Broker Check


Never a Dull Moment!

| September 01, 2015

Its been a volatile few weeks in the financial markets with sharp declines.  These sudden sharp moves are disturbing and I wanted to let you know all of us at Vision Wealth Mangement Inc. are keeping a close eye on events.  More importantly I want to give you an idea of what we are watching and how we decide to act on that information.  First are we in a Bear Market?  And what exactly is a Bear Market?

Entry into a bear market is defined as “A downturn of 20% or more in multiple broad market indexes, such as the Dow Jones Industrial Average (DJIA) or Standard & Poors 500 Index, (S&P 500) over at least a two month period” according to Investopedia.  Using that definition and data provided by Google Finance, the DJIA and the S& P 500 are not yet in “Bear Territory”(as of Aug 20,2015).  Other segments of the markets such as small and mid-capitalization companies have deteriorated into Bear Territory according to Deemer Technical Analysis.

What causes a Bear Market?

No one knows exactly, though many financial experts make note of the 4-Year Cycle.  There are actually two widely followed four-year cycles in the financial markets.  One is the presidential cycle and the other is the Kitchin Cycle based work done in 1923 by Harvard’s Joseph Kitchin; both cycles often track very close together.  The Kitchin Cycle simply states that the stock market makes a major low every four years or so. Ultimately, long term market prices are driven by earnings of underlying companies.  In a Bear Market fear overshadows company fundamentals.  In a Bear Market many investors tend to forget about things like earnings, dividends and company profitability by throwing in the towel and selling.  Selling isn’t necessarily a bad thing, in fact it is often a good thing, it just needs to be done via a method or discipline not based on a knee jerk/ fear reaction.  I was recently talking to an individual who had a bad investment experience in the famous Bear Market of 1987.  They invested in the summer of 1987.  The Dow Jones Industrial Average, according to The Motley Fool, was approximately 2700.  A few months later the infamous Black Monday crash occurred and the DJIA shot down to 1738, in a violent but short Bear Market.  It was a decline of 26% .  Ouch!  The individual saw their investment decline and sold near the bottom.  Five years later the Dow Jones Industrial Average was at approx. 3100 and 6400 ten years later.

I remember Black Monday well,  as it was the first major market correction or Bear Market in my investment career.  Since then I have witnessed many minor corrections and 2 more Major declines;  the Dot-Com crash of 2000-2002 and the Housing and Financial Crisis in 2007-2009.  Here is what I have learned:  1. They are not fun.  2. They don’t last forever and they do pass.  3. Have a plan for every investment in the event a market decline occurs. 

We follow a  3 step plan.

1.       Investment Mix. We keep a certain percentage of your investments in equity type investments and a certain percentage in fixed income type of investments, which is based on your investment objective such as growth with income, which would have a mix of approx. 60% equity investments and 40% fixed income.  We rebalance to this mix at least yearly.  This works well because if something has gone up in value and is above the normal percentage we will sell and reallocate it to something that is lower in value which over time becomes a systematic way to sell high and buy low. 

2.       Different investments play different roles.  Some of our investments may be what we consider “Long Term Residents” which we plan to keep around for a long time.  They are investments in companies with consistent long term earnings, dividends and management.  Others investments are  the “Month to Month Residents ” which are diversified investments  in sectors of the US and Global economy based on price and relative strength to other investments.  Our focus with these investments is to be in the strongest segments of the economy and world, based on price and relative strength.   We utilize a buy and sell method with our “ Month to Month Residents” that seeks to secure gains in advancing markets and protect capital in sideways to negative markets.  We may choose to protect capital by investing in short term cash alternative as a “Month to Month Resident”.

3.       We monitor all investments for changes on an at least weekly basis which includes fundamental analysis of the company’s management, earnings, revenues and future growth potential.  In addition we analyze the price movements of the investments over various time frames to determine cycles and patterns.  In addition we utilize several research sources, including LPL Financial Research to provide information on the health of the overall economy in the US and Worldwide. 


  Here are some current comments from LPL Financial’ s Chief Investment Officer, Burt White about the current combination of worries that has led to the latest episode of market turbulence


China slowdown fears: As the world’s second largest economy, the market has become concerned with the steadily slowing economic conditions in China. Due to China’s currency being pegged to the strong U.S. dollar, the Chinese yuan appreciated and created a strong headwind for China’s export-oriented economy. These slowing economic conditions have created concern that China will not be able to continue to achieve strong levels of economic output. However, unlike Europe and Japan, which have already aggressively been embarking on accommodative policies to spur economic growth, China has just begun to utilize its significant capacity to unveil monetary and fiscal policies as an economy-boosting growth driver.


Lower oil prices: The market is concerned that lower oil prices signal the return of deflation. However,

cheaper energy costs are a benefit to consumers who enjoy cheaper prices at the pumps, and businesses find manufacturing costs lower given more modest energy input costs. Thus, the decline in oil prices, largely on the back of increased supply given the energy renaissance unfolding in the United States, is a bigger economic and earnings benefit than drag.


Earnings slowdown: Oil price declines weigh heavily on the earnings of energy companies, which have

dragged down profit growth to a near standstill. However, the underlying strength of corporate America is masked behind the likely transitory headwinds caused by the energy industry. In fact, excluding the energy sector, S&P 500 company earnings grew at a strong 9% year-over-year in the second quarter of 2015, and we believe the overall earnings picture will only improve over the remainder of 2015.


A first interest rate hike: The possibility of a Federal Reserve (Fed) interest rate increase in September,

even if low, has added to investors’ concerns. The Fed is unlikely to be hasty and the release of its July

meeting minutes suggested some apprehension over a potential September rate hike. We believe the Fed will take note of global events and hold off from raising interest rates until later this year or early next.”


He sums it up with:


“All economic indicators to date point to us being just past half time of this economic cycle so there is more potential for positive market returns.”


As I said, market declines are never fun but they do pass and are a part of investing.  Know that you are of the utmost importance to all of us at Vision Wealth Management, Inc.   Over the last 34 years in the investment world,  I have contemplated many things(!) but repeatedly return to what my purpose in this business is and the mission of my company.  My goal for Vision Wealth Management, Inc. is to have a positive financial impact on everyone we encounter.  That is most often with long term relationships but sometimes just a few meetings.   My purpose in the investment business is to look out for your financial future with proactive powerful choices.  Everyone at Vision Wealth Management, Inc. participates in the goal and purpose.  We are all available to visit with you and will be communicating with you regularly via email or regular mail, phone, skype, educational classes and workshops throughout the year. 

As always thank you so much for your confidence and trust.  Marcy

The opinions voiced in this material are for general information only and are not intended to provide or be construed as providing specific investment advice or recommendations. All performance referenced is historical and is no guarantee of future results. Any economic forecasts set forth may not develop as predicted.

Stock investing involves risk including loss of principal. The prices of small and mid-cap stocks are generally more volatile than large cap stocks.

The payment of dividends is not guaranteed. Companies may reduce or eliminate the payment of dividends at any given time.

Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.

Because of its narrow focus, sector investing will be subject to greater volatility than investing more broadly across many sectors and companies.

International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors.

There is no assurance that the investment objective of any investment strategy will be attained. Investing involves risk including loss of principal. No strategy assures success or protects against loss.

Some of this material has been prepared by LPL Financial