I have been invest­ing for 38 years. While many cycles have been less fun than oth­ers, the mar­kets of recent mem­o­ry rank as my least favorite. Infor­ma­tion trav­els at the speed of light and pub­lic mar­kets respond to news just that quick­ly. What the mar­ket sees as pos­i­tive one day can send the mar­ket into a down­ward spi­ral the next; bold moves by the Fed­er­al Reserve being a recent exam­ple.  Pre­dictabil­i­ty is dif­fi­cult, if not impos­si­ble, to find.

When I was young ABC, NBC and CBS were the ONLY 3 chan­nels on tele­vi­sion. Bewitched was one of my favorite shows. What was not to like? When­ev­er Saman­tha got into a bind, she would work her witch mag­ic by twin­kling her nose. In sec­onds all would be well. If only the solu­tion to our prob­lems were so eas­i­ly reached in 2011.

Unfor­tu­nate­ly, we can­not twin­kle our noses and make it bet­ter. The pub­lic mar­kets reflect the opti­mism or pes­simism of the col­lec­tive mar­ket place. Each day buy­ers and sell­ers appear.  If there are more sell­ers than buy­ers, prices fall. For­get all the com­pli­cat­ed expla­na­tions of how mar­kets work; it real­ly is that sim­ple.

In the last few weeks pes­simism has reigned as the focus is on the Euro, a one­time chal­lenger to the US dol­lar as the cur­ren­cy of choice, and prob­lems with mem­ber nations and exces­sive debt. This pes­simism is specif­i­cal­ly clus­tered around Greece, fol­lowed by Italy, Por­tu­gal and Spain. Add to that the con­stant media atten­tion to a pos­si­ble dou­ble dip reces­sion, the inabil­i­ty of our gov­ern­ment to take pos­i­tive col­lec­tive action and you get a large dose of pes­simism with a side of falling equi­ty mar­kets.

The real­i­ty we can­not escape is equi­ty mar­kets reward us for tak­ing risk over the LONG term. In the short term they can be extreme­ly volatile. As infor­ma­tion flows faster, volatil­i­ty has increased. 

If you are a client of Mack­ey Advi­sors, it is like­ly you have a gone through The Pros­per­i­ty Expe­ri­ence, our finan­cial and invest­ment plan­ning process. In that process, we look care­ful­ly at the com­po­si­tion of your port­fo­lio, stocks, bonds, com­modi­ties, real estate, US and for­eign hold­ings. We also look care­ful­ly at your cash flow needs and require­ments over the next 3 to 5 years.  As part of your plan, we look to see that your cash and short-term bond hold­ings were equal to 3 to 5 years of spend­ing. 

Equi­ty mar­kets tend to cor­rect for exces­sive pes­simism or over opti­mism (remem­ber the late 1990’s? it seems like for­ev­er ago, but one day we’ll be opti­mistic again) every 3 to 5 years.  For that rea­son, log­ic tells us to hold cash and things that have low volatil­i­ty equal to 3 to 5 years of cash flow needs. This way we can sit out the volatil­i­ty and wait for the mar­kets to restore to a lev­el of nor­mal price/ earn­ings rela­tion­ship.

Since none of us can twin­kle our nose and impact the pub­lic mar­kets, what can we do? 

  1. Review and update your finan­cial plan. Good deci­sions are made with data and a clear plan.  Reac­tive, impul­sive deci­sions rarely get you where want to be. At Mack­ey Advi­sors,  you can update your plan at any­time, just call or email us for an appoint­ment. There is no addi­tion­al charge, ever, to update your plan, as often as need­ed. We are here to serve you. Come into the office or have a remote update ses­sion. We want to hear from you.
  2. Think pos­i­tive thoughts. Act pos­i­tive­ly about the econ­o­my. Make plans in your busi­ness for growth and expan­sion. You either con­tribute to the neg­a­tiv­i­ty by plac­ing your atten­tion on the fear the media and oth­ers put out dai­ly, or you can stay cen­tered and ground­ed in the present and hold a pos­i­tive focus. The choice is always yours, in every moment. Neg­a­tiv­i­ty is con­ta­gious, as is pos­i­tiv­i­ty. Col­lec­tive­ly, we have just got­ten rusty in our pos­i­tiv­i­ty. Start a move­ment. It only takes one to begin.
  3. Review your cash flow. What is com­ing in and what is going out? Com­pare your 3 to 5 year cash needs with your bond and cash por­tions of your port­fo­lio. This is what cre­ates your short-term pay­check. If you see the need, pull back on your dis­cre­tionary spend­ing in the short term.
  4. Look for pos­i­tive news. Stud­ies of human behav­ior tell us we see what we are look­ing for. Every day I meet with entre­pre­neurs who are expand­ing their busi­ness­es and tell me about price increas­es for com­modi­ties, grow­ing their sales, or work­force. I read news reports about pub­lic trad­ed com­pa­nies meet­ing or beat­ing earn­ings reports. In the long term, if com­pa­nies are mak­ing mon­ey mar­ket prices will fol­low. Find the good and put your atten­tion there.
  5. Stay the course with your invest­ment plan. Stick with your dis­ci­pline. If your plan calls for 60/40  stock/bond allo­ca­tion, stay with that allo­ca­tion. Mar­ket tim­ing only works in hind­sight. You nev­er know when yesterday’s bad news will slow and tomorrow’s tiny bit of pos­i­tive will send the mar­kets upward. Stay invest­ed and keep your allo­ca­tion. Dis­ci­pline always trumps emo­tion­al reac­tiv­i­ty. 

If none of this helps, call us at 859–331-7755, ext 2 or email me at Mackey@MackeyAdvisors.com   As your Wealth Advo­cate, we are com­mit­ted to empow­er­ing con­fi­dent action. 

March 2011, Finan­cial Plan­ning Mag­a­zine, by Tem­ma Ehren­feld