SmartStops comment: Great article about the nature of our 21st century markets and why one needs to stay protected in a fluid geopolitical environment . Some interesting graphs are presented.
The article concludes: Perhaps more than any other time in the last six decades, the fate of markets is inextricably intertwined with the ebb and flow of geopolitics. Investors can no longer hope to conceptualize markets as existing in anything that even approximates a vacuum.
Author’s central point – how much our Fed and central banks get involved:
“True, DM central bank liquidity and jawboning (read: forward guidance tweaking) have thus far managed to suppress the market’s response in terms of volatility, but as it turns out, what central banks can’t do is keep Pyongyang from launching ballistic missiles, keep euroskeptic candidates from marshaling an alarming percentage of the vote in France, bridge the sectarian divide in the Mideast, keep Erdogan from effectively declaring himself Sultan in Turkey, and/or keep things stable inside the Beltway.
So while markets may be conditioned to effectively ignore what’s going on in the world, that doesn’t change the fact that things are getting more unstable virtually by the hour (witness the manic news cycle). Eventually, this will catch up to markets because again, central banks can’t ultimately control geopolitical outcomes.
Just look at how much per share one could save in this example with IBM below. Stepping aside during a stock’s downturn can lead to higher returns overall for your investments especially when you consider that stocks on average will drop ~20% from their highs and market leaders can drop ~70% (per Investor Business Daily stats). Buy & Hold philosophies have morphed to Buy & Protect as many studies have shown the increased value in skipping the downturns. At SmartStops our goal is to help you protect your profits and minimize any losses.
Mark Hulbert, who made his career in the investment industry by tracking stock market newsletter writers and predictors has this to say about our continuing bull market and fears of a downturn:
Opinion: Here’s what the oldest market-timing system in stocks is saying now
Published: Apr 13, 2017 8:39 a.m. ET @ Marketwatch
He focuses on the Dow Theory as the classic “timing” system approach and reassures readers that
“For the moment, it says that all you Nervous Nellies can relax: All three of the Dow Theorists who I monitor on a regular basis believe the major trend remains up”
Of course that’s “for the moment”.
Regardless of who you want to follow in their “predictions” realize that the market is going to react to many different factors. Most important is to get flagged when true “risk” is developing. And that’s where we at SmartStops.net can assist you.
This article does a great job at educating mainstream investors and the underlying aspects of our 21st century market. Written by the Chief Economic Advisor, Allianz and Chair of the President’s Global Development Council
- Because today’s markets are heavily influenced by the direct and indirect involvement of central banks, correlations among asset classes are less reliable, weakening the effectiveness of risk mitigation through traditional portfolio diversification.
- …opportunities for higher monthly/quarterly returns <shift> away from conventional strategic long-term portfolio positioning and toward more short-term trading and volatility trades.
Take 2 minutes – and read the entire article here:
SmartStops Commentary: This was why we created our service as the 21st century markets are much more volatile then in the past. One must recognize that the old theory of Buy & Hold and strictly relying on diversification is insufficent to protect one’s invesments. Active risk management is a MUST in our markets today.
Complete article can be found here:
Global markets are facing a crisis and investors need to be very cautious, billionaire George Soros told an economic forum in Sri Lanka on Thursday.
China is struggling to find a new growth model and its currency devaluation is transferring problems to the rest of the world, Soros said in Colombo. A return to positive interest rates is a challenge for the developing world, he said, adding that the current environment has similarities to 2008.
Global currency, stock and commodity markets are under fire in the first week of the new year, with a sinking yuan adding to concern about the strength of China’s economy as it shifts away from investment and manufacturing toward consumption and services. Almost $2.5 trillion was wiped from the value of global equities this year through Wednesday, and losses deepened in Asia on Thursday as a plunge in Chinese equities halted trade for the rest of the day.
Read more Bloomberg article – George Soros
One of the reasons SmartStops came into existence was to help investors worldwide understand the risk they were taking when owning a stock or ETF. As the article points out: “..Understanding risk is critical to a person’s financial well-being.” The concept of Risk in the stock market originally focused on modern portfolio theory’s of diversification. But in today’s computerized/internet age, even that has shown to be insufficient. We, at SmartStops, hope to help investors move into a more profitable Buy & Protect vs. Buy & Hold mindset by proving the efficacy of such an approach.
From article here:
Risk diversification. The concept that most people didn’t understand was risk diversification, or the idea that you need to diversify assets to minimize potential losses.
Lusardi, who teaches an elective course on personal finance to graduate business students at George Washington University, says she’s not surprised.
“I’ve seen the same thing in my class,” she said. “It’s just a harder concept because you’re talking about probabilities. And with diversification, you have to think about correlation. It’s just more complex.”
But understanding risk is critical to a person’s financial well-being. As Lusardi noted, most financial decisions involve some type of risk, from buying a home to deciding how much money to save for retirement.
And worldwide, it is becoming increasingly important to teach about risk and other financial basics.