Dear Investors Letter: Upbeat Mindset needed
By Eliseo "Jojo" Prisno, CRPC, MS
Chartered Retirement Planning Counselor
"The past several weeks, the market has been challenged with near correction volatility. I'm sure most investors are having jitters thus I'm sharing my "Dear Investors" letter to all my Money Matters readers. Hoping this will ease your anxieties."
The S&P 500 today (Thursday, Oct. 9, 2014) posted its largest decline in 6 months and dragging below its 150 moving average for the first time since November 2012. I already saw this coming thus the reason why we had a full revamped of our Fund of Funds Portfolio with Ameritas last October 1, 2014 to brace for a solid recovery once we touch the support level of 1,925. Today's close at 1,928 is already tip-toeing that support level. Though the other day's bullish charge of 33 points didn't catch momentum today, this simply is reminiscent of the "October" phenomenon. It is a known fact that every month of October since 1970, 1/3 of the trading days have more than 1% movement in the market. Of the last 7 days, 5 were more than 1% movements both ways. From October 1's almost flat or zero movement to October 2, then +21 the next day October 3, -3 last Monday, -29 Tuesday, up by +33 Wednesday then down again by -40 points today, it's like riding the "Beast", the fabled roller coaster in Cincinnati, Ohio.
So what's behind this bearishness given the bull's resilience since 2012 until last summer? It's really quite difficult to pinpoint given that the US' economic fundamentals are getting much better since then. The very recent reports from blue chip companies like ALCOA, PEPSI, JETBLU to name a few are beating analyst's expectations, indicating solid growth. The FED is firm in pulling out the QE monies (another indication that our economy can normally function without any pump-priming), the job market is getting healthy as reflected from last week's monthly numbers, so why the drag? Here's what most analyst are saying:
1. Because it's October (as we've seen it since 1970).
2. Europe and Japan are now officially in recession. Their economic slowdown is dragging most commodities down i.e. oil.
3. Economic slowdown in China.
4. Geo-political concerns in the Middle East.
5. The current Ebola scare.
6. The US Dollar getting much stronger curtailing the growth of most multi-nationals like P&G, JNJ, Coke, Nike, IBM, etc. (and all other companies that translates at least 50% of their bottom line from global operations, a stronger dollar means lower translation from other currencies).
7. The mid-term election this November.
8. The potential rise in interest rates as mandated by the FED.
All these seem to be a good reason to rationalize the current market correction, human nature I would say. If you really look deeper into these reasons, it seems like counter intuitive of the US' positive economic landscape. We should be doing better than the rest of the investment areas (with the exception of some emerging markets like South East Asia, yes my dear investors, from back home the Philippines including Indonesia, Vietnam, Thailand and Malaysia; this region is doing very well) but why are we catching cold with their sneezes? The obvious reason is the global market has been interwoven with market interdependence since the past decade. When we had the 2008 downturn we dragged the global economy down with it. Now it seems a tit-for tat.
What do we do now? If you look at the above stated reasons, they all seem external except the last two. The first one is simply out of habit. The five external reasons are hitting our investors psychology (simply put, those that rode the bull run last year and the modest gain early this year are finding reasons to unload or to take profits and the late comers are having second thoughts to join in; remember the stock market is a mere supply and demand, if everybody is unloading and only a few are buying, the market gets flooded with supply thus prices goes down; in the same token if everybody gets bullish and wanting to invest; more demand is created thus prices or valuations goes up) however once this sinks in, a decoupling perspective will prevail. Why will the US decouple from the rest of the world? The obvious answer is simple, we are still the biggest economy in the world and the global monies will have to flow somewhere. If investors are pulling out from the non-growth or slow growth areas they have to find a bastion for stability and by default they have to come to us. The remaining growth areas like South East Asia can only take in as much investment, given our size, most will here. These placements (which is already realized in the bond market; the FED's pull out from monthly bond buying were simply replaced by foreign inflows) will decouple our economy from the rest of the world and will re-energize the "bullishness" of the market. For my E*Trade all equity clients; we have built up our recovery positions with Apple (AAPL), Tesla Motors (TSLA) and Netflix (NFLX). The current weight of this triumvirate is about 18% of the overall portfolio. Today; these 3 were resilient and braced the down turn by being contrarian.
I believe the S&P 500 is still undervalued with the current P/E of 17. Back in early 2008 when we reached the previous historical highs before the "great recession", the P/E went as high as 21.5 (note the highest ever achieved was in 2003 with 31), to get it back to this number; the valuation of the index should be at least 2,450. I say this bullishness will last for at least another 3-4 years.
Always bear in mind that equity investing is an act of faith and an upbeat mindset will surely help.•
About the Writer: Eliseo Jojo Prisno is a Chartered Retirement Planning Counselor and for over a decade has managed the wealth of select families and business owners. He founded P/E Capital Investments in 2009 and is the current Managing Director and Senior Investment Advisor of the firm. Mr. Prisno also manages a Fund of Funds Portfolio with Ameritas and runs an All Equity Growth and Income Portfolio in Separate Accounts via E-Trade Financial. If you have questions or desire a complimentary analysis of your retirement readiness, email j.prisno@PEcapitalinvestments.com or call toll free to
1-888-929-2825 or visit our page on facebook or our website: www.PEcapitalinvestments.com.