How to React to the Market’s Ups and Downs

Written by Rob Copeland | 13 February 2018

February has been a tough month for the stock market: Declines exceeding 10% have erased the year's gains, despite a partial recovery in recent days.

After a 2017 in which the market didn't have any major setbacks, it may feel like a long, ugly selloff lies ahead. But the truth is that market volatility—those violent swings up and down—is completely normal.

Over the past 40 years, U.S. stocks have averaged a more-than-10% decline each year during bull markets. By that measure, last year was the anomaly, not this year. But the question remains: Are your investments safe?

Copeland Wealth Management's investment portfolios are built with the expectation that markets will have normal corrections. We even expect there to be periodic longer bear markets. But historically, markets always end up higher after a few years. In other words, the stock market usually takes two steps forward, one step back, and so on. The key is to remain patient and stay the course.

Nor does the recent correction (a correction is a drop of 10% or more from a previous market high) does not appear to be signaling a recession. Corporate earnings, which drive the stock market, are healthy. And economic growth is on the upswing around the world.

With a recession usually comes a longer period of weakness in the stock market. But without the usual signs of a recession, stocks appear to be poised for modest (but not great) growth over the next several months if not longer. And it's likely that there will be more volatility over the course of 2018. The key to success will be to remain calm in the face of those price swings.

One thing that's not helpful is to pay attention to the talking heads on cable television shouting: "buy buy buy!" or "sell sell sell!." Remember that a lot of commentators out there stand to make money for their firms and themselves if they can convince their viewers to trade stocks based on short-term emotion. Don't fall for it.

With that being said, market pullbacks can present selected buying opportunities. This doesn't mean buying on impulse. Investors should maintain a "wish list" of companies that they want to buy, and a price level at which they're worth buying.

Recently, Apple and Sysco, a food services company, were two stocks on my buy list that fell into my price range because of the market selloff. Again, selective buying, not nilly-willy trading, is vital. You should always work with a qualified, experienced advisor who can analyze the market and specific stocks. Don't hesitate to contact us if you'd like to discuss how to invest in 2018.

Seeking Diamonds in the Rough for 2018

Written by Rob Copeland | 13 January 2018

What do you do with your stocks after a great year in the market? Shrewd investors often take some profits and look for stocks that were left out of the rally—and thus may have more remaining upside than the winners.

It's part of what's known as rebalancing, and the start of the year is a good time to do it. A popular way to find quality stocks with potential is through the Dogs of the Dow strategy.

The Dogs of the Dow are the 10 highest yielding Dow Jones Industrial stocks as of the end of the year. Since yield equals dividend relative to price, the Dogs not only pay a high amount of income, but they're cheap, which means they might appreciate significantly.

Last year, a handful of Dow names like Boeing, Caterpillar and Apple did the heavy lifting as the index rose nearly 26%. Expect lesser performing companies to drive returns this year.

Just buying a group of stocks based on two simple criteria—being in the Dow index and having the highest yields in that index—isn't enough to ensure that you'll beat the market, of course. But the Dogs of the Dow has a pretty good track record.

In 2017, the Dogs fell short, returning 19%. But before that, they had beaten the Dow in six of the seven previous years. By being more selective, investors might increase their odds of success. For instance, the cheapest five stocks in the Dogs of the Dow have tended to do better over time than the group as a whole.

An experienced advisor can cherry-pick the best opportunities based not just on price and dividend yield, but on underlying data about a company's strengths and weaknesses, their leadership, their market opportunities and more.

Exxon Mobil is an example of a promising company that had a forgettable 2017. There are a couple of factors that could give this stock a real bounce, first, natural gas development has been coming back after years of stagnation. Exxon also plans to merge its refining and marketing businesses, potentially leading to a significant cost cut.

While it's largely dependent on what fuel prices do this year, Exxon's stock could see a real snapback. And that could add a little extra return to an investment portfolio that takes into account your personalized goals and risk tolerance.

Remember that no investment is guaranteed to make money, and any investment can lose money. We encourage you to contact your investment advisor to identify the investments that are best for you.

Why Bitcoin is for Suckers

Written by Rob Copeland | 13 December 2017

If you're thinking about investing in bitcoin, I've got some simple advice for you: Don't.

Bitcoin is a digital, online "currency," like dollars, except that you can't actually spend them anywhere. Try buying a grill from Home Depot with bitcoin and you'll see what I mean. Who is using bitcoin? It seems many of its users are people trading drugs and other contraband, anonymously, on the so-called dark web.

And yet bitcoin has soared in value from less than $1,000 at the beginning of the year to more than $17,000. In other words, one bitcoin costs close to the down payment on a house. This is what investors call a speculative bubble, folks.

Remember the dot-com bubble? The real estate bubble? There have been bubbles for as long as humans have traded things. By 1637, Dutch traders were paying more than 10 times their annual salary for tulip bulbs. You can guess how that ended.

What all these speculative bubbles have in common is that the people who can least afford to lose money get absolutely crushed. When bitcoin crashes, and it will, mom and pop investors—including those who are mortgaging their homes to buy bitcoin—will be left with nothing, while more sophisticated investors will have made a killing.

The bitcoin crash will likely occur for one of two reasons. U.S. and other governments will begin regulating the currency—removing its anonymity in order to track possible evidence of crimes—or big sophisticated investors, sensing that the top is near, will sell out and start a domino effect.

Right now, those big investors are counting on the hoopla about bitcoin to attract more and more investing novices who will buy the currency and pump prices even higher.

By the time bitcoin crashes, these more savvy investors will be long gone. You'll be the one left holding the bag. As the gambling saying goes, the sucker is the person at the table who doesn't know he's the sucker.

And none of this takes into account the security risks associated with bitcoin. Hackers have fraudsters have stolen millions and millions of dollars of bitcoin so far. And once it's gone, there's no getting it back. There's no FDIC insurance. There's nobody to sue. Remember, it's all anonymous.

Last week, the Chicago Board of Exchange, a financial exchange, started letting investors trade bitcoin futures. Essentially, it's letting people make bets on how much bitcoin will rise or fall. There's no clearer sign that owning or trading bitcoin trading is nothing more than straight-up gambling.

A lot of investing is common sense. Would you buy a dollar bill from me for thousands and thousands of dollars? If not, then you shouldn't be buying bitcoin.

How a Tax Failure Could Topple the Market

Written by Rob Copeland | 17 October 2017

The stock market has soared by 18% since the November election. And the promise of corporate tax cuts has been one of the major reasons why.

Reducing the corporate tax rate to 20% from 35%, as President Trump wants to do, would directly boost companies' earnings. The expectation of this cut, part of a broad push to reduce both corporate and individual taxes to the tune of $5.8 trillion over 10 years, continues to help fuel the market.

But what President Trump and Congress are not able to pass their big, ambitious package of tax cuts? In that scenario, I believe that the market could very well fall hard. Nor would the market be satisfied with a watered-down tax reform; I believe it would react by selling off.

The last tax overhaul took place 31 years ago, in 1986, under President Reagan. And there's a reason no sweeping legislation has been passed since then. Given the competing interests in Washington, it's always been hard to get the needed majorities in the House and the Senate to agree on the details of reform.

This time around, that task figures to be harder than ever, and much more difficult than the doomed push for healthcare reform. The reason is gridlock. Congressional gridlock used to be Republicans vs. Democrats; but now, Republicans can't even seem to agree with each other.

Some Republicans balk at any tax cuts that will increase the budget deficit, while others don't care. Republicans are divided about the estate tax, tax cuts for the rich, and other big questions. And they're certainly not likely to get any help from Democrats, who voted against healthcare reform as a block.

If tax reform fails, sophisticated investors who had hoarded shares of highly taxed companies (which they thought would get a big earnings boost due to a tax cut) will sell those shares. Companies that hired additional people because they expected a tax windfall will lay those employees off. The results could ripple through the economy and the market.

How should you invest, given the possibility that tax reform fails? There's no one formula that will position you to make money but also to hedge against big corrections. They key to building an investment portfolio for uncertain times is to make sure that each individual stock, bond or fund in your portfolio passes the test of quality and price. And the best way to do that is to work with a qualified financial advisor.

Don't hesitate to contact us if you'd like a no-obligation portfolio review.