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Q1 2019 Perspective: John Wayne Investing

January 14, 2019

Before we jump into a new year with our Perspective series quarterly letter we’d like to hit pause for a moment and do three things:

First, we’d like to say thank you to our long time readers, especially those who take the time to respond with thoughts and questions about the various topics we cover. 

Second, we’d like to welcome our new readers and re-cap what this series is all about: this is our effort to bring you perspective enhancing commentary, often from third party experts, that we think will benefit you, your family, and your network.

Third, we’d like to make sure you’ve been introduced to our new brand: Open Advisors. We are the same team, operating with a new logo and now better built to grow with you. It is our job to put Your Future In Motion. Now.

Now on with the letter...

Who is cooler in the heat of the moment, steadier on a wild ride through a whirlwind of dust and bullets, more determined to face whatever comes next AND knows what ought to be done in every situation better than John Wayne?


John Wayne has the core characteristics of the ultimate investor. If he were to reflect on 2018 as a financial observer he might western drawl us a line like, “Well, that was an interesting year.” You did your best John Wayne impression there, right?!

2018 was interesting because there were a number of twists and turns, developing economic plot lines and character positioning on the global stage. In the narrative of our history 2018 might well be told as a set-up chapter, one that prepares us for a climactic convergence of story lines in the future where competing interests collide. 

If we fit a market cycle to the framework of classic western films, 2018 definitely was not a last stand shootout, it wasn’t the high speed horse chase either, those scenes are still to come. I don’t think we even got to the point where the hero says, “Saddle up partner, looks like trouble comin’ our way.” It was more like the year ended with suspicious horse prints in the mud. 


Those suspicious prints could be things like trade tariffs, costly political mistakes, rising interest rates and quantitative tightening by the Federal Reserve. If so, these could spell trouble in 2019. Then again those hoof-prints could turn out to be from old friends who ride onto the scene and dominate the story in 2019. Here we’re talking about strong US economic fundamentals including jobs, consumer confidence, corporate profits and stable inflation.

What actually unfolds in 2019 is out of our control.  For now, let’s focus on the main thing in our control: preparation. 

As a John Wayne investor, what provisions need to be in your saddle bag to help ensure you make it all the way home? 

Your main provisions should be a big can of disciplined diversification, a box of historical perspective, a sack full of sound advice and a bottle of determination. And there just happens to be a general store in town that stocks such key provisions:


If you have any questions or concerns about your investments or your financial future in general, just reply to this email and we’ll arrange a time to talk. We do free second opinions. Our job is to help you make informed decisions and that’s tough to do if you don’t really understand what you have or why you have it.


For more on how to channel your inner John Wayne investor, here are some relevant thoughts from Lincoln’s Chief Investment Strategist, Tim Johnson: 

2018 has been an eventful year for financial markets. While the domestic economy remains strong, macro events dominated headlines.  Uncertainty relating to trade with China, rising interest rates, and most recently, a partial shutdown of the Government has been among a litany of concerns. Throughout the year, these have caused heightened volatility with sharp moves and sudden reversals.

We take our commitment to you very seriously. We know that the capital your family has accumulated has come from great effort and often significant sacrifice. Given recent market movements, we want to share our thoughts and principles on market volatility.


Maintain Perspective

We believe that investment in stocks is an investment in businesses that make up the overall economy. Recent Labor Department figures reported that unemployment is at a 49-year low. On the earnings front, during the most-recent quarter, 77% of S&P 500 companies reported earnings above consensus estimates1. While the torrid pace of earnings growth must slow in the future, there are few current signs of a major reversal in earnings or economic growth.

Political and macroeconomic events must also be put into perspective. One of the reasons given for the declines has been the possibility of a government shut-down over political budget wrangling. That possibility became a reality in the past few days. It is important to note that these closures are not full shutdowns. During the closure, essential government services continue. Neither are the shutdowns uncommon. Since 1980, the government has experienced a shutdown 15 times, including three this year alone.

During large market movements, the media tends to publish extreme and sometimes questionable information. In the past few days, headlines have declared, “Large Cap Worst Week Since 2008”and “Worst Christmas Eve Trading Day in History.” We don’t measure success by single days or single weeks. We have more-important things to attend to like helping people live comfortably through retirement and leave a lasting legacy. We measure success in decades not days. Including the recent unsettling fall, as of December 26, 2018 the S&P 500 is down roughly 6% for the calendar year2; certainly disappointing, but hardly the worst of all time.


Knowledge of Market History

While we are forward-looking in our approach to planning, it can be helpful to examine market cycles of the past. Over the past decades, a correction, which is defined as a decline of 10% or more from recent highs, has occurred roughly once a year. A bear market, which is a decline of 20% or more, comes on average about every six years. History has shown that bear markets are not permanent. The time it has taken equity markets to recover from the low and reach new highs has been, on average, 22 months.

History also shows that attempting to time the market by making allocation changes based on recent market direction can be very difficult. An examination of the 20 best market days and the 20 worst market days since 1979 shows why. Rather than being normally distributed over the years, the best and worst days tend to occur very close together. This shows that large moves can be followed by quick and dramatic moves in the other direction3.    

While investors are rightfully unsettled by the recent declines, part of that sensitivity may come from the uncommon absence of volatility in recent years. In 2017, a year of great returns for both domestic and international markets, the S&P 500 did not experience even one down month. So, it is possible that we are not entering a new, volatile world, but merely returning to a more normal world.


The Power of Allocation and Advice

While the recent market declines are not unprecedented or even uncommon, we still take them seriously and are monitoring developments closely.

It has been said that, “Sound principles can get one through almost anything.” We agree. Our process involves more than picking some investments and waiting to see what happens. You deserve better than that. We spend our time getting to know you and your goals. Portfolios are built and stress-tested using programs that measure success rates in various market environments. So, as unpleasant as down markets are, know that our process anticipates such declines and allocates accordingly. Put simply, we measure risk in advance of volatility, not in reaction to it. 

The past few weeks have been disconcerting to even the most disciplined investors. It is difficult to see hard earned capital decline in value. We have seen market volatility many times before. This is when solid planning and communication are most important.

If you have any questions, concerns or just want to talk, we are here.


Source of data – Morningstar Direct, Federal Reserve Bank of St. Louis, Standard & Poors, Vanguard Group, Fidelity Investments, Capital Group, CNBC, & Goldman Sachs. The performance of an unmanaged index is not indicative of the performance of any particular investment. It is not possible to invest directly in any index. Past performance is no guarantee of future results. This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results.

1 From Standard & Poors – S&P 500 Index Earnings Report as of 12/20/2018.

2 From Morningstar Direct as of 12/26/2018.

3 From various sources including Morningstar Direct, JPMorgan Asset Management, Index Fund Advisors (ifa), and others.