January 16, 2019

Welcome to our first newsletter of 2019.  While I would not want to wish my life away, I am glad to put 2018 in the rear-view mirror.  Leaving December was like finally getting around that slow-moving truck you’ve been stuck behind for the last 10 miles.

As far as markets go, Decembers are a bit strange anyway.  Advisors around the country are selling losers for tax-loss harvesting.  Mutual Funds and ETF’s must declare and pay-out their Capital Gains in December which increases cash balances but MF fund balances fall.  Then lastly, no advisor or institutional investor really wants to reach down to buy any position in December that had negative issues during the year.  (They know the position will appear on the December statement and there is little reason to create more investor consternation in an already poor year.  This is window dressing in reverse.)

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December 24, 2018

I can safely say that the year 2018 will not make the Hall of Fame for Investment years.  The year has had its times of greatness followed by some serious bouts of negativity.  And as I write this it is readily apparent that there will be no Santa Claus rally.  Nothing but coal in our stocking this year.  We started 2018 in a sprint and by February we were spent.  To put it nicely, it has been a frustrating year.

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November 20, 2018

I once had to take a class in Victorian Literature.  (When you attend school part-time while working full-time and shift-work you take the classes that fit your schedule and not necessarily ones that fit your interest.)  I didn’t really know what “Victorian Literature” was—but hey, I was an English Major, so I had better get started on some English.  Nothing is more “English” than Victorian Literature.  My first night of class I learned that we would need to read and write papers on 10 novels written and published during the reign of Queen Victoria—roughly the second half of the nineteenth century.  Well, there went my Spring.

One of the 10 novels was Bleak House, written by Charles Dickens.  It was huge (over 900 pages).  It was deep, it was extremely detailed, and I loved it.  After that class, I would go on to read the rest of Dickens’ works and he has become one of my favorite authors.  His stories are essentially about people and their follies.  The typical Dickens novel is about developing strong characters and reporting how they react to each other during mundane, everyday events in their everyday lives.  And the names—wow, the names!

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October 16, 2018

Last week was not a pretty week in the markets.  From Wednesday the 10^th to Tuesday’s the 16^th, the Dow Jones Industrials lost about 3.2%, the S&P 500 lost 3.15% and the Nasdaq dropped a little over 2%.  Most of those losses came on Wednesday and Thursday and there was no specific villain to blame.    International stocks followed the US right off the cliff-edge.  (The US sneezed and the world caught a cold.)

Even with last week’s downhill ski-jump chart, the averages still stand higher than the start of 2018.  As of today, the lowest close this year came on February 8 for the NASDAQ (6,777) and the S&P 500 (2,581) and on March 23 for the Dow (23,533.)  We are well off those lows despite the hysterical media claims at the time; “correction is here,” “end of the bull market,” “beginning of the recession,” and their favorite verb, “dumping of stocks continue.”  After all that, and last week, the markets seem to be marching on to another positive year, albeit a small positive.

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September 18, 2018

We seem to be a country always waiting for the next shoe to drop.  The Market and the economy are on a strong run of accelerating growth and almost everyone is wondering when will it end.  After all, nothing grows to the sky.  And when the next recession comes we will look at it with a content (read arrogant) look and mention to whoever will listen to us, “I told you so!”

Since the end of WWII, we have had 11 recessions, each averaging around 11 months in duration.  So in 73 years, we have had 11 years of recessions.  As far as predictions of impending recessions, I would bet a dollar to a dozen donuts we have had predictions of an impending catastrophic recession each and every year.  And 11 of those 73 predictions have been correct.  BIG DEAL!  Guess what, I will go on the record as predicting the next recession.  When will it happen?  In the future.

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Email Newsletter #12

Bears and Bulls

When asked what the markets will do, J. P. Morgan famously told the questioner, “they will fluctuate.”  Market fluctuation is why market investments outperform most other “safe” investments.  In this way, fluctuation is our friend.  We are rewarded for patience, courage, and persistence in the face of down markets.

When a market falls more than 20% from its peak it is called a bear market.  Bears, when they attack drag their prey downward.  And just like the Grizzly Bear’s prey, a bear market can feel like your heart and lungs are being ripped out.  When the market rewards you with a 20% rise (for your patience, courage, and persistence) it is called a bull market.  Think of the matador thrown upward by the Bull.

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Email Newsletter #11

The New Tax-law is effective this year and it will eventually cause changes in behavior that I think many people are not yet aware of.  To be sure, the new law has already begun to change consumers and alter the items they spend their capital on.  But I don’t think the full effects have filtered in yet and once this tax-year is reported and paid for, I think we will see a drastic behavioral change next year.

As many of you know the Knight’s are boat owners.  Currently, we are permitted to deduct the interest paid on the boat loan from our income since the boat is considered a second or let’s say vacation home.  It is one of the incentives Congress gave to us over the years to buy a bigger boat and to borrow the money to pay for it.  Beginning on January 1, 2018, the ability to deduct the mortgage interest on vacation homes (and boats) disappears with the new law.  (Thankfully this grandfather is grandfathered in.)

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June 13, 2018

Given enough time markets will go up!  That is an undeniable truth if you place any value at all in historical evidence.  And historical evidence is the only thing we really have when it comes to trying to figure out what the market will do next.  From January 1, 1998, to December 29, 2017, $10,000 invested in the S&P 500 (if you could invest in the index) would have returned an average of 7.2% and grew to $40,135[i].  The only thing the investor needed to do, was not touch the money.

During those years we had all kinds of scary things happen.  As far as the markets go, probably 2008 was the worst.  At one point during 2008, the S&P was down 49%.  In 2002 there was an intra-year drop of 34%.  How easy and comforting it would have been to pull the investments and stash it in the proverbial mattress.  But what a steep opportunity cost just to be comfortable.

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May 16, 2018

Of all the questions we have with clients one of the most frequent is something related to how much money can they safely take from their investments without running out of money too early.  In the Financial Planning profession, there have been books, papers, studies and in the end, entire careers made from this very question.  This is known as the safe withdrawal rate and it is usually expressed as a percentage.  Daily, someone somewhere in the industry questions the current “safe withdrawal rate” as being one of two things; too conservative or too dangerous.

As many of you know I subscribe to a 5% rate with a couple of caveats.  We must be flexible in our spending, we must watch when and what we sell to fund the withdrawals, and lastly, we must keep some money in a relatively safe bucket to protect against the sequence of returns problem.  So I was pleasantly surprised to read a Vanguard Continuing Education module that covered this exact issue with some common sense and without the usual, incessant, and predictable push for more annuity sales.

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April 9, 2018

By now I hope you have met with your tax-preparer and completed this year’s returns.  2017 taxes are not affected by the tax law that was recently passed.  In most cases, your tax-bite will be less in 2018 than 2017 so if you did OK this year, you should do better in 2018.

One fly in the ointment for Maryland tax-payers is the limits the new law puts on State and Local Tax (SALT) deductions.  In 2018 you will only be allowed to deduct up to $10,000 in State and Local Taxes, and this includes your Property Taxes.  On your 2017 tax-form, look at Line #9 on the Schedule A, Form 1040 and see what number is recorded there.  Next year that number is maxed-out at $10,000.   Losing this deduction increases the income subject to Federal Tax and thus you may owe more to the Feds.

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