
pick specific stocks that do really well, and I think
they think that can translate to more and more stocks,
and you know, it's possible that it can, but it's.

Speaker 4 (09:12):
More probable but probable that it can't.

Speaker 2 (09:14):
You know, I think what we what you try to
do is you know, you have to have correlation to
whatever underlying induscy or any indussy because you can take
some historical metrics from those indices and know that Okay,
over time, the S and P. You know, it does
change hands, you know it does. You know, leadership does change.
But at the same time, your S and P spy
goes up over time. So I think what's really important

(09:37):
obviously is you know, to have that correlation to the
S and P five hundred, so you know seventy eighty
ninety percent of your portfolio at least will perform with
what the what the S and P performs or the
or the or the DW or the RSP equal weight et.
But you know, all of these indices go up over time.
You know, it just depends on what volatility you want
in your portfolio. You know, we, as I said, spoke

(10:00):
a little bit earlier, you mentioned the VIX, Like, you know,
we really don't buy the VIX much. But you know
what I think is important for some people in you know,
talking to this to this gentleman, and you know he
has some you know, worries going forward. It's like, all right,
what can you do to your portfolio to keep you
on the same trajectory?

Speaker 4 (10:17):
Right, So you know, what can you do?

Speaker 2 (10:19):
What incremental moves can you change in your portfolio to
not make the big mistake? And that's kind of what
I did, Like, all right, you know you buy five
percent in the VIX. I mean, if that goes nowhere,
that's fine. In the market goes up ten percent, that's fine,
you know, in that Let's say you know, your five
percent goes down, you know, ten percent in your in
your your ninety percent goes up five percent. You know,

(10:40):
I don't know what those I can't think of those
numbers off the top of my head.

Speaker 4 (10:44):
Maybe you can, you are kind of a mental math genius.

Speaker 2 (10:46):
But you're still on the same trajectory, right, you know,
you're not find You're not You're not jeopardizing your your
not your your financial future.

Speaker 4 (10:54):
You know what I mean?

Speaker 1 (10:55):
The VIX is it leverage us, it's inversely leverage to
the market RCE. Yeah, on a one to one basis,
two to one basis, you can buy the one basis.

Speaker 2 (11:04):
So if you put five, it's not like it's not
a it's a volatility index, so it's not a it's
extremely short term future.

Speaker 4 (11:12):
So it's not like it's not like, you know.

Speaker 3 (11:15):
Perfect verse correlation.

Speaker 1 (11:16):
Yeah, it could market code go down five percent and
the decks grew up fifty percent.

Speaker 4 (11:20):
Yes, exactly right.

Speaker 2 (11:20):
You know, so you can put a small percentage in
there just to get some a little bit of stability
in your portfolio. And as much as that can do
for your portfolio financially, it's as much mental to I
guess not do something like, you know, take twenty percent
of your money out of the market.

Speaker 4 (11:36):
You know.

Speaker 2 (11:36):
So I think there's some things that you know you
can do. You know what Uncle Chris you used to
like to do is sell half your position in something, right,
you know what if if you have you know, ten
percent in Apple go down to five. You know, I
think there's you can make incremental moves in your portfolio
to keep you on the same trajectory, right, And I
think that's you know, something that we try to do
on a situation by situation basis with clients, like, all right,

(11:58):
how can we get you to where you want to go?
And there's some different avenues that you can get to
to get there. It's just you know, not doing the
thing that will not get you there. And that's you know,
really really messing with your asset allocation. They're not participating in,
you know, the stock market over the next five ten years.

Speaker 1 (12:17):
And so you know, by the Vicks, you know, selling
a piece of a position, you know, I would think,
you know that the in conjunction with selling a piece
of a condition position would be raising a little bit
of cash, ratcheting down your exposure from the stock market
and adding to the bond market. Let's say you're seventy
thirty go to sixty five thirty five.

Speaker 2 (12:37):
You know what allocation you should be in, like what
range of allocation that you should be in.

Speaker 1 (12:42):
And that should not change unless your objectives change, or
the timeframe to reach your objective changes, like somebody your
age with the objective of retirement will say, or even
objective for educating your children Jude's three as may will
be one July fifteenth. You know, that's a that's a
long term growth position. So at least, in my opinion,
seventy five percent and above of your account should be

(13:04):
in the stock market at all times.

Speaker 2 (13:06):
Yeah, yeah, yeah, I agree. And then you know, as
what you said earlier, I think, educate it again, like
educating yourself on you know what happens usually when the
market's down ten percent one year, six months, two years
from now to be like, okay, you know, the majority
of the time you're in good shape rather other than
you know, some you know, extenuating circumstances. And you know,

(13:26):
again seven over the past, I think it was between
January twenty third and December twenty two. You know, I
bring up this chart all the time that if you
invested in the ten thousand in s and P five
hundred fully invested from those dates, you'd have sixty four thousand,
eight hundred and forty four dollars. If you missed the
ten best days ten you'd have twenty nine thousand, seven

(13:49):
hundred and eight dollars and seven of those ten best
days are during a bear market, so when it's easier
to get scared out at the market, right, So I
think I think you try, you try to do what
you can mentally to stay as invested as you should
be for you know, your age.

Speaker 1 (14:07):
And we print out a chart of the week, and
I think that from time to time we address that issue.
And I think the issue that people don't have. The
answer that people don't have is they can most people
cannot quantify their historical potential range of outcomes for their portfolio.

Speaker 3 (14:26):
Yeah, you know, and.

Speaker 1 (14:29):
Certainly you know, we could give that on a portfolio
by portfolio basis. We also, you know, have software that
can give that through money Guide pro based upon you know,
a different simulations based on historical with historical precedence. But
if you can quantify their historical potential range of outcomes

(14:50):
for your portfolio.

Speaker 3 (14:52):
I think you feel more comfortable.

Speaker 1 (14:54):
And for example, if you've got a fifty to fifty
portfolio and the market's down thirty percent, you're gonna lose
fifteen percent on that on that half. So let's say
you're so you're you have one hundred thousand dollars fifty
thousand in the stock market. Let's call let's call it
a growth and income portfolio, seventy percent in the stock market,
and the stock market goes down what I say, thirty

(15:14):
percent thirty percent, So that fifty percent is gonna lose
thirty percent, or seventy percent is gonna lose thirty percent,
So you're gonna lose twenty one.

Speaker 3 (15:22):
Thousand dollars there.

Speaker 1 (15:23):
Let's say you're thirty thousand, makes five percent, You're gonna
make fifteen hundred dollars there, So you're gonna lose twenty
one thousand on the stock side, make fifteen hundred. On
the bond side, you're gonna lose nineteen point five percent,
So you're gonna have nine You're gonna have seventy nine thousand,
five hundred dollars. So when you start to you know,
start to do that. And now that may be scary it.

Speaker 3 (15:44):
To you, it may not.

Speaker 1 (15:44):
But when you be when you're able to contant quantify
the negative implications of a market downturn, you're better able
to then determine your you know, your the asset allocation
that works for you.

Speaker 2 (15:56):
Yeah, you know, and take your distributions into account, take
how much you need from that portfolio and find the
number that you're I guess you're comfortable with with those
distributions in mind, that you're comfortable with with losing. You know,
if if the market did such and such as you
were saying, you know, we can we can run a
lot of scenarios too. Is you know, what would happen
to your portfolio right now if two thousand and nine happened,

(16:19):
you know, so you know, we could have a you know,
current current allocation versus you know what it could be
with that scenario in mind.

Speaker 3 (16:28):
But I think you've got to be careful about like that.

Speaker 1 (16:31):
I think that was a once in a life, once
in a working lifetime bear market.

Speaker 3 (16:36):
Knock on wood.

Speaker 1 (16:38):
They and with precedents, I mean, the last pullback like
that really absence the NASDAC, the bubble in the Nasdaq
so of the S and P five PHND it was
really in the seventies, you know, a fifty percent draw
down in the market. You know, twenty twenty five percent
uh eight.

Speaker 4 (16:55):
Account bubbles should count, though, bro the.

Speaker 1 (16:58):
NASDAK was a very rete to the minor percentage of
the of the S and P five pounder at that
point wasn't like today, where you know, it's roughly forty
percent of the S and P five. It might be
might have been ten percent back then, Naz THATK goes
down eighty percent, the S and P was down maybe thirty.

Speaker 3 (17:11):
Yeah, you know, but but but you will.

Speaker 1 (17:14):
I will say though, that the decade of the zeros,
if you want to call it that, from the end
of nineteen ninety nine to the nine the market went nowhere.

Speaker 4 (17:21):
Yeah.

Speaker 2 (17:21):
I think it took sixteen years for Microsoft to get
you know, reach it, reach it, to reach its former high.
I don't even think Cisco has reached its former Intel
never has. Yeah, Cisco never maybe maybe maybe Cisco just
as I don't know, but you're right, Intel never has.
So I think that think of how hard that was
mentally to you know, continue to stay invested in companies

(17:44):
like that, And I think that goes back to your
point of you know what we were talking earlier with
that Matt Mabusan with eighty five what.

Speaker 3 (17:51):
Was it, Yeah, eighty five percent for Median druw down.

Speaker 4 (17:55):
Medium draw down.

Speaker 2 (17:56):
Half those companies never recovered to full time highs is
you know, you want to stay you know, passive and
a part of your portfolio just so you know that
you're getting you know, market cap weighted, having market cap
weighted ets so that you know that your winner, the
winners that will will continue.

Speaker 4 (18:15):
To be you know, a portion of your portfolio.

Speaker 3 (18:19):
Right, and you want to anchor yourself to that, to that.

Speaker 1 (18:22):
S and P.

Speaker 2 (18:23):
Five hundred, you know, even doing it through individual stocks
with you know you I think it's when you if
you own Apple or you know, for instance, and that's
you know, seven percent or five five point something percent
of the s and P.

Speaker 4 (18:36):
Five hundred.

Speaker 2 (18:37):
You know the consequences of having ten percent, right you, Now,
look what let's say, you know, g was the largest
company in the world. I mean, I don't know what
percentage of it was in the you know s and P.
Five hundred exactly, but you know, if you you stuck
on the biggest company. But if you if you were
way overweighted and ge look what would have happened to
your portfolio over the last twenty years?

Speaker 1 (18:56):
Well, right, and and chances are gonna sell at the
wrong time. You're gonna sell at the bottom because fear
is a greater motivated degree. That's what I wanted to
say too, is that I remember there were people like
that we had. Obviously, we've been in business since nineteen
eighty nine, so thirty seven year, thirty six or thirty
seven years will be thirty six years actually coming up

(19:17):
in August. But I remember people who clients of ours
will also had G S at the GS and S
plan and I G was kind of moving from sixty
to fifty to sixty to fifty to sixty, and they would,
you know, you know, buy it at fifty and sell
it at sixty. And there were several people doing this
over and over again. But then when it went to

(19:38):
forty five and then forty and thirty, and G got
down about five bucks a share, and it has subsequently split,
done a reverse one for eight split. But even right
now then g's done subsequent split. So I'm even going
to talk about where the price would be now because
I don't really know, but I will say that once
it went from once it broke that hey, I'm gonna
buy at fifty and sell at sixty, now, how that

(20:00):
discipline was thrown out the window and became hope now.
And then with the forty five and forty, so you're
holding on hoping that it goes back up, and hope
is not a strategy. And I think at that point
in time, I think that's why you have to have discipline,
because on both sides of the equation you have people
get greedy and they think the tree is going to
grow to heaven or go to the sky. And conversely,

(20:21):
you know, if you have too much in one stock,
you know, you get you know, emotional, and you're going
to hold on for way too long. So you want
to maintain correlation to an underlying index. You want to
test that correlation by knowing your returns compared to that index.
And you also want to make sure you don't put
too many of your eggs in one basket so that
you don't wake up ten years from now the S

(20:42):
and P does eight or nine percent a year and
you do zero. Right, And those are just some things
some brief, brief look at the economic data. We only
got three more minutes to go. Three big pieces of
information that came out this week. In my opinion, prices
at the retail level is measured by the consumer price
index of one ten seven percent, so that's it a
two point four percent year of year, So it looks
like retail inflation is pretty much in line.

Speaker 3 (21:07):
With historical gauges.

Speaker 1 (21:09):
You also have energy down one percent of that and
I mean change a little bit in the next two
or three months with the issue between Israel and Iran
and also between the tariffs tariffs maybe kicking in a
little more. You also have priced at the wholesale level
as measured by the PPI of one tens percent. Your
your the PPI is a point two point six percent,
So not bad numbers there.

Speaker 4 (21:28):
Now you know what you saw you saw a little
bit last week.

Speaker 2 (21:31):
IM numbers for May came in weaker than expected at
forty nine point nine. You know, below fifty is usually
the threshold threshold for growth. And you know, although inflation
has come down, you know you're still in a you know,
by definition is that you could start to enter stagflation
if if we have have slow and growth economy and

(21:51):
any sort of inflation. So I think it's something to
look at. But yeah, you know, prices are coming down,
so I think we're going to continue to see that
battle between the Fed and Donald Trump.

Speaker 3 (22:01):
On what what did Donald Trump called Powell this week?

Speaker 1 (22:05):
I think it was problem full last week, right, something
I said, I forget what it was this week, something
that an income poop or something like that.

Speaker 3 (22:13):
Trump calls Powell.

Speaker 4 (22:15):
I think, I think the Fed has done a great job,
especially you know.

Speaker 3 (22:19):
Uh Scull yesterday. So yeah, well I think he's done
a good job, I think. And that is Trump. Let's
let's face it. I mean, you know, we'll move by that.
But yeah, so Trump Trump.

Speaker 1 (22:29):
But Trump says he's not firing him, He's keeping Hi
until he's his term comes due next year.

Speaker 3 (22:32):
So I think so the market's kind of good with that.

Speaker 4 (22:35):
Yeah.

Speaker 3 (22:36):
What else?

Speaker 1 (22:36):
Oh, one other piece of economic data that came out
this week that it's a backburner unding, but it's moving
a bit to the front, and that has initial claims
runing plument benefits two hundred and fifty thousand, uh weekly.
I was kind of like the line in the sand,
two fifty to three hundred. Well, the initial claims came
in at two hundred and forty eight thousands, So the

(22:57):
labor markets hanging in there. But it's speaking in a
little bit, and I think you'll you'll hear more and
more of that come to the come to the to
the front burner.

Speaker 3 (23:07):
We'll see how the tariffs play out.

Speaker 2 (23:08):
Even you know, Trump tweeted about, you know, the farmers
and hospitality industries, you know, are really I'm pressing him
with finding work or so.

Speaker 4 (23:17):
I think, you know, yeah, I think that could be
inflation a little bit.

Speaker 2 (23:19):
I think we could see the you know, labor and
labor statistics you know, kind of take center stage in
the next coming months.

Speaker 3 (23:26):
That's a good point.

Speaker 1 (23:27):
Yeah, And I agree with that one hundred percent because
I think that, you know, especially because it could affect prices,
labor costs could go up.

Speaker 2 (23:34):
Employment puts a floor on the market in my opinion.
I'm in the consumer a little bit, but that can change.
You're think in a strong economy there is a floor,
but you know, that can always change.

Speaker 3 (23:45):
All Right. That'll just about do it.

Speaker 1 (23:47):
It's ten thirty on the station you depend upon for news,
weather and information, News toll K ten and one O
three one w g Y. Good morning, and welcome back
to the second half our of the Capitol District's Money
and Investment Program. You're listening to the Fage and financi
that's report. I'm Dennis Feigan sitting here with my son Aaron.
As we do every Sunday right right here in the
news Talk E ten and one oh three one WGY
from ten to eleven. As listeners to our show know,

(24:11):
during the first half hour we discussed the specifics of
the week in the stock market and the financial markets,
the economy, any politics that affected your investments, earnings and
the like. Second half hour broaden out. We've broaden out
the topics, and today we're going to talk about a
quantitative analysis of investor behavior from Dalbar and what dal

(24:32):
Bar is and I'm looking at the report right here,
leading independent expert for evaluating auditing and rating business practices,
customer performance, product quality and service. And this pertains specifically
to investor behavior and they've been doing this in nineteen
ninety four. Yeah, And this is a measure of an
investor's decisions to buy, sell, and switch into and out

(24:55):
of funds over the short and long term timeframes. And
what they found is is that investors tend to make
the wrong decisions at the wrong times and in many
cases more or less is more pays to stand still
rather than you know, realign your investment decisions all the time.
They take a look at thirty different categories compasses been

(25:18):
This was published in twenty and twenty, so it's for
the period ending December thirty first of twenty and nineteen.
So what are the things that they found during the
executive summer? If just moving right along to this, because
we have half of an hour. Since nineteen eighty four,
approximately seventy percent of average investor underperformance occurred during only

(25:42):
ten key periods in which investors withdrew their investments during
periods of market crises.

Speaker 2 (25:49):
Yeah, you know, I think we you can see that
just by calls that we get when the market goes down.
The more calls we get usually is the signal of
a bottom. The more calls we get of people you're
being like, hey, this investing what just wasn't for me?
Hey I want to raise cash and preserve my capital.

Speaker 3 (26:11):
You're going to reduce my K deposits?

Speaker 2 (26:13):
Yeah yeah, yeah, yeah, So you know, should we stop
dollar cost averaging? And you know when you get those calls, yeah,
it's almost like more of a signal that we're coming
to some sort of bottom in the market.

Speaker 3 (26:27):
True, And in this in this what we're about to
talk about encompasses that that fact.

Speaker 1 (26:32):
So ten key periods in which investors withdrew their investments
during periods of market crises. Of the ten most severe
cases of underperformance, a cases would have produced better returns
for the average investor one year later if they'd taken
no action and held onto their investments. I think we
can broaden that out. Dalbar kind of specifically looks at

(26:55):
cash flows and money flows from mutual funds. But if
you broaden that that one statement out in which eight
cases would have produced better returns for the average investor
one year later if they had taken no action and
held on to their investments, I think you can kind
of broaden that out to no action because we're talking
about mutual funds, and mutual funds have a perspective, they
have an objective. You're more talking about change in risk tolerance,

(27:19):
change in risk exposure. I think is what that says,
and in eight cases they would have done better. And
this is assuming that this is the case, and I'm
sure it is that the average investor would have done
better not changing their risk exposure. So if your asset
allocation model dictates two thirds in the market and one
third out or three quarters in the market in one

(27:41):
one quarter round, you would have done better staying within
that risk exposure and not you know, changed to no
to no money in the stock market in one case,
would have produced better results one year later if the
average investor had produced had purchased portfolio insurance, you know,
bought puts, sold calls whatever on them mark And in
one case would it produce better results one year late

(28:02):
if the average investor had withdrawn assets. So only ten
percent of the time would the average investor done better
when the ten most severe bear markets that I've I'll
look up bear if you want to comment on that
or no, Yeah, I mean I think self explanatory.

Speaker 4 (28:16):
Yeah, pretty self explanatory.

Speaker 3 (28:18):
You know that.

Speaker 2 (28:18):
It goes on to say, a buy and hold strategy
of one hundred thousand dollars earnings SMP returns would have
would have earned twenty five thousand, five hundred and fifteen
more than the average equity fund investor from twenty twenty
sixteen to twenty nineteen sixteen, about sixteen more from twenty
seventeen to twenty nineteen twelve, from twenty eighteen to twenty nineteen,
and five more than the average equity investor. In twenty nineteen,

(28:41):
the average equity investor earned a return of twenty six
point one four percent in twenty nineteen, five point three
five percent lower than the S and P return of
thirty one point four nine percent.

Speaker 1 (28:51):
And so what you have there, and I think if
we look at the next page, ed'll it'll it'll go
back through those years and it'll show on the next
page of that report, it'll go it'll show like the
trailing month that just talked about twenty nineteen. But if
you look at a three and a five year trail,
if you look at the average average equity investors returns

(29:12):
on a percentage basis for the twelve month period which
is which you just identified, the average investor, equity investor
did twenty six point one four percent. The SMP did
thirty one point four to nine percent. So you're talking
twenty percent more. And then if you if you could
do the like the three five, ten, do the earlier

(29:32):
ones for me if you can see them all my
glasses on, yeah.

Speaker 2 (29:35):
It yeah, So thirty year was five percent when the
s and P was nine point nine six percent average,
you know, the twenty was four point two five percent
when the SMP was six percent. Ten year was nine
point four three percent when the SMP was thirteen point
five six percent. Five year was seven point seven nine
percent when the SMP was eleven point seven percent. The
three year was eleven point five percent when the SMP

(29:58):
was fifteen percent. Those are also stantial differences, especially from
in a percentage basis, you.

Speaker 3 (30:04):
Know, right, I was just looking at that.

Speaker 1 (30:06):
So if you look at thirty year, if the average
investor did last thirty years, counted, yeah, fifty percent more, yeah, double,
The worst probably looks like maybe the trailing three years
excuse me, the best performance relative to the SMP. Trailing
three years, that would be count your seventeen, eighteen and
nineteen the average investor did eleven point five percent, the

(30:27):
s and P fifteen point twenty seven percent. So you're
talking three point seven seven percent more as a percentage
of eleven fifty you're here, you're talking, yeah, thirty three
percent more. I think that's that's so the average investor
underperformed by by a third every year and average, and
I think that's that's what the UH the report says,

(30:49):
and they attributed if you look at the hype of
the hypothetical outcomes in the next topic, one major reason
that investor returns our considerably lower than index returns. Has
been the fact that many investors withdraw other investments during
periods of market crises. Since nineteen eighty four, approximately seventy
percent of this underperformance occurred during only ten key periods.

(31:13):
All of these massive withdrawals took place after a severe
market decline. So again, looking at cash flows coming in
and out of the market for these ten key periods
and identify the ten key periods as September of eighty
six October of eighty seven.

Speaker 3 (31:29):
The market was down twenty percent in one day.

Speaker 1 (31:33):
March of nineteen eighty eight, there was I believe a
long term capital crisis that was ninety four.

Speaker 4 (31:42):
August of nineteen eighty eight, then probably Kuwait or November of.

Speaker 1 (31:46):
Eighty eight that was nineteen ninety or so February of
nineteen eighty nine, so three or four different crises. August
of ninety that was I Rock invade Kuwait, they have
September of one obviously nine to eleven two, and then
they have the great recession in eight and during all
during those ten crises, the investor basically seventy percent of

(32:14):
that other performance can be attributed to those ten periods,
and go ahead.

Speaker 2 (32:21):
Well, I mean, I think that's you know it, it
just gets me to thinking, you know, our job is
to invest people's money, but it's also to kind of
protect them from theirselves as well, and during times like these,
you know, I think what you kind of have to
do is people talk people off the ledge sometimes in
terms of.

Speaker 4 (32:39):
You know, putting out data like this to them so
they know that this time is no different.

Speaker 2 (32:44):
You know, you always say the world's only going to
end once, and I think that's the same for the
for the stock market. The all time highs are always
have always been followed by all time highs. So I
think that's kind of what I'm what I'm getting out
of this. And also, you know, I think what a
good strategy that we try to do too is raise
cash when people are nervous, not jump all in and

(33:07):
out of in and out of the market. But you know,
if someone has a sixty to forty portfolio and they're
nervous about the market, you're like, oh right, raise five
percent cash, do something, you know, to ease your mind
a little bit.

Speaker 4 (33:17):
But you know, jumping in out of the market obviously
doesn't work.

Speaker 1 (33:21):
But that's what we were talking a lot a little
bit earlier is do something. But as this study shows,
stay within your asset allocation range. You know, investors feel
like they should do something, although they probably although this
report says do nothing. If you look at those ten experiences,
ten crises over the past thirty five years or so,

(33:42):
seven or eight out of the ten, they would have
been better taking no action. Yeah, So that's the bottom line.
And when I say no action, when we say no action, Aaron,
I say no action, it means stay within your asset
allocation model. Where you really go off the rails is
when I hate Joe Biden. I think people here President.

Speaker 2 (34:01):
Trumpill get caught up in the fear mongering of the media,
and people are more in touch with you know, the
the economy, politics, the stock market. They're all more intertwined
now than ever, just because everyone's watching the news and
you know CNBC, and I think it. I think a
lot of it happened during twenty twenty in COVID. I

(34:23):
think every everyone was kind of sitting at home. Everyone
kind of became like a the armchair expert on the
economy in the stock market, and you know, I think
people are almost too involved in their portfolios now, even
the ease of Schwab Alliance on your cell phone, on Fidelity, Robinhood.
They're all apps now that you know you can check
in real time data which what your account is doing.

Speaker 3 (34:42):
What's it costs you the trade?

Speaker 2 (34:43):
Yeah, and it's free to trade, you know, And so
I think we see that now. You know, how many
client initiation like client initiated trades do we see now
as opposed to five ten years ago? Right like, because
we can see when you know, clients trade their own account.
And it's amazing how much more you see now then
you know five ten years ago.

Speaker 3 (35:02):
The lowering the bar to entry.

Speaker 1 (35:07):
Has not lowered the bar to knowledge and experience when
you're managing your portfolio. So the bar is so low
to entry in the bar, what is the bar for
entry into your portfolio? User name, pass code, computer? And
there's a zero percent trading cost at the real cost
comes with some of these results we've seen from dal
Bar where the average equity investors done performing anywhere from

(35:29):
thirty to fifty percent on the average per year over
the past thirty years compared to what the stock market does.
That's what you want to avoid, and the average investor
doesn't realize they can attribute that to behavioral issues they
in that. You know that on that same page that
we were just looking at. It says the investor experiences

(35:51):
during and after these key piers reveal the motivation for
underperforming withdrawals. One is, forecasts of market rises have coexisted
with conflicting forecasts of doom. All right, since the origin
of investment markets. History explains that coexistence of the contradictory opinions.
And since nineteen sixty four, positive markets occurred in fifty
four percent of cases and negative forty six. So where

(36:13):
there's a where there's a forecast of doom, the positive
markets occurred more and more so than negative ad to
that doom. The second thing is investors therefore always have
Investors always have an expert opinion to support what do
they call it confirmation bias. Yeah, come from an expert's
opinion to support the action that they take. These opinions

(36:33):
serve to maintain the investors awareness of unpredictability, thus increasing
the vulnerability to market changes. And finally, and I think
you talk about this all the time air, the result
is that market changes initiate a call to action, which
often translates into withdrawal. And I think you see that
on Bloomberg on CNBC all the time, which is that

(36:53):
call to action.

Speaker 3 (36:54):
The market goes down.

Speaker 1 (36:55):
So CNBC has some mostly negative people in there, and
people feel like they've got to do something, and what
happens is they usually shoot themselves in the foot. You know,
we had mentioned that investors that take no action seven
out of the ten times are better off investors that
withdrew their assets you know, once and this is after

(37:19):
after one year eight times taking no action was better
withdrawing assets one time, purchasing portfolio insurance only one time.
So the best thing to do really is to take
little or no action with your portfolio during times of stress.

Speaker 2 (37:31):
And we always talk about, you know, the like the
loss of version bias of you know, a a loss hurts,
you know, I guess investors, not I guess, but the
loss of it. It basically says that a loss hurts
two times more psychologically than a gain of the of
the same magnitude. So I think people kind of harp

(37:55):
on that fact. And you know this one article says
the loss of version tendency breaks one of the cardinal
rules of economics, the measurement of opportunity cost to be
a successful investor over time, ess be able to properly
measure opportunity cost and not be anchored to pass investment
investment decisions due to the due to the inbuilt human
tendency to avoid losses.

Speaker 4 (38:15):
And I think that's kind of what we always.

Speaker 2 (38:17):
See and as we see, hey, I've lost fifty thousand dollars,
you know, because people always want to judge their account from.

Speaker 4 (38:24):
The top right, you know.

Speaker 1 (38:26):
Uh in a in that doal Bar report, they they
talk about that exact bias area, Aaron, And there's a
specific thought process that are common to.

Speaker 3 (38:39):
The human condition.

Speaker 1 (38:41):
And you just refer to what dal Bar would refer
to that as like a mental accounting taking and that
is to take undue risk in one one area and
avoiding rational risk in another. You know, I would call
I would call something like that like a mental accounting
where you're your value in your portfolio against better times, yeah,

(39:03):
you know, rather than against a specific time frame that
is that is a rolling time frame.

Speaker 2 (39:09):
And I think also people people I people forget pretty
quickly in terms of two thousand and nine was a
long long time ago. So even people that are forty
who have experienced, you know, from their late twenties where
they started to get some more earning power, so they
started to you know, a mass of money in their
four to one case. Are used to you know, fourteen

(39:30):
fifteen percent returns in their portfolio and not used to
the market being down. And I think that's hard for
people as well, because it's the longer that happens, the
longer they expect that to happen. So when they see
the market down ten percent, they're like, what's going on here?
You know, I'm not used to this. And I think
people you know that hadn't hadn't experienced two thousand and

(39:50):
nine kind of.

Speaker 4 (39:53):
It's a little shocking to.

Speaker 2 (39:54):
Them when they're when the when the uh? When I
guess their portfolio doesn't go up consist instantly. As you
get we get calls from younger clients saying, hey, should
I stop dollar cost averaging into the market when you
know you should really be it's a better time to
dollar cost average into the market.

Speaker 1 (40:10):
I mean, investing is probably one of the few areas
where if something goes down in price, you think it's
a worse and worst buy. Yeah, you know, if Brett
is half priced, the two for one, at the price
chopper or you know, car prices go down and you
know they sales pick up, but in investing, when prices
go down, people run for the exits. And that's again

(40:32):
what this is showing. So one of those issues of
investor psychology was was a mental accounting. I think one
of the ones there and I don't know if you
want to touch on one if you're looking through it
as well, but one of the ones would be the
media response, the tendency to react to news without reasonable
examination a of the news via the depth of the

(40:52):
report and see the impact of the market. And I
think we see that with with well, just this year
interest rates going higher. You know, Russia invades the Ukraine.
We immediately think, okay, this is going to be negative
for the market, without looking without without looking at his
historical reference points that that other wars can address, or

(41:14):
other other interest rate cycles can address. And they like
anything in there also that you'd like to touch on,
there's about eight.

Speaker 2 (41:21):
Or nine, man, we kind of touched on them, uh
without knowing that knowing this can media response, tendency to
react to news without reasonable examination, you know, I think
where everyone's tuned into Fox News or CNN or or CNBC,
and you know everyone's trying to it's all breaking news
the market. These channels don't really care if the market's

(41:43):
going up or down. They just want they just don't
want it to remain stagnant.

Speaker 1 (41:46):
Well, and they don't want you to change the channel.
So are these really news programs? Are the advocacy networks?
And that's that's what you look at. You look at
either CNBC not CNBC as much because it's more of
a you know, it's still it's still a it's it
is some sort of an advocacy that because they have
you know, I consider that more news in Bloomberg. But
you look at it, you know, a Fox or MSNBC,
and they're more advocacy networks than they are news. Despite

(42:09):
what you on the left or right might think, narrow framing,
making decisions without considering all implications and or you know,
I liken that also to not being able to consider
all all implications. Yes, you as you going to see
your doctor, you have you have the let's say the

(42:30):
doctor recommends surgery. You can either opt in or opt out.
That's your decision. But you're taking that that professionals, educated
person's experienced person's advice when when when coming up with
your decision? I think when when people make decisions to
get out of the market, And I often say this,

(42:51):
when the market goes down, we lose all our credibility,
you know, unjustifiably so. But that narrow framing, people are
making decisions without considering all implications, thinking and without really
being able to consider all implications because they don't have
a lot of people don't have the knowledge or the
expertise or the experience that considered all the implications. But
one of the implications about getting out of the market,

(43:12):
if you look at these past thirty years of research
by dial Bar, is that you really jeopardize your financial
future by making rash wholesale changes. And when is wholesale
changes ever really worked for your benefit?

Speaker 4 (43:28):
I agree?

Speaker 1 (43:28):
You know what else we see in there or anything
we pick out, not particularly in this page, let me
see them?

Speaker 3 (43:36):
Well, move on, then what do you want to move
on to?

Speaker 4 (43:39):
Sellers verse holders?

Speaker 2 (43:40):
The average equity investors behavior changed in twenty sixteen in
terms of net contribution with draws from their equity portfolio.
It began with fears over election results Trump Trump getting
like that and continued straight through the end of twenty nineteen.
The filing grass compared hypothetical one hundred thousand dollars investment
that has brought, bought and held to a hypothetical one
hundred thousand dollars investment by an average equity fund investor.

(44:04):
This graph will compare the money earned from starting points
at the beginning of each year twenty sixteen to twenty nineteen.

Speaker 1 (44:11):
So from twenty if you held through President Trump's administration
and we had a few people who got out, remember, yeah,
they had fear.

Speaker 4 (44:17):
That even Biden's you know, even from Biden's administration too.
And look at that.

Speaker 2 (44:22):
I mean, the leading market's doing pretty well. He's doing
pretty well, you know, since then. So you know, I
think that's you know, you got to you have to.
And I think that's one of the other tendencies too,
you know, circling back to you know, previous pages. But yeah,
narrow framing, basically molding decisions without considering all implications.

Speaker 4 (44:47):
And I think that's what kind of happened. That's what
happens too with people is you.

Speaker 2 (44:50):
Know, they they see one you know, okay, Trump was elected,
this is going to happen Biden was elected, this.

Speaker 4 (44:56):
Is going to happen. In reality, historically, it doesn't really
matter who who's the president.

Speaker 1 (45:01):
True, and and it's arrogant to think that you know
what's gonna happen given a set of circumstances.

Speaker 3 (45:06):
I liken that.

Speaker 1 (45:07):
I think it's the Wall, which is a game show
where you put the member that was at the at
the at the boardwalks till you put the ball on
the top and you got to kind of bet as
to where it comes down. Well, it's the same thing
you put let's let's put the piece of information in
the Trump at the top. President Trump's elected, and then
the the investors are saying, okay, then it's going to

(45:28):
be bad. This is where the ball is gonna come
out as it hits those dividers all the way down,
or President Biden's elected.

Speaker 3 (45:33):
There's the there's the input. The output is totally non unknowing.

Speaker 1 (45:41):
It's not you're not capable of knowing that what happens,
what's happened just just since President Biden was elected. And
I'm going to omit some things because I'm going off
the top of my head, but you're certainly in they're
not in any order. You've had rushing in the Ukraine.
You've had the COVID response to uh China's response to COVID.
You've had additional bouts with cod IT. You've had inflation

(46:03):
be more secular than transitory, more secular than the Fed
thought than transitory at interest rates go up. You've had
the market do okay. So you've had a lot of
these these additional areas of input that is affecting the
market that you couldn't have calculated or foreseen at the top.
And that's why from twenty sixteen to twenty nineteen, based
on cash flows, the average investor lost twenty five five

(46:27):
hundred dollars or twenty five percent of growth relative to
the market.

Speaker 3 (46:30):
You know, if you started with.

Speaker 1 (46:32):
The hundre gand you would ad one hundred and seventy
one if you just bought an hold, one hundred and
forty six if you didn't, and right across the board
twenty seventeen to nineteen eighteen to nineteen, or just twenty nineteen,
the investor, the average investor loses relative to the market.
And that's the way that goes so so over time,
this dalbar As determined that does get right ret ratio

(46:56):
that is buying to selling and trying to guess where
the market's going to go. They've guessed right half the time,
but the average investor has lost because of the dollar
volume of the of the transaction, meaning that when you
guess right, you're adding a little bit incrementally. When you're
guessing wrong, the average investor is taking making wholesale changes

(47:18):
yep as to where the markets are going.

Speaker 3 (47:20):
And those are some of the big things.

Speaker 1 (47:21):
So the average investor, according to dow Bars, fails to
stay invested for a long enough period of time to
realize the long term benefits of owning that asset class.
I think that's that's you know, some of the bigger
issues that are affecting and as I think it's part
of the human condition there I would say too.

Speaker 2 (47:41):
So anyways, the survival instinct really, I think for people,
that's a great way to put it.

Speaker 4 (47:45):
I think you always want.

Speaker 2 (47:46):
To and I think people get comfortable, you know, as
you always say, people get comfortable with the number that
they need in retirement. You know, lop twenty percent off
that and that's you know, or yeah, lop twenty percent
off that because you know, the market goes has an
average droughtout about fourteen percent per year. So these are
things you just kind of have to remember and continue
to tell yourself as an investor that, hey, this time

(48:08):
is no different. You know, if you get nervous, sell
five percent of your portfolio. You know, making wholesale changes
never works and nor does it really in life really.

Speaker 3 (48:16):
And and then we'll go quick because we got to
wrap up.

Speaker 1 (48:18):
And the other thing is if if you if there's
a bear market every four years, you're going to live
for twenty years you've been making wholesale changes.

Speaker 3 (48:24):
Five more times and then live to regret it.

Speaker 1 (48:26):
Give us a call during the week five one, eight, two, seven, nine, seven, three,
six oh two six, check us out on the webfigan
asset dot com or let us on Facebook.

Speaker 3 (48:36):
Take care, Take care,