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We hope you find the articles on our blog informative and helpful. You are always welcome to chat with us if you have any questions about your personal financial situation.

Why Navigating the Markets and Your Financial Future Require a Clear Head?

In a sea of constantly moving variables, navigating the markets (an art and science unto itself) and your financial future ( think taxation, IRA's, life insurance, pensions, other critical insurance, the amount needed for your retirement, estate planning) and the situation can be over-whelming. We cannot see the future, so at best we can imperfectly try to predict it based on historic data and patterns that can often repeat.

In order to successfully navigate and compute all of the above variables and potential changes so that you can both protect and maximize your financial future, you need an uncommonly clear head which comes from experience, expertise, knowledge and the ability to adapt. It's not unlike any profession. However, when it comes to your finances the wrong decisions can have an irreversible impact on your life and loved one's.

As a former airline pilot many years ago, you qickly learn there is no room for "error". The entire process from take-off to landing requires meticulous attention to detail and any flaws in judgement can have life and death implications. This training has served me well over the 28 years of my financial advisory career. We have a significant ammount of money under management for our clients and this alongside each families complex financial situation and requirements requires precise calculations, ongoing calibration and clear navigation.

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The Mainstream Media Can Help Investors, but Not Always in the Ways You Might Think

Is the mainstream media a voice you can trust when it comes to helping you manage your wealth? While you may see some good articles on occasion, by and large the mainstream media is there to shock and awe! it's important to remember that the mainstream media's primary objective is to get viewers attention. In order to do that, it needs to utilize copy for headlines that will grab people's attention. It's only business one could say. Sure, but this business can have a significant impact on people's emotions and when it comes to making decisions about matters that impact your finances, emotions can and do play a significant role in peoples decision making.

A neutral headline rarely get's people's attention. When stocks drop or rise significantly, the headlines will capture the mood of "elation" or "depression". The "Sky is falling" is typically the mood when the stock market drops significantly or, alternatively, the mood of "Everyone is making money like it is growing on trees" prevails when the stock market is rising or company "x" is going to go up for ever.

The above is a common default position of the media and while the content will of course be different in every case, the emotion of "fear" or "greed" is underlying the content depending on whether the market or a company is going up or down.

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Short Term Trading vs. Long Term Investing - Who Are The Winners?

With so much talk in the news of day traders and investors, we thought it would be useful to discuss whether the allure and excitement of short term trading outweighs the more boring strategy of long term investing. On the surface, day trading or short term trading appears to be a relatively easy way to make money. With Tesla and Apple and other tech stocks posting such enormous gains in a relatively short time frame, what is so complicated about doing that?

The reality is that timing the markets and individual stocks in the short term is very challenging for the professional traders with all the tools and technology at their disposal, which makes the odds of success even more stacked against non-professional short term traders. There are periods in time where short term trading strategies can work swimmingly but this this is not the case over the long term.

It is well documented that in general for the most part, buy and hold investors often outperform short term traders (after tax and other costs are factored in) by 6-7% per annum. There are always a small number of day or short -term trader success stories that are promoted by the media of course, but the reality is that over the long term most day or short term traders are not successful and eventually lose money.

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Why More Stimulus is Inevitable Along With Rising Inflation & A Likely Devaluation of the Dollar

The COVID induced recession has had a severe impact on the economy with the poorer segments of the population bearing the brunt of the impact. Millions have lost jobs or seen their income significantly reduced. While the Government stepped up with over $3 Trillion in stimulus and support to small and large businesses, extending and supplementing unemployment benefits, the supplemental benefits ended last month. States have also stepped up asking utility companies to put a morotorium on payments for those who have lost their jobs. These morotorium's are also expiring in many states.

More Stimulus is Inevitable

It is estimated by the NEADA that electric and gas debts will exceed $24.3 billion by the end of 2020. In Indiana, for example, it is estimated that over 110,000 households are behind on their utility bills by over 120 days. In Wisconsin 3 in 10 households are behind on their bills. This is just the tip of the iceberg. A percentage of the very same households are behind on rent or mortgage payments. The impact on the health, security and safety of families who are impacted by this is serious. Likewise these sums will have a significant impact on the utlity companies themselves.

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Market Valuation Models - Are They Useful for Identifying Opportunity & Managing Risk?

Valuation models such as the Price/Earnings (P/E) Ratio or adjusted versions of the latter such as the Shiller price-to-earnings ratio (which is a P/E ratio based on average inflation-adjusted earnings from the previous 10 years) aim to project and predict the relative earnings power of a company over a period of 10 years. The higher the PE ratio is, the greater the expectation a company will deliver strong growth and profits. The expectations of strong growth and profits and rewarded by the markets with a higher valuation. Conversely, the lower the P/E Ratio, the lower the expectation of the company's growth rate. This is likewise reflected in the overall valuation of a company.  Price/Earnings rate multiples will inevitably decline once a company reaches a certain size which is offset to a degree by the greater earnings realized.

Can the P/E ratio help you mitigate risk and optimize returns? It can be a useful factor or variable that should be taken into account along with a number of other variables. For example, it is a useful measure for comparing a company to it's competitors and the aggregate P/E ratio of companies in a particular sector vs another sector of the economy or the market as a whole. Expectations are of course based on human analysis and an unknown outlook of the future. The higher the expectations and resulting valuations, the more risk as a lot needs to go right and keep going "right" in order to justify higher P/E ratios and valuations.

High P/E Ratios can help you identify up and coming companies that the market is identifying as having the strongest potential. Such companies are often referred to as "Momentum" stocks and can deliver significant gains. Companies with strong sales growth provide a foundational underlying metric that offers investors a rational reason for paying a high P/E Ratio for a company. However, this is not always the case. Companies can command high P/E ratios on the promise of high sales and earnings expectations while not yet having any meaningful revenues or earnings. Such companies command even higher risk and warrant expert analysis.

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Hawley Advisors
1600 South Main Street, Suite 190
Walnut Creek, CA 94596
Phone: 925-906-9800
Fax: 925-906-9884
info@hawleyadvisors.com

 

 

Hawley Advisors is an investment advisor, registered with the State of California. Any investment ideas or strategies on this website are for the purposes of education and general information only and should not be construed as specific investment advice. For more information about our firm please check the SEC Public Disclosure website: https://www.adviserinfo.sec.gov/

 

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