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Emotion Versus Fundamentals

Emotion Versus Fundamentals

Volatility is back in a major way. And it has investors wondering if there’s about to be a repeat of 2007 and 2008. Are we on the brink of another recession?

Our thought is that you shouldn’t jump to that conclusion so soon. The volatility is definitely there and we saw some major dips in the market throughout the past couple of months. However, just a few weeks ago we had the best stock market day of 2014. In fact, during mid-October, we saw the best week that the market experienced in nearly two years. Many of our clients will ask us how the market can be crashing one week with bad news globally, and then surge by 4 percent the next week? No one knows, on any given day, how or why the market will do what it does. But, as a long-term investor, it’s important to always remember the fundamentals. 

In short, you always want to remind yourself that there is an emotional toggle with investing. This toggle shifts between the emotions or sentiment that the collective marketplace is experiencing, versus, the fundamentals that fuel the market. The emotions could be anything from the fear of China slowing down to the European economy falling back into a recession. Another fear could be Ebola spreading and then causing a global economic impact. The fundamentals that fuel the market are things we think about when it comes to companies earning money or not earning money. It’s that simple. As a long-term investor, you want to pay attention to the balance of the fundamentals. 

Now, here we are in earning season where we get to hear about how companies are doing—a fundamental. After all, this is the lifeblood of the U.S. stock market. We’re about 40% through the earning season, and 70% of the companies that have reported so far have beaten expectations on the upside. Same thing with revenue, it’s coming in stronger than expected. These companies aren’t barely making it, they are actually selling more. 

So, before you worry about whether or not a recession is near, just remember the fundamentals and pay attention to emotion to determine if it’s necessary to can hone your strategy as a long-term investor.


 

CIA Presents at the Federal Reserve Bank and Southeastern Accounting Show

The Capital Investment Advisors team was recently engaged in a series of events on topics around retirement, paying off debt, and investing at various events around Atlanta.

On August 26 our Chief Investment Strategist Wes Moss, presented to employees at the Federal Reserve Bank of Atlanta and shared tips on how to retire sooner and how to retire happy.

On August 27-28, our team attended the Southeastern Accounting Show, a continuing education forum and conference highlighting the hottest topics in the accounting profession. This conference is hosted by the Georgia Society of Certified Public Accountants (GSCPA) who also invited Wes Moss to give the keynote address.

 


 

Wes Moss Becomes Financial Planning Expert with About.com

Join our team in congratulating our Chief Investment Strategist, Wes Moss, who is now a Financial Planning Expert with About.com

As the expert, Wes will be contributing articles frequently and giving advice in categories that include: Budgeting, Saving Money, Personal Finance, Planning for Life Stages, Credit & Debt Management, Retire Happy, and Self-Employment.

Read some of the latest articles here:

5 Ways to Use Your Inheritance Wisely

4 Steps to Pay Off Your Mortgage

5 Easy Steps to Start Saving Today

4 Big Money Saving Tips for Families


 

Rebuilding on the Horizon

They’re back. The cranes have once again arisen on the Atlanta skyline. And it doesn’t fall short of indicating that there has been some sort of economic recovery that is attracting developers to finish old projects or start on new projects in the Atlanta area.

The rise of the crane makes us wonder if we’re on the brink of another real estate or economic boom.  If we were judging just based on the growth rate of the numbers of cranes in the sky, then maybe the argument would be valid. And we are in a position where we are paying close attention and cautious when it comes to the amount of new residential projects taking place, not just commercial. The good news is that existing and pending home sales are trending higher for the year and home prices continue to be in an uptrend. Mortgage rates are also falling this year, which provides opportunities for new home buyers at lower costs. 

For our younger generation, the idea of buying a new home in years past made many feel weary. After all, this is the same generation that has been burned by two stock market crashes and a less-than-welcoming employment market. Nevertheless, they’ve shown resiliency and are now talking about and acting on purchasing homes. These individuals have brought the words “home purchase” back into their vocabulary.

From the aspect of investing in real estate within the equity markets, it has paid off handsomely. VNQ, the Vanguard REIT index, is up nearly 20% for the year. The Dow and S&P 500 are up 0.52% and 5.77%, respectively. 

As we head towards the end of the year, real estate seems to be poised for a longer term uptrend despite the crane rising again in Atlanta. The future of real estate may be good with a young generation ready to buy. And from an investment standpoint, taking profits from a space that has dominated so far this year may not be a bad idea.


 

Moss Tells Mainstreet How To Retire With a Strong Nest Egg

In today’s economy, 75% of retirement age Americans have less than $30,000 saved and one in six older Americans live on less than $22,500 a year.

So how can you avoid falling into either of those buckets. In a recent interview with Mainstreet, Wes Moss shared some of the results from his study on how some retirees are exiting the workforce with a strong nest egg and are retiring “happy”.

(more…)


 

Performance in a Rising Rate Environment

With all the fluctuations associated with the markets over the past few weeks, we wanted to address this.

This is a rare time where the volatility associated with markets is not dealing with the typical stock market, but instead the interest rate and income/bond market. We saw rates spike from 1.66% on 5/1/13 to 2.16% on 5/30/13. This move of 0.5% in just one month is an extremely rare occurrence and a response to the Fed discussing potential tightening towards the end of the year. We are monitoring investor sentiment associated with the Fed’s recent actions and also gauging the possibility of future shocks. The CIA Investment Committee believes that the recent spike is not going to be the norm, but instead a knee-jerk reaction to the recent commentary.  Our position on interest rates remains the same as in recent months: we expect rates to rise over a long time-horizon as opposed to retreating. This is aligned with the signals given by the Fed that an easy monetary policy will be a slow multi-year unwind. 

The media is referring owning bonds (and thus other income investments) a “bond bubble”. The are calling it a bubble because rates are at historically low levels and only have one direction to truly go from the bottom…..UP!  We agree with this, but if you see from our research regarding “other” asset classes that provide yield, rising interest rates do not always signal negative returns for all dividend-yielding asset classes.  Keep in mind that bonds will likely experience a challenging environment while rates rise over the next decade or more, but this is why we suggest owning multiple asset classes for yield such as MLPs, REITs, preferred stocks, closed end funds, dividend-paying stocks, etc. to balance the effect.

We are confident that our income strategy is poised to perform as expected in these types of rising interest rate environments. Avoiding unexpected shocks in equity or income markets is not what we are trying to accomplish with our client portfolios.  Our goal is to match a client’s current or future income needs with a diversified mix of assets that aim to deliver results (income or growth) over a long-time horizon.  There will always be times when markets jump and jive and this cannot be avoided without exiting the markets with perfect timing or completely altogether.  See attached a recent study we have composed to understand how the non-fixed income asset classes held within our income “bucket” perform during recent periods of rising rates.

Are you interested in knowing more? Take a look at our chart that addresses bond bubbles and rising interest rates.


 

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