We have assembled the mix of providers and structure for our model 401K. I call this a template because it represents a model for what a 401K can and should be:

• Custodian: We have engaged independent custodian (Benefit Trust Company, $170+ billion in plan assets) who allows us all the types of investments we want:
  • mutual funds with the lowest institutional pricing and fees
  • collective investment trusts (CITs) that provide the best target date and “QDIA” solutions
  • ability to add our managed portfolios so they behave like daily valued mutual funds!!!
• Collective Investment Trusts (CITs) through Stadion Money Management, trusteed and custodied through BT
• Managed Portfolios acting like mutual funds:  our AMP portfolio, Performance Trust Investment Advisors and Karpus Investment Management
• Certain superior mutual fund solutions (institutional classes)

We are actively creating blogs with intentions of publishing several times per month.

First, I apologize for being about a week later than I would like for a month-end account performance and commentary. I lost about a week to the 4^th of July holiday.

Last month I wrote about the seemingly contradictory market pattern. Among other things the small cap index was down over 2% while the Nasdaq (technology) was up over 2%. This month the Nasdaq was down while various other sectors were up. Consumer staples were great in May and in June they were down. Finally, biotech was down in May and then in June, it was up over 10%. Glad I did not sell. VERY VOLATILE!

All the different bond indexes were down but that is not entirely a surprise. We are battling rising interest rates which hurts bonds. However, our peer to peer lending fund (Stone Ridge LENDX) was up approximately 0.60%, which was great – exactly the outcome we hoped for.

My view, in summary, is that the bull market is still very much alive for stocks, although a correction (i.e. a downturn of maybe 5 – 10%) can easily happen at any time. Usually there is at least one correction every year and we have not had a meaningful correction since early 2016. However, I don’t see a correction as necessarily something to fear (or even something we are capable of avoiding), given the underlying positive supply/demand profile of stocks in general. Always remember that the proverbial “black swans” can fly over us at any time (think geopolitical). Meantime, we are staying invested.

Following are the various market averages I track, for the month of June, courtesy Morningstar.com:

Our fund returns for the month of June were as follows (courtesy Morningstar.com):

I am building models to combine the above funds within several risk/reward profiles. Generally, the aggressive model is 100% stock, conservative 50% stock and two moderate models reflecting something between 70% and 80+% stock. The balance is a blend of bond and peer to peer fixed return funds.

Let me know if you would like to discuss your risk profile and investment model. I am available at your convenience. I have Skype video in case you would like to do a video conference.

Best,

Where are we, as of the end of July?

Last month I wrote about the seemingly contradictory market patters, with the Nasdaq (technology) down and other sectors up. This month the Nasdaq was a high flyer. There are, however, a couple of persistent trends: small company stocks are underachieving and should be avoided, while emerging markets (growing foreign markets, such as India, Taiwan, South Korea, etc) keep outperforming.

All of this is characteristic of an aging, mature bull market. Fresh bull markets, such as 2003 and 2009 are usually led by small companies. Today, investment dollars are moving into large companies and certain foreign stocks (emerging markets). There is definite selectivity. Let’s look at the July 2017 performance of various market indices (courtesy morningstar.com):

How did our funds do? Some funds have been added or removed. Here are the results for July 2017 (courtesy morningstar.com):

It can be hard to play the selectivity game, but generally we are staying ahead of the averages.

When will this bull market end?

As I’ve stated many times in recent months, we remain in a healthy (although aging) bull market. Following is a quote from one of my preferred subscription analyses, based on market statistics:

Where do we stand now?  Thus far, our measurements of Buying Power and Selling Pressure still reflect healthy trend patterns.  Instead of rising, Selling Pressure has been steadily declining, suggesting that investors have been holding back on sales in expectation of higher prices in the months ahead.  As of July 19th, Selling Pressure was at its lowest level in more than 27 months.  Again, as of July 19th, Buying Power had risen to its highest level in 15 months, suggesting that investors still find many stocks offering attractive values. 

There are many people who still have not bought into the rising market since the election. They just don’t believe it makes sense for the markets to rise. Once these people have finally bought in, possibly for fear of being left behind, we may be talking about a more serious drop.

Can we avoid trouble?

The answer, as you might expect, is maybe yes, maybe no, depending on what you mean by trouble. The reason we use different models, such as aggressive, moderate, conservative is that we can’t avoid swings that may last a matter of months. Many investors (especially retirees) NEED a smoother growth curve. A 10% correction, for example (which has not occurred since January 2016), is practically impossible to avoid. It is part of a healthy bull market. You might sell and then wind up buying back in higher than you sold.

A full-fledged bear market, however, such as 2008 and 2000-2002, shows us a steady decline in advance of the real hard dive. The 2008 bear market actually peaked in 2007 and was working its way down for many months before the September until March fiasco. I feel better about battling to protect you from this kind of trouble, although it’s always difficult to fight a bear.

Finally, as always, I remind you that the proverbial “black swans” can fly over us at any time (think geopolitical). As stated before, I build models to combine the above funds within several risk/reward profiles. Generally, the aggressive model is 100% stock, conservative 50% stock and two moderate models reflecting something between 70% and 80+% stock. The balance is a blend of bond and peer to peer fixed return funds.

Your investment return(s) for the month of July was/were as follows:

We should talk if you would like to review exactly where you stand or if we should consider a change. I am available at your convenience. I have Skype video in case you would like to do a video conference.

Where are we, at the end of August?

It seems like every month I write about the seemingly contradictory market performance. This month, however, was especially crazy. All of this points to the importance of choosing market sectors that are working and avoiding sectors that aren’t. Selectivity is a sign of an aging bull market.

All of our numbers are courtesy of Morningstar.com. The broad US stock market was actually DOWN in August, as indicated by the NYSE Composite index -0.77% and the Russell 2000 (small company) -1.29%. Small companies comprise the majority of stocks (by number, not by dollar value) and the New York Stock Exchange represents the vast majority of stocks we would invest in.

HOWEVER, it’s noteworthy that tech stocks keep pressing upward and diversified, emerging markets (examples: Asia minus Japan, India, Brazil, etc.) keep showing great strength as they have all year. They were up over 2%. …very large divergences. And, finally, among our sector fund choices, biotechnology keeps marching higher, with FBIOX up over 5%!!

How did our funds do? Clients of KII did very well for the month, as you can see below (courtesy morningstar.com):

As I’ve stated many times, it is hard to play the selectivity game, but potentially very rewarding.

Is A Correction In Our Future?

There is generally at least one correction of at least 10% every year, but we haven’t had one since early 2016. We are overdue and September/October is historically the weak period for the stock market. So, if we wanted to get cute we might sell and try to get back in at lower prices. This is a VERY hard strategy to pull off, partly because: A. it might not happen and B. by the time we knew it was over, prices might be higher than when we sold. The bottom line is it’s just too hard to do.

Is A Bear Market In Our Future?

Clients keep sending me articles talking about how a bear market is due. The fact is, a bear market is ALWAYS in our future. Further, this is the one event that we would always want to avoid. Fortunately, bear markets give warning signs. As I’ve stated in previous newsletters, there is a progressive deterioration that is just not evident right now. The 2008 stock market peak happened in 2007, beginning a year of that progressive deterioration. I will be on top of this as best I know how!

Your market model consists of a blend of stock and fixed return funds that corresponds to three things:  your time horizon, your temperament and your need for income (principally retirees).

Your investment return(s) for the month of August was/were as follows:

We should talk if you would like to review exactly where you stand or if we should consider a change. I am available at your convenience. I have Skype video in case you would like to do a video conference.

Best,

Where are we, at the end of September?

Some things flipped in September. In August, the stock and bond indexes were generally down and up, respectively, while in September the stock indexes were generally up sharply but the bonds were down. Our funds made very good money in August and “fairly” good money in September. It seems that you need to look at the months combined.

All of the below numbers are courtesy of morningstar.com.

How did our funds do? Clients of KII made money for the month, as you can see below (courtesy morningstar.com). One important observation that jumps right out, is that the LENDX fixed mutual fund made 0.88% in August and only 0.28% in September. Such a stark contrast leads one to consider the average of the 2 months, which was 0.58%. The average number seems to represent a reasonable return. I replaced FIDU, Fidelity Discretionary, with FHLC, Fidelity Healthcare, which did well. The poor month for FSMEX is a “head scratcher” considering healthcare made money. However, I’m looking at the big picture.

I’m very bullish on the emerging markets and I notice we had a mediocre month there. I view it as a temporary setback, maybe because IEMG made over 2% last month. The bond index was down a half percent in September but our floating rate funds made money. It’s a flip-flop from last month, which is why I diversify.

Following are the returns (courtesy morningstar.com):

Can We Trust the Markets?

Many of the clients call me and express real skepticism regarding the markets. We are still in a strong bull market, but bull markets climb a wall of worry. Quite a few clients don’t think that it makes sense that the markets could rise with the current President in office. They feel that we’ve fallen down a rabbit hole. HOWEVER YOU SEE IT, my answer to this is simple: keep your eye exclusively on the numbers. It’s very, very hard, way too hard, to make sense of all the inputs into all the equations. For now, the markets are showing genuine strength and the statistics simply don’t look like anything resembling an impending bear market. Period. However, a 10% correction (which I consider impossible to defend against) can happen at any time, and is probably overdue.

Your market model consists of a blend of stock and fixed return funds that corresponds to three things:  your time horizon, your temperament and your need for income (principally retirees).

Your investment return(s) for the month of September was/were as follows:

We should talk if you would like to review exactly where you stand or if we should consider a change. I am available at your convenience. I have Skype video in case you would like to do a video conference.

Best,

Where are we, at the end of October?

First, let me apologize for being late with this newsletter. I had a bout with the flu for a few days.

Here are the big takeaways from October:

1. The bull market in stocks remains intact and it could go on for a long time
2. The various sectors cycle up and down and leadership changes from month to month. This means that at some level, diversification is working.
3. The NYSE (New York Stock Exchange) index just doesn’t keep up with the other sectors, which is interesting because the NYSE is our broadest representation of what the OVERALL stock market is really doing. The consistent strength in this bull market today is the large companies, especially technology, and foreign emerging market stocks. The fact that the majority of the market lags a bit is a little concerning, but not any reason to back off.

The Russell 2000 (small companies) and NYSE index were up 0.80% and 1.08% respectively, while the other indexes were up greatly. Our biotech fund, FBIOX, was down 5.9%, but in August and September it was up 5.34% and 1.98%, respectively. In June it was up 10.93%. (All returns courtesy morningstar.com). We try to stay in the sectors that are working. Not surprisingly, we have benefited most from our technology holdings, represented by ONEQ and FTEC.

Our greatest problem right now is that we use bond funds as a diversifier and safety hedge, but they have not performed that well. The U.S. aggregate bond index was up only 0.06%. Our RiverNorth bond fund was down 0.33%. My best weapon for fighting a lagging bond market has been to mix things up, using the Stoneridge fund (which is not bonds) and using floating rate funds (which are designed to defend against rising interest rates). So, I’m using diversification to offset potential under-performance among our fixed funds. Here are the returns of the various indexes and our funds in October, courtesy morningstar.com:

Run ups and Corrections?

I have talked a lot in these newsletters about corrections. We have been on a straight shot up in the stock market since the end of August (approximately 5%), not to speak of the last 12 months. A correction (i.e. pullback potentially in the 10% range) ought to happen sometime, but as stated in the past, it is very hard to time your way in and out of corrections. For now, there is no sign of this.

Your investment return(s) for the month of August was/were as follows:

We should talk if you would like to review exactly where you stand or if we should consider a change. I am available at your convenience. I have Skype video in case you would like to do a video conference.

Where are we, at the end of November?

November was another great month for the stock market in a long string of great months.

Clients keep calling me and wondering when the good times will end. There are so many pundits out there (especially with specialized products to sell) who keep calling for the end of this bull market. The argument sounds like something along the lines of “the bigger they are, the harder they fall”. I know a couple of things about the stock market, having studied it and having made a few mistakes over the years:

• Bull markets climb a wall of worry (this is an old saying, I did not invent it)
• Bull markets don’t crash in the blink of an eye – they spend time transitioning from bull to bear

If you look historically at bull to bear transitions, they can take months – months of lower peaks and lower valleys. This was true even in the late 1920s. Before the 2008 market crash, the market peaked in 2007 and then worked its way lower by degrees, until the crash in Sep 2008. After the tech frenzy peaked in 2000 we had a steady diet of lower peaks and valleys leading into the tanking after 9/11/2001 and then in 2002. That’s right, for whatever reason, likely coincidence, the markets were even giving warning signs leading up to 9/11.

We will have corrections that could drop the markets 5 – 10% and we will probably not be able to avoid those, but the big crash that takes years of growth out of everyone’s account has always come with some warning. That’s the one I’m looking out for and the one I’m just not seeing yet. We still have rising peaks and rising valleys. I understand that nothing worthwhile is exactly easy but I’m going with the odds.

How Did the Markets and our Funds Do?

All index and fund returns are courtesy Morningstar.com.

Every index I follow was up nicely in November except the diversified emerging markets (foreign country stocks from countries like China, Korea, Brazil, India, etc), biotech and the US aggregate bond Index. The bond index is the only one that concerns me a little because it has to do with rising interest rates. FORTUNATELY, we hold money in the peer to peer lending space (LENDX) and floating rate paper (CFRAX) so that is offsetting some of this. If it persists, I will likely move some money away from the offending fund(s), which have been RNDLX and FNMIX.

Some of our funds appeared to underachieve in November but they overachieved in October (e.g. FTEC). Things cycle around.

Your investment return(s) for the month of November was/were as follows:

We should talk if you would like to review exactly where you stand or if we should consider a change. I am available at your convenience. I have Skype video in case you would like to do a video conference.

Best,

Darrell J Kay

Kay Investments, Inc

January 8, 2018

Those who have knowledge, don’t predict. Those who predict, don’t have knowledge.  Lao Tzu

Where are we, at the end of December?

It would have been hard to predict a year that was as great as 2017. The S&P 500 was up every single month and has risen for 14 consecutive months, the longest run in history.

When people ask me what I think, I tell them that this coming summer, when I write this newsletter, we should be looking at higher prices, according to market statistics. If that changes, we will probably have some warning, but there are no guarantees. There could always be some shock to the system, such as geopolitical, but it’s a game of what the statistics suggest – and a healthy bull market is what they suggest. January has already begun (last week) on a positive run.

2018 could turn into a big “me too” year, meaning that many, many people who have not been invested, finally decide they need to buy in. Usually the last people to get on the bus are retail investors who either have been skeptics or are just getting word.

In any case, rather than predict, I will keep my eye on statistics and linear regression curves……

How Did the Markets and our Funds Do?

All index and fund returns are courtesy Morningstar.com.

The one glaring negative was the medical equipment sector fund, which I’ve removed from all the accounts. To put it into perspective, its 3 month history (Oct, Nov, Dec) was 1.64%, 2.94%, -3.35%. That dragged down December returns, more for those in Fidelity Funds Only 401K accounts. Small company funds were a notable exception among the major indexes, but we are not using those. The technology indexes took a breather after a stellar year.

Your investment return(s) for the month of December was/were as follows:

We should talk if you would like to review exactly where you stand or if we should consider a change. I am available at your convenience. I have Skype video in case you would like to do a video conference.

Best,

“The market may be bad, but I slept like a baby last night. I woke up every hour and cried” …. old stock market joke…….

Where are we, at the end of January?

If you’ve been reading this newsletter for the last year, I’ve been wishing for a healthy drop in the stock market. What’s healthy? The stock market is accustomed to experiencing a drop of 5 – 10% about once annually. Until this month, this had not happened since January 2016. The too quiet, too steady, too high, too predictable market runup in 2017 (by historical averages) was a setup for the steep declines this month. People wonder what caused the drop and my answer is – not necessarily anything and it doesn’t necessarily matter. The most important job you have as an investor (or advisor) in the stock market (along with investment selection) is to avoid the eventual bear market, by which I mean a collapse of 30 – 40%.  This happened last in 2008. So, looking at market statistics, we don’t see evidence YET of an imminent bear market. Among other things, it’s important to understand that generally bear markets take months to set up. I’ve pointed out in these newsletters that in the case of the bear market crash in Sep – Oct 2008, the markets actually peaked before the end of 2007. All those months, the market was showing signs of deterioration that we just don’t see now.

Regardless, the stock market may not be finished dropping just yet. There are typically signs that the bull market is ready to resume – very high volume up days and statistically valid evidence of renewed high demand. I will be watching.

How Did the Markets and our Funds Do in January?

All index and fund returns are courtesy Morningstar.com.

Our funds did extremely well in January. Some of the funds were so well positioned that they are actually UP year to date, regardless of the steep drops here so far in February. For example, our Fidelity Contrafund was up over 9% in January and remains up nearly 3% for the year as of last night. Other funds of ours up year to date DESPITE the Feb drop are IEMG, FHLC, FSMEX, FBGRX, CFRAX, FBIOX, FTEC and ONEQ.

Much has been made of the rising interest rate environment, which potentially bodes ill for bonds. I have talked about that a lot and it certainly has put a scare into many investors. The US Aggregate Bond Index was down 1.15% in January. However, we have been anticipating that with our fixed return vehicles. Our floating rate funds were up (CFRAX +1.77% in Jan) and our peer to peer funds were up for the month as well.

Here are the index returns and our fund returns for the month of January:

Your investment return(s) for the month of January was/were as follows:

We should talk if you would like to review exactly where you stand or if we should consider a change. I am available at your convenience. I have Skype video in case you would like to do a video conference.

Best,

“I do the opposite to what I feel I should do. When I’m feeling sick in my stomach, it’s time to buy. When I feel great, it’s time to sell” – Elaine Gazarelli, Wall Street analyst.

Where are we, at the end of February?

We can look back on February now as the month where we finally got some sort of selloff, after approximately two years of a steady, low volatility, upward march that made everyone feel great, month after month after month. It is just not natural when stocks always seem good and safe and predictable and nothing can go wrong. I’ve reminded people that we had not had a 10% selloff since January 2016, while we SHOULD average one such event every calendar year. The markets were finally up so much in January, upwards of 5%, it almost seemed like a blow-off of sorts. Now things feel a little more normal, and we finally have some honest, healthy “sick in my stomach” feelings out there.

In any case, there is still no evidence of the markets unwinding into a full bear market, which generally requires a period of many months to materialize. Eventually, barring something I am not able to see, this correction SHOULD resolve with the markets again seeking some new highs. It may require some weeks or even a few months – we’re never privileged to know the time frame.

Fortunately, most of us are still in a comfortable position of profit for the year to date, although practically every fund, bond or stock, was down in February.

How Did the Markets and our Funds Do in February?

All index and fund returns are courtesy Morningstar.com.

There was a definite divergence among the indices, with tech doing best (we have over-weighted tech for a long time – ONEQ and FTEC). The worst of the indices was the NYSE composite which is the index that most closely represents ALL stocks. The US aggregate bond index was down again, reflecting rising interest rates or fear of same.

As stated, we are defending against the interest rate problem with floating rate funds and our fixed Stoneridge fund.

Here are the index returns and our fund returns for the month of February:

Your investment return(s) for the month of February was/were as follows:

We should talk if you would like to review exactly where you stand or if we should consider a change. I am available at your convenience. I have Skype video in case you would like to do a video conference.

Best,

Darrell J Kay

The stock market is like a small row boat on a rough sea, bouncing around as it drifts, whereas the macro economy is like a large ocean liner, very ponderous and difficult to maneuver but without such a rough journey. Clive Granger

Rather than being distracted by the volatile moves in prices over the past two months, investors would be better served to focus on the forces of Supply and Demand behind these price movements – forces which continue to indicate an ongoing and healthy bull market with months more to run. Lowry Market Letter

 Where are we, at the end of March?

There will definitely be a newsletter at some point in the future where I state that the market seems to be on a track that wants us to sell out – that a bear market is on the way. However, based on everything I’m reading and the underlying statistics that I see, we are still in a rather normal “correction”, meaning the kind of decline that may take a few months to resolve, but then come out of it.

Meantime it is clearly very ugly right now. The problem with trying to dodge corrections is that generally, the market is higher when it seems safe to return, than when we sold. Therefore, I try to avoid the major bear markets (which typically give us longer time frames to prepare) rather than corrections.

How Did the Markets and our Funds Do in March?

All index and fund returns are courtesy Morningstar.com.

Generally, our brokerage accounts were down somewhere between 1% and 2%, based on our weighting and fund selection. 401K accounts where we are restricted by account agreement to Fidelity funds only, were down more, since we don’t have access to certain funds I like for diversification.

I’ve made some fund changes. I moved the Fidelity Floating Rate fund (FFRAX) to the Eaton Vance Floating Rate fund (EIFAX), for performance reasons. And today (April 2) I moved the Fidelity Materials ETF (FMAT) to the Fidelity Europe ETF (IEV). This was for purposes of sector rotation.

The fixed funds did well in March, helping us with diversification – as they are intended to do.

Here are the index returns and our fund returns for the month of February:

Your investment return(s) for the month of February was/were as follows:

We should talk if you would like to review exactly where you stand or if we should consider a change. I am available at your convenience. I have Skype video in case you would like to do a video conference.

Best,

The problem with the person who thinks he’s a long-term investor and impervious to short-term gyrations is that the emotion of fear and pain will eventually make him sell badly. Robert Wibbelsman

Where are we, YTD and at the end of April?

Between January 26 and February 8 of this year, the stock market dropped around 10 to 11% percent, depending on which index. That’s a 2 week period. Ever since then, the markets have moved generally sideways – demand stepping in when prices got low and selling coming in when prices rose. I’ve stated in previous newsletters that on average there is one drop of at least 10% every calendar year – and we didn’t have one in 2017. Whether you are tracking the weather or freeway traffic or basketball free throws, statistical deviations average out.

EVENTUALLY prices will break out of the 10 percent range. A further decline could happen but as yet, we aren’t seeing the patterns that historically lead to a bear market, which is the only event that is worth trying to defend against.

How Did the Markets and our Funds Do YTD and in April?

All index and fund returns are courtesy Morningstar.com.

YTD the markets were somewhat mixed, the Dow, S&P, NYSE Composite and US Aggregate Bonds being down; the Nasdaq (technology), foreign markets and small cap being up. Everything was close to breakeven. Our accounts (managed all year by KII) were virtually all marginally up (maybe 99% of them). Interestingly, our Fidelity mutual funds have been mostly home runs YTD. The bad return YTD of bonds in general was not a problem for us, due to our heavy reliance on floating rate funds and peer to peer income.

The month of April was marginally up for all the markets and our accounts were very close to breakeven for the month, as well.

Here are the index returns and our fund returns for the month of April and for the year to date through 4/30.:

Your investment return(s) for the month of April and YTD through 4/30 was/were as follows:

Your quarterly advisory fees, paid in arrears, were as follows:

We should talk if you would like to review exactly where you stand or if we should consider a change. I am available at your convenience. I have Skype video in case you would like to do a video conference.

Best,

A long term investment is a short term investment that failed. Chevy Chase

Where are we, at the end of May?

May was a weird month, as they go. The NYSE Composite Index, which measures all the stocks on the exchange was breakeven (actually 0.09%, see below). The other indexes, as you will see were all nicely positive, other than the foreign indexes, which lost money. Generally, we just don’t see quite such a wide range of returns.

The measures of supply and demand that we follow continue to point to an eventual resumption of upward movement in the stock market. We are up for the year and the clients had a good, solid month. Technology was the leader, and we hold quite of bit of it, as you notice below (ONEQ, FTEC, FBIOX and even FSMEX). If we just didn’t hold foreign funds in May, life would have been that much more enjoyable.

I have replaced half of our emerging markets fund IEMG with a new commission free ETF, the iShares Core S&P Small Cap, IJR. I will begin reporting on that fund next month. I like to move in stages and the IJR is definitely the stronger sector and fund.

My final point is to note that when small company stocks begin to do well (even outperform), such as the IJR, it generally bodes well for the stock market. The converse is also true.

How Did the Markets and our Funds Do YTD and in May?

All index and fund returns are courtesy Morningstar.com. Here are the index returns and our fund returns:

We should talk if you would like to review exactly where you stand or if we should consider a change. I am available at your convenience. I have Skype video in case you would like to do a video conference.

Best,

One of the funny things about the stock market is that every time one person buys, another sells, and both think they are astute. William Feather

Where are we, at the end of June and half way through the year?

Last month I talked about the stock market being weird and unpredictable and that has not changed. This morning the markets were solidly up. Now the S&P and Nasdaq (technology) are down a half percent and the Russell 2000 (small companies) is up. The markets don’t like what’s going on with free trade. Small companies are less influenced by trade than large multi-nationals (and more influenced by other more favorable trends). The stock market is definitely vulnerable to going lower before it goes higher. However, I don’t see a bear market forming (major, major drop). Remember, as I’ve written before, a bear market is a process, not an event. Dodging corrections (declines in the 10% or so range) is exceedingly hard to do. Corrections are more event driven.

I have been making changes in the funds. We’re still heavy on the technology sector (no change there) but we’re now out of foreign stocks. They have truly fallen on hard times. I have also been adding small cap funds (IJR and PSAGX). I also removed long time holding FQAL, Fidelity Quality Factor fund, in favor of small cap. It’s exciting to see small company stocks do well, for one very important reason: it is a positive indicator for market direction. Small company stock prices typically lead the way lower when a bear market process is unfolding.

The Dow Jones average and the New York Stock Exchange Index are down for the year. The S&P is only marginally higher while the tech and small cap averages are very nicely up.

In conclusion: the bull market run is not over, and we should eventually see a resumption of new highs, in my opinion. Final point: the bond market is a bad place to be. Our fixed return funds have been focused on floating rates and peer to peer funds with stable principal. We are in the right place on fixed returns.

How Did the Markets and our Funds Do YTD and in June?

All index and fund returns are courtesy Morningstar.com. Here are the index returns and our fund returns:

Your investment return(s) for the month of June was/were as follows:

Your investment return(s) for the year to date (YTD) was/were as follows:

We should talk if you would like to review exactly where you stand or if we should consider a change. I am available at your convenience. I have Skype video in case you would like to do a video conference.

Best,

“Every day, self-proclaimed stock market “experts” tell us why the market just went up or down, as if they really knew. So where were they yesterday?” – Anonymous.

Where are we, at the end of July?

The markets rebounded strongly in July from a mediocre month in June. It was one of those months where you wish your account was 100% stock funds and 0% fixed return.

It’s actually a little crazy because our stock funds under-performed, on average, the stock indexes and averages, which is very uncommon. The Virtus fund might hold the best YTD return on the list and yet it was slightly down. As a result, our average “moderate model” return was something under 2%, which of course also reflects the “drag” of fixed income holdings.

On the good side of things, our fixed income investments did relatively VERY well while the traditional bond market is TERRIBLE (note approximately zero return in July for the bond index after negative return in July).

My thinking has not changed about the bull market still having room to run. It’s said that bull markets climb a wall of worry and I’m not paying attention to all the “reasons” A, B and C why the bear market is lurking. I’m paying attention instead to all the statistics that are not showing troubling signs – as yet.

How Did the Markets and our Funds Do YTD and in June?

All index and fund returns are courtesy Morningstar.com. Here are the index returns and our fund returns:

Your investment return(s) for the month of July was/were as follows:

We should talk if you would like to review exactly where you stand or if we should consider a change. I am available at your convenience. I have Skype video in case you would like to do a video conference.

Best,

“The trick is to stop thinking of it as ‘your’ money.” – IRS auditor.

Where are we, at the end of August?

It seems that every month there is something interesting to say about the crazy variation in stock market performance. Here is the most surprising fact:  the New York Stock Exchange Composite index (average stock) rose only 0.41% in August; the S&P 500 rose 2.16% and the various technology and small company indexes rose over 4%. So, we could say that it paid off to be in the sectors that were working. Generally, KII clients have enjoyed out-performance all year, as you will see from your monthly and YTD summaries. At the end of September, I will calculate your YTD returns again. Remember, if your account is heavily skewed toward fixed interest, that lowers returns in a good month. But in summary, KII clients had an OUTSTANDING month.

A couple of investing articles I read in August presented interesting perspectives on the markets. Ken Fisher believes that the markets will remain strong after the November elections, for the simple fact that the result should be gridlock in government. Regarding the fact that the bull market is “old” by historical standards (already 9 ½ years), Michael Gayed points out that we have had only nine bull markets since 1926. Statistically, you just cannot draw a conclusion about what is normal or what is too long – you only have nine data points!

For now, the bull market remains “on” and so we remain invested. We will have ups and downs, better months and worse months, but there is no evidence that a bear market is imminent.

How Did the Markets and our Funds Do in August?

All index and fund returns are courtesy Morningstar.com. Here are the index returns and our fund returns:

Your investment return(s) for the month of August was/were as follows:

We should talk if you would like to review exactly where you stand or if we should consider a change. I am available at your convenience. I have Skype video in case you would like to do a video conference.

Best,

“I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years”. Warren Buffett

Where are we, at the end of September and YTD?

Sorry for the somewhat late date sending this out. I wanted to include the YTD returns, as promised, but there was some technical challenge to that, which I overcame, but it took a little time.

After making a pile of money for us in August, the stock market took a bit of a breather last month. September and October are historically the weakest stock market months – although I really don’t know why. In any case, our funds and our accounts were approximately breakeven. The worst performing funds were the small company funds, which does bother me a bit. Generally, the small companies are the best barometer of U.S. economic and stock market strength. The bonds were weak also. Fortunately, we are using fixed income funds that made good money (better than the stocks this month) because they are not particularly vulnerable to interest rates.

When you look at the YTD returns, you can see that it’s been a very good year for us and patience has paid off. The really strange thing (and maybe somewhat troubling) is that the NYSE Composite Index is up only 2.13%. This is the broadest index of all. On the other end, the NASDAQ Composite (technology) is up 16.56%. Hence our holdings of ONEQ and FTEC. Our various fixed return funds were up around 4%, plus or minus, which is excellent since the aggregate bond index is slightly down YTD. We are fighting against the bonds (rising interest rates) by holding better, alternative, fixed income funds.

As I’ve stated so often this year, the bull market remains “on” and so we remain invested. Remember, a bear market is a process, not an event. And it is not currently in process.

How Did the Markets and our Funds Do in September and YTD?

All index and fund returns are courtesy Morningstar.com. Here are the index returns and our fund returns, both for September month AND YTD:

Your investment return(s) for the month of September AND YTD was/were as follows:

September:

YTD:

We should talk if you would like to review exactly where you stand or if we should consider a change. I am available at your convenience. I have Skype video in case you would like to do a video conference.

Best,

“Stock market corrections, although painful at the time, are actually a very healthy part of the whole mechanism, because there are always speculative excesses that develop, particularly during the long bull market”. Ron Chernow

 “The stock market takes an escalator up and an elevator down”. Old cliché

 Where are we, at the end of October?

The month of October was very ugly. The major indexes were sharply down across the board. As you can see below, many were down over 10%. Obviously, no one wants to see this happen to their account. Everyone wants to know: when will my account recover? I’ll start by giving some context to all this. The stock market averages one drop of around 10% every year (called a “correction”. In 2017, we had none. In February, the averages dropped close to 10% early in the month, HOWEVER, mostly recovering before month end. Therefore, it was not as noticeable, and is the more common occurrence.

In addition, volatility is exacerbated by program and robot trading, exaggerating excesses and runs both up and down.

I noticed that even the fixed return investments were barely breakeven for the month. Some of the decline in stocks was traceable to rising interest rates, which hurts bonds and fixed returns generally.

Corrections are very difficult to dodge. The risk is that you will be buying back in at higher prices than you sold. Corrections really are part of the game. If you don’t want to be exposed to corrections, we need to discuss moving all or more of your money to fixed. The odds are that this will cost you returns longer term, BUT for some people it’s more about the “sleep better” factor.

The most important question for me as advisor is whether we have just experienced a major bull market top, meaning we have a much farther drop and much more time in front of us before a “buy signal” develops. If that were the case, then surely it would make sense to sell. However, the signs of that major bull market top are just not evident to me. Nor are those signs evident to Lowry’s Institutional, whose statistical analyses of the stock market are very thorough. Given the absence of such signs, I am expecting that we will recover.

There are those people who say that you never, ever sell – you just wait for the markets to recover from whatever happens. My objective is to attempt to protect (as well as I am able) against the “full blown bear market” such as 2002 and 2008, as opposed to “corrections”. I reiterate: that is my objective.

How Did the Markets and our Funds Do in October?

All index and fund returns are courtesy Morningstar.com. Here are the index returns and our fund returns, for October:

Your investment return(s) for the month of October was/were as follows:

We should talk if you would like to review exactly where you stand or if we should consider a change. I am available at your convenience. I have Skype video in case you would like to do a video conference.

Best,

Although the bear market narrative is popular according to some market pundits, our analysis based on a 93 year history of bull and bear markets suggests otherwise…..Over the [past …] weeks there have been encouraging signs of a sustainable market low.  Lowry’s Institutional Market Trend Analysis

 Where are We, at the End of Q4 2018 and for the Year 2018?

The months of October and December were very ugly. However, the precipitous drop in Q4 (S&P 500 down approximately 14%) is very much in line with other drops during this bull market (Q2 2010 and Q3 2011, and even fall 2015, for example). The point here is that these drops happen suddenly, and recovery typically happens within next quarter or so. In contrast, a bear market entails a lot of build-up, experiences a deeper decline and requires more time to recover. The bear market of 2008 followed approximately 1 year of gradual declines and lower peaks.

After only 2 weeks of the new year, we already seeing very encouraging signs of recovery and healthy 2019 YTD returns.

I’ve stated on many occasions that it’s very difficult to avoid market corrections such as we’ve just experienced. My goal has always been to defend against the 2008 type bear market, to the greatest extent I can. Nevertheless, I have been formulating some strategies that MAY prove useful in defending against a market correction like what we’ve just experienced. I will be communicating with you on this subject.

For the calendar year, most of you experienced a decline in the range of 5%, plus or minus.

The World of Fixed Income

During Q4, when we really needed our fixed return funds to make money and help offset the decline in stocks, they mostly made very little or lost something. This is disturbing and demonstrates the increasing correlation that exists between the asset classes. Obviously, we want steady, reliable income along with steady, reliable principal values. Today’s volatile, rising interest rate environment makes this difficult to find.

I have been studying two new new fixed income opportunities, one of which I will touch upon here: the Blackstone Real Estate Income Trust (BREIT). Blackstone is very large, and I consider their track record to be impressive. They manage $457 billion of real estate, including $120 billion investor capital. During the last 2 years, BREIT has achieved a very desirable outcome for fixed income investors: a high single digit return with very little volatility. The downside that you need to be aware of is they require a minimum 1 year hold time; cashing out principal in the first year carries a 5% penalty. I will be speaking with clients about this product (not available inside of Fidelity 401K plans).

How Did the Markets and our Funds Do in the 4^th Quarter and for the Year 2018?

All index and fund returns are courtesy Morningstar.com. Here are the index returns and our fund returns, for Q4 and 2018:

Your investment return(s) for Q4 was/were as follows:

Your investment return(s) for the entire year 2018 was/were as follows:

We should talk if you would like to review exactly where you stand or if we should consider a change. I am available at your convenience. I have Skype video in case you would like to do a video conference.

Best,