By Fred Hensler
Every once in a while I return to an article that I have written in the past that made so much sense that it merits bringing it back again. This is one of those times. While the story is the same, the parameters of the story have changed. It started out like this (please understand that the original article was written in August 2007).
I recently returned from a fishing trip in Alaska. It was the first time that I have ever participated in that type of event. I learned or reinforced some very important lessons.
1. I like a day and night that has both light and dark;
2. There shouldn’t be snow on the ground in July; and
3. When fishing, patience is a virtue, meaning every time you cast your fly rod in the water, you are not necessarily going to catch a fish. And if there are no fish running in the stream, it may not be necessary to expend the energy to try to catch something that is not there.
Interestingly enough using this strategy I brought home 50 pounds of Alaskan salmon, and I love eating salmon as much as I like making money for our clients. This brings me to the moral of this story, which I will call…
THE MORAL OF THE STORY.
In 2007/2008 we were in the midst of one of the most challenging economic times that I’ve seen in all my years in this industry. During that time we recognized that if the economic indicators were telling us that the markets were going to decline, then it didn’t make a lot of sense being invested in the markets. That parallels the fishing story that says if all the salmon have run upstream, there is likely no reason to keep your lines the water. By taking an active role in managing our client portfolios, we were successful in guiding many of our clients away from the market and surviving one of the largest economic disasters in history.
Have we come full circle? It could appear that now some 10 years later the pendulum has swung far to the other side. It took many investors eight or nine years to recover from the economic meltdown of 2008. As a fisherman this was a good time to have all of your lines in the water. The stock market has reached record highs, and investors are fishing with reckless abandon. Like it or not, in the investment world all good things must come to an end. Investors should be asking themselves, “Is this the end, or is there some room left and some fish still in the stream?”
Our research shows that we seem to be entering into a phase that we refer to as the “everyone in the pool effect.” Once everyone is in the pool, no matter how good they feel, no one else is getting in, and the next move has to be for people to begin leaving the pool. Unfortunately, we may be finding this in stocks. For example, U.S. households stand at 94%, meaning that 94% of the time U.S. households have held lower stock or equity allocations than they do now (JIR 2017*). It seems nearly everyone is in the equity pool, and now it’s a matter of waiting to see who comes out first to put on the protective sunscreen.
Presently our leading intermediate indicators continue to deteriorate. The market, frothing from tax cut discussions, has moved stocks into a potential topping market phase. Although no one knows the exact top, it’s a good time for investors to practice prudence when it comes to managing their investment portfolios. We don’t believe that this is a time to just simply diversify and “hang on for dear life” unless you’re willing to ride out the potential of another economic tsunami like in 2008. Stated another way, if all the fish are upstream, it’s time to pack up our pole and tackle box.
Those who are interested are welcome to request the “2018 Economic Forecast.” Please call us at 810-714-9456 or email [email protected] to request your copy.
Sapphire Blue Investment Partners, LLC is an independent firm with securities offered through Summit Brokerage Services, Inc., Member FINDRA, SIPC. Advisory services offered through Summit Financial Group Inc., a Registered Investment Advisor. Hensler and Associates Wealth Management, Hensler Aviation and Physicians Wealth Management are all divisions of Sapphire Blue Investment Partners, LLC. Each division of Sapphire Blue Investment Partners, LLC also independent of Summit Brokerage Services, Inc., and all of its affiliates. 12272 N. Fenton Rd. Fenton MI 48430. Opinions expressed are that of the author and are not endorsed by the named broker dealer or its affiliates. All information herein has been prepared solely for informational purposes, and it is not an offer to buy or sell, or a solicitation of an offer to buy or sell any security or instrument or to participate in any particular trading strategy. *James Investment Research, 2017