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The BLUE LINE INVESTING® PRIMARY TREND Update: January 2020

“The only thing that is constant is change”

 – Heraclitus

The US stock market, as measured by the S&P 500 Index (S&P), finished the month of January 6.2% above the Blue Line, compared to 8.40% at the end of December. As such, we view the current primary trend as a rising trend.

 

BLUE LINE PERSPECTIVE

Chart courtesy of StockCharts.com

 

However, last month I expressed my concern that the 4th quarter 2019 rally appeared very “steep.” Unless the S&P is about to break out and rise much higher, this “steepness” may be warning of a temporary price “top.” IF that proves true, there are only two other directions the stock market can go: sideways or down. In the chart above I have added downward sloping arrows to highlight possible price targets if the stock market continues to decline over the coming weeks or months.

Something else worth taking notice of is the divergence that took place on January 22nd. The S&P and the NASDAQ made new price highs, but the Dow Jones Industrial Average did not.  The reason this may be important, at least in the shorter-term, is the last time I recall this happening was at the price bottom in January 2016. During that month, the S&P and the NASDAQ made new price lows, but the Dow Jones Industrial Average did not. Therefore, if a price rally does not materialize relatively soon, the market may retrace some of the price advance from last year.

 

PRIMARY TREND PERSPECTIVE                  

 

To better align this monthly update with both our process and my book scheduled to be published this summer, I will use the following chart going forward to illustrate and monitor the primary trend as we view it.

Chart courtesy of StockCharts.com

 

The two rising dashed green lines represent the primary trend. In the past few years, each time price rose to the top line labeled “Trend Channel Resistance,” shortly thereafter it experienced a price correction. As of today, price is turning down once again from that green line where the red down arrow has been circled. Will it drop all the way back to the bottom of the channel, or even break down through it? Stay tuned to find out over the coming months.

Thank you for reading the BLUE LINE INVESTING® PRIMARY TREND update, and please do not hesitate to call (833) 258-2583 with questions or if we may be of service.

Jeff Link

 

Disclaimers:

BLUE LINE INVESTING® (BLI) is an actively managed investment process that pursues our mission by combining a trend following investment philosophy and a “buy low, sell high” investment strategy. Our mission is to grow our client’s financial wealth over a full market cycle in a risk-managed and tax-efficient way.

We monitor the relationship between price and the Blue Line over time to help identify which stock markets worldwide are experiencing rising, sideways, and declining primary trends. We prefer to invest in those markets experiencing rising or sideways primary trends, while avoiding those markets experiencing declining primary trends. The Blue Line helps us identify these trends, and when changes may be taking place.

The S&P 500 Index is one of the most commonly followed equity indices, and many consider it one of the best representations of the U.S. stock market, and a bellwether for the U.S. economy. It is comprised of 500 large companies having common stock listed on the NYSE or NASDAQ. The volatility (beta) of the account may be greater or less than the index. It is not possible to invest directly in this index.

Technical analysis is a method of evaluating securities by analyzing statistics generated by market activity, such as past prices and volumes. Technical analysis attempts to predict a future stock price or direction based on market trends. The assumption is that the market follows discernible patterns and if these patterns can be identified then a prediction can be made. The risk is that markets may not always follow patterns. There are certain limitations to technical analysis research, such as the calculation results being impacted by changes in security price during periods of market volatility. Technical analysis is one of many indicators that may be used to analyze market data for investing purposes and should not be considered a guaranteed prediction of market activity. The opinions expressed are those of BLI. The opinions referenced are as of the date of publication and are subject to change without notice. BLI reserves the right to modify its current investment strategies based on changing market dynamics or client needs.

Past performance is not indicative of future results. This material is not financial advice or an offer to sell any product. The information contained herein should not be considered a recommendation to purchase or sell any particular security. Forward looking statements cannot be guaranteed.

Advisory services offered through Aptus Capital Advisors, LLC, a Registered Investment Adviser registered with the Securities and Exchange Commission. Registration does not imply a certain level or skill or training. More information about the advisor, its investment strategies and objectives, is included in the firm’s Form ADV Part 2, which can be obtained, at no charge, by calling (251) 517-7198. Aptus Capital Advisors, LLC is headquartered in Fairhope, Alabama.

ACA-20-22

The BLUE LINE INVESTING® PRIMARY TREND Update: November 2019

“The only thing that is constant is change”

– Heraclitus

 

The US stock market, as measured by the S&P 500 Index (S&P), finished the month of November 7.10% above the BLUE LINE, compared to 4.91% at the end of October. The primary trend is currently categorized as Positive.

 

BLUE LINE PERSPECTIVE

Chart courtesy of StockCharts.com

 

As a quick reminder, we monitor the relationship between price and the BLUE LINE over time to help identify which stock markets worldwide are experiencing rising primary trends, sideways primary trends, and declining primary trends. We prefer to invest in those markets experiencing rising or sideways primary trends, while avoiding those markets experiencing declining primary trends. The BLUE LINE helps us identify these trends – and when changes may be taking place between them.

 

TREND CHANNEL PERSPECTIVE

Last month I mentioned I was cautiously categorizing the primary trend as positive. With several client inquiries I will clarify what I meant by that, by putting the current stock market trends into context with the past. Please review the chart below of the S&P 500 Index from 1965 through 1969.

Chart courtesy of StockCharts.com

When looking at the five-year chart above, what you see is a rising trend channel labeled “A” that experienced a price correction labeled “C” in 1966. When the price correction completed, a price rally resumed forming a new rising trend channel labeled “B.” As prices rose, they were stopped by the previous green dashed line, identified by the three gray arrows. Thereafter, price corrected further down to the lowest green dashed line to establish the new rising trend. Price bounced off that green line and rose higher, eventually experiencing a “price top” in late 1968, declining thereafter. The S&P 500 lost over 25% of its value when the trend changed and declined from late 1968 into 1970.

How does the current trend today compare to the mid-to-late 1960’s? Please review the chart below of the S&P 500 Index from 2015 through today.

Chart courtesy of StockCharts.com

When looking at the five-year chart above, what you see is a rising trend channel labeled “A” that experienced a price correction labeled “C” at the end of 2018. When the price correction completed, a price rally resumed forming a new rising trend channel labeled “B.” With this year’s price rally, price has been stopped at the previous green dashed line, identified by the three gray arrows. So, if history decides to repeat itself, it is possible for price to correct down to the lowest green dashed line at some point in the months ahead to establish the new rising trend. Unless the S&P 500 eventually rises back into the original trend labeled “A”, I believe the danger increases that the market could form at least a temporary top within the next year or two, like the late 1960’s. If this occurs, a sell process could come in handy to attempt to limit investment loss should price decline below and remain below the BLUE LINE.

Thank you for reading the BLUE LINE INVESTING® PRIMARY TREND update, and please do not hesitate to call us at (833) 258-2583 with questions or if we may be of service.

Jeff Link

 

Would you find this service more beneficial in video format? If so, please let me know by sending an email to Info@BlueLineInvesting.com. I am considering changing format to a Zoom presentation to narrate this in the future for further clarity.

 

Disclaimers:

BLUE LINE INVESTING® (BLI) is an investment process that seeks to align investment decisions with the prevailing primary trend of the financial markets. BLI seeks to remain fully invested when the financial markets are experiencing either a long-term rising primary trend or a short-to-intermediate sideways trend. When the primary trend begins declining however, the process follows a 3-phase sell process to attempt to limit downside loss. We believe Warren Buffett said it best with his two rules: “Rule No. 1 – Never lose money. Rule No. 2 – Never forget Rule No. 1.”

The S&P 500 Index is one of the most commonly followed equity indices, and many consider it one of the best representations of the U.S. stock market, and a bellwether for the U.S. economy. It is comprised of 500 large companies having common stock listed on the NYSE or NASDAQ. The volatility (beta) of the account may be greater or less than the index. It is not possible to invest directly in this index.

Technical analysis is a method of evaluating securities by analyzing statistics generated by market activity, such as past prices and volumes. Technical analysis attempts to predict a future stock price or direction based on market trends. The assumption is that the market follows discernible patterns and if these patterns can be identified then a prediction can be made. The risk is that markets may not always follow patterns. There are certain limitations to technical analysis research, such as the calculation results being impacted by changes in security price during periods of market volatility. Technical analysis is one of many indicators that may be used to analyze market data for investing purposes and should not be considered a guaranteed prediction of market activity. The opinions expressed are those of BLI. The opinions referenced are as of the date of publication and are subject to change without notice. BLI reserves the right to modify its current investment strategies based on changing market dynamics or client needs.

Past performance is not indicative of future results. This material is not financial advice or an offer to sell any product. The information contained herein should not be considered a recommendation to purchase or sell any particular security. Forward looking statements cannot be guaranteed.

Advisory services offered through Aptus Capital Advisors, LLC, a Registered Investment Adviser registered with the Securities and Exchange Commission. Registration does not imply a certain level or skill or training. More information about the advisor, its investment strategies and objectives, is included in the firm’s Form ADV Part 2, which can be obtained, at no charge, by calling (251) 517-7198. Aptus Capital Advisors, LLC is headquartered in Fairhope, Alabama.

ACA-19-20

 

 

 

A BLUE LINE INVESTING® SPECIAL REPORT: November 15, 2019

“The only thing that is constant is change”

– Heraclitus

 

TOP HEAVY?

Today while performing my weekly research, I came across what may be an important factor regarding the current stock market rally. With the media continuing to announce new highs almost every other day (even if prices rise by only a few points), I was curious to see which specific stocks may be contributing the most in the current price rally. Please refer to the screenshot below that highlights the top five stocks by market weight for the S&P 500 Index as of the close of trading on November 14, 2019. All information is courtesy of SlickCharts.com (www.slickcharts.com).

From the data above, you can observe that of the 505 stocks that comprise the S&P 500 Index, 15% of the current weight of the index is comprised of only 5 stocks: Microsoft, Apple, Amazon, Facebook, and Berkshire Hathaway. Using the BLUE LINE INVESTING® process, Microsoft’s share price is currently trading 15% above its BLUE LINE; Apple’s is 26% above its BLUE LINE; Amazon is 2% below its BLUE LINE; Facebook is 7% above its BLUE LINE; and Berkshire Hathaway is trading 6% above its BLUE LINE. While three of the five are trading within what our process considers “healthy” ranges, Microsoft and Apple are not. As a quick reminder, in February 2018 the S&P 500 Index rose almost 13% above its BLUE LINE, right before experiencing an 11% price correction.

My intent for this special report is not to make a prediction of what may happen next. The market may very well continue to rise in the short-term. Or, at some point it may experience a sharp price correction. Historically speaking, the higher price continues to rise in relation to the BLUE LINE with such a concentration at the top, the greater the risk of at least a price correction.

Thank you for reading the BLUE LINE INVESTING® PRIMARY TREND update, and please do not hesitate to call us at (833) 258-2583 with questions or if we may be of service.

Jeff Link

 

Do you find this commentary beneficial? If not, please let me know how it can be improved. Please send an email to Info@BlueLineInvesting.com.

 

Disclaimers:

BLUE LINE INVESTING® (BLI) is an investment process that seeks to align investment decisions with the prevailing primary trend of the financial markets. BLI seeks to remain fully invested when the financial markets are experiencing either a long-term rising primary trend or a short-to-intermediate sideways trend. When the primary trend begins declining however, the process follows a 3-phase sell process to attempt to limit downside loss. We believe Warren Buffett said it best with his two rules: “Rule No. 1 – Never lose money. Rule No. 2 – Never forget Rule No. 1.”

The S&P 500 Index is one of the most commonly followed equity indices, and many consider it one of the best representations of the U.S. stock market, and a bellwether for the U.S. economy. It is comprised of 500 large companies having common stock listed on the NYSE or NASDAQ. The volatility (beta) of the account may be greater or less than the index. It is not possible to invest directly in this index.

Technical analysis is a method of evaluating securities by analyzing statistics generated by market activity, such as past prices and volumes. Technical analysis attempts to predict a future stock price or direction based on market trends. The assumption is that the market follows discernible patterns and if these patterns can be identified then a prediction can be made. The risk is that markets may not always follow patterns. There are certain limitations to technical analysis research, such as the calculation results being impacted by changes in security price during periods of market volatility. Technical analysis is one of many indicators that may be used to analyze market data for investing purposes and should not be considered a guaranteed prediction of market activity. The opinions expressed are those of BLI. The opinions referenced are as of the date of publication and are subject to change without notice. BLI reserves the right to modify its current investment strategies based on changing market dynamics or client needs.

Past performance is not indicative of future results. This material is not financial advice or an offer to sell any product. The information contained herein should not be considered a recommendation to purchase or sell any particular security. Forward looking statements cannot be guaranteed.

Advisory services offered through Aptus Capital Advisors, LLC, a Registered Investment Adviser registered with the Securities and Exchange Commission. Registration does not imply a certain level or skill or training. More information about the advisor, its investment strategies and objectives, is included in the firm’s Form ADV Part 2, which can be obtained, at no charge, by calling (251) 517-7198. Aptus Capital Advisors, LLC is headquartered in Fairhope, Alabama.

ACA-19-13

 

 

 

The BLUE LINE INVESTING® PRIMARY TREND Update: October 2019

“The only thing that is constant is change”

– Heraclitus

 

The US stock market, as measured by the S&P 500 Index (S&P, see the chart below), finished the month of October up 4.91% above the BLUE LINE, 0.36% higher compared to the end of September. We cautiously categorize the primary trend as Positive due to recent price behavior.

 

BLUE LINE PERSPECTIVE

Chart courtesy of StockCharts.com

 

As a quick reminder to our readers, we monitor the relationship between price and the BLUE LINE over time to help identify which stock markets worldwide are experiencing rising primary trends, sideways primary trends, and declining primary trends. We prefer to invest in those markets experiencing rising or sideways primary trends, while avoiding those markets experiencing declining primary trends. The BLUE LINE helps us identify these trends – and when changes may be taking place between them.

 

TREND CHANNEL PERSPECTIVE

While performing research for a project to be announced next year, I discovered the following potential channels within which the S&P 500 Index may be trending. If you observe this chart from the left and move to the right, you may notice how price tends to act like a ping-pong ball and “bounces” between the top and bottom of the channels. Sometimes price breaks out into a higher channel above the previous one, while at other times it breaks down into a lower channel.

Chart courtesy of StockCharts.com

 

One potential risk that may occur sometime in the future is for price to decline and “retest” the lowest rising green dashed line. That support line dates to early 2016 and while it does not have to happen soon, or even at all, I believe investors should be mindful of its possibility over the coming months.

Thank you for reading the BLUE LINE INVESTING® PRIMARY TREND update, and please do not hesitate to call us at (833) 258-2583 with questions or if we may be of service.

Jeff Link

 

Do you find this commentary beneficial? If not, please let me know how I can improve it. Please send an email to Info@BlueLineInvesting.com.

 

Disclaimers:

BLUE LINE INVESTING® (BLI) is an investment process that seeks to align investment decisions with the prevailing primary trend of the financial markets. BLI seeks to remain fully invested when the financial markets are experiencing either a long-term rising primary trend or a short-to-intermediate sideways trend. When the primary trend begins declining however, the process follows a 3-phase sell process to attempt to limit downside loss. We believe Warren Buffett said it best with his two rules: “Rule No. 1 – Never lose money. Rule No. 2 – Never forget Rule No. 1.”

The S&P 500 Index is one of the most commonly followed equity indices, and many consider it one of the best representations of the U.S. stock market, and a bellwether for the U.S. economy. It is comprised of 500 large companies having common stock listed on the NYSE or NASDAQ. The volatility (beta) of the account may be greater or less than the index. It is not possible to invest directly in this index.

Technical analysis is a method of evaluating securities by analyzing statistics generated by market activity, such as past prices and volumes. Technical analysis attempts to predict a future stock price or direction based on market trends. The assumption is that the market follows discernible patterns and if these patterns can be identified then a prediction can be made. The risk is that markets may not always follow patterns. There are certain limitations to technical analysis research, such as the calculation results being impacted by changes in security price during periods of market volatility. Technical analysis is one of many indicators that may be used to analyze market data for investing purposes and should not be considered a guaranteed prediction of market activity. The opinions expressed are those of BLI. The opinions referenced are as of the date of publication and are subject to change without notice. BLI reserves the right to modify its current investment strategies based on changing market dynamics or client needs.

Past performance is not indicative of future results. This material is not financial advice or an offer to sell any product. The information contained herein should not be considered a recommendation to purchase or sell any particular security. Forward looking statements cannot be guaranteed.

Advisory services offered through Aptus Capital Advisors, LLC, a Registered Investment Adviser registered with the Securities and Exchange Commission. Registration does not imply a certain level or skill or training. More information about the advisor, its investment strategies and objectives, is included in the firm’s Form ADV Part 2, which can be obtained, at no charge, by calling (251) 517-7198. Aptus Capital Advisors, LLC is headquartered in Fairhope, Alabama.

 

 

 

 

The BLUE LINE INVESTING® PRIMARY TREND Update for May 2019

COMMENTARY

The US stock market, as measured by the S&P 500 Index (S&P), finished the month of May -1.00% below the BLUE LINE, compared to +6.70% above the BLUE LINE at the end of April. We continue to categorize the primary trend as Neutral.

As a quick reminder to our readers, we monitor the relationship between price and the BLUE LINE over time to help identify which stock markets worldwide are experiencing rising primary trends, sideways primary trends, and declining primary trends. We prefer to invest in those markets experiencing rising or sideways primary trends, while avoiding those markets experiencing declining primary trends. The BLUE LINE helps us identify these trends – and when changes may be taking place between them.

THE BIG PICTURE

The weekly* chart below of the S&P shows three changing trends over the past five years. The Green dashed lines highlight a rising trend; the Gray dashed lines highlight a sideways trend; and when pictured, Red dashed lines highlight a declining trend.

Based on the observable pattern above (see Sideways Trend #2?) it currently appears the S&P is likely in a sideways trend. If so, this type of trend can be frustrating for investors as prices tend to rise and decline for an undefined period with little price advancement. While frustrating, we believe sideways trends offer two potential advantages for some investors. First, they may offer strategic target prices to purchase into the stock market with money held in cash equivalents within a stock strategy. Second, for investors who make new contributions to their accounts, a sideways trend can help with the timing of when it may be advantageous to invest the money into the market in the short-term compared to the alternative of making random purchases at any price.

For clients of BLUE LINE INVESTING® please do not hesitate to call us with questions at (833) 258-2583.

Jeff Link

 

Disclaimers:

 * Each vertical line on the chart represents one week of price change.

BLUE LINE INVESTING® (BLI) is an investment process that seeks to align investment decisions with the prevailing primary trend of the financial markets. BLI seeks to remain fully invested when the financial markets are experiencing either a long-term rising primary trend or a short-to-intermediate sideways trend. When the primary trend begins declining however, the process follows a 3-phase sell process to attempt to limit downside loss. We believe Warren Buffett said it best with his two rules: “Rule No. 1 – Never lose money. Rule No. 2 – Never forget Rule No. 1.”

The S&P 500 Index is one of the most commonly followed equity indices, and many consider it one of the best representations of the U.S. stock market, and a bellwether for the U.S. economy. It is comprised of 500 large companies having common stock listed on the NYSE or NASDAQ. The volatility (beta) of the account may be greater or less than the index. It is not possible to invest directly in this index.

Technical analysis is a method of evaluating securities by analyzing statistics generated by market activity, such as past prices and volumes. Technical analysis attempts to predict a future stock price or direction based on market trends. The assumption is that the market follows discernible patterns and if these patterns can be identified then a prediction can be made. The risk is that markets may not always follow patterns. There are certain limitations to technical analysis research, such as the calculation results being impacted by changes in security price during periods of market volatility. Technical analysis is one of many indicators that may be used to analyze market data for investing purposes and should not be considered a guaranteed prediction of market activity. The opinions expressed are those of BLI. The opinions referenced are as of the date of publication and are subject to change without notice. BLI reserves the right to modify its current investment strategies based on changing market dynamics or client needs.

Past performance is not indicative of future results. This material is not financial advice or an offer to sell any product. The information contained herein should not be considered a recommendation to purchase or sell any particular security. Forward looking statements cannot be guaranteed.

Advisory services offered through Aptus Capital Advisors, LLC, a Registered Investment Adviser registered with the Securities and Exchange Commission. Registration does not imply a certain level or skill or training. More information about the advisor, its investment strategies and objectives, is included in the firm’s Form ADV Part 2, which can be obtained, at no charge, by calling (251) 517-7198. Aptus Capital Advisors, LLC is headquartered in Fairhope, Alabama.

The BLUE LINE INVESTING® April 2019 Primary Trend Update

Commentary: The US stock market, as measured by the S&P 500 Index (S&P) finished the month of April 6.70% above the BLUE LINE, compared to +4.00% above the BLUE LINE at the end of March. We continue to categorize the primary trend as Neutral.

THE BIG PICTURE

The chart below is a weekly version of the S&P of the past five years. Each vertical line on the chart represents one week of price behavior.

From a technical analysis perspective, the S&P may be at resistance. If you refer to “Sideways Trend 1” that occurred from 2014 through 2016, you will notice price bounced like a ping-pong ball between the upper and lower dashed gray lines as price consolidated past gains. If price fails to make material progress from current price levels it is possible the market may do something similar over the coming months and/or quarters. Based on our observations, we believe it is possible that prices could “bounce” down 11% from current prices if Sideways Trend 2 plays out. Please note – we are not predicting this will happen. We are simply pointing out what could happen if the current primary trend is a sideways trend, compared to a rising trend.

For clients of BLUE LINE INVESTING® please do not hesitate to call us with questions at (833) 258-2583.

Jeff Link

 

Disclaimers:

BLUE LINE INVESTING® (BLI) is an investment process that seeks to align investment decisions with the prevailing primary trend of the financial markets. BLI seeks to remain fully invested when the financial markets are experiencing either a long-term rising primary trend or a short-to-intermediate sideways trend. When the primary trend begins declining however, the process follows a 3-phase sell process to attempt to limit downside loss. We believe Warren Buffett said it best with his two rules: “Rule No. 1 – Never lose money. Rule No. 2 – Never forget Rule No. 1.”

The S&P 500 Index is one of the most commonly followed equity indices, and many consider it one of the best representations of the U.S. stock market, and a bellwether for the U.S. economy. It is comprised of 500 large companies having common stock listed on the NYSE or NASDAQ. The volatility (beta) of the account may be greater or less than the index. It is not possible to invest directly in this index.

Technical analysis is a method of evaluating securities by analyzing statistics generated by market activity, such as past prices and volumes. Technical analysis attempts to predict a future stock price or direction based on market trends. The assumption is that the market follows discernible patterns and if these patterns can be identified then a prediction can be made. The risk is that markets may not always follow patterns. There are certain limitations to technical analysis research, such as the calculation results being impacted by changes in security price during periods of market volatility. Technical analysis is one of many indicators that may be used to analyze market data for investing purposes and should not be considered a guaranteed prediction of market activity. The opinions expressed are those of BLI. The opinions referenced are as of the date of publication and are subject to change without notice. BLI reserves the right to modify its current investment strategies based on changing market dynamics or client needs.

Past performance is not indicative of future results. This material is not financial advice or an offer to sell any product. The information contained herein should not be considered a recommendation to purchase or sell any particular security. Forward looking statements cannot be guaranteed.

Advisory services offered through Aptus Capital Advisors, LLC, a Registered Investment Adviser registered with the Securities and Exchange Commission. Registration does not imply a certain level or skill or training. More information about the advisor, its investment strategies and objectives, is included in the firm’s Form ADV Part 2, which can be obtained, at no charge, by calling (251) 517-7198. Aptus Capital Advisors, LLC is headquartered in Fairhope, Alabama.

The BLUE LINE INVESTING® March 2019 Primary Trend Update

Commentary:

The US stock market, as measured by the S&P 500 Index (S&P) finished the month of March 4.00% above the BLUE LINE, compared to +2.81% above the BLUE LINE at the end of February. With price behavior continuing to be volatile with price oscillating through the BLUE LINE, we continue to categorize the primary trend as Neutral.

THE BIG PICTURE

Sometimes it can help to step back and look at the big picture. The chart below is a weekly version of the S&P of the past five years. Each vertical line on the chart represents one week of price behavior.

From a technical analysis perspective, the S&P may be within a second sideways trend. If so, it is possible for price to consolidate over the coming months at or below the current price level, similar to what happened during 2014 and 2015 (See sideways trend 1 above).  At this moment the S&P is back to where it was at the end of January 2018.

We have recently posted a video presentation on our website called A Historical Perspective that illustrates these types of trends, or trend channels, as they are often called. Please visit www.BlueLineInvesting.com/process if you would like to see how these types of trends have played out since the 1930’s.

For clients of BLUE LINE INVESTING® please do not hesitate to call us with questions at (833) 258-2583.

Jeff Link

 

Disclaimers:

BLUE LINE INVESTING® (BLI) is an investment process that seeks to align investment decisions with the prevailing primary trend of the financial markets. BLI seeks to remain fully invested when the financial markets are experiencing either a long-term rising primary trend or a short-to-intermediate sideways trend. When the primary trend begins declining however, the process follows a 3-phase sell process to attempt to limit downside loss. We believe Warren Buffett said it best with his two rules: “Rule No. 1 – Never lose money. Rule No. 2 – Never forget Rule No. 1.”

The S&P 500 Index is one of the most commonly followed equity indices, and many consider it one of the best representations of the U.S. stock market, and a bellwether for the U.S. economy. It is comprised of 500 large companies having common stock listed on the NYSE or NASDAQ. The volatility (beta) of the account may be greater or less than the index. It is not possible to invest directly in this index.

Technical analysis is a method of evaluating securities by analyzing statistics generated by market activity, such as past prices and volumes. Technical analysis attempts to predict a future stock price or direction based on market trends. The assumption is that the market follows discernible patterns and if these patterns can be identified then a prediction can be made. The risk is that markets may not always follow patterns. There are certain limitations to technical analysis research, such as the calculation results being impacted by changes in security price during periods of market volatility. Technical analysis is one of many indicators that may be used to analyze market data for investing purposes and should not be considered a guaranteed prediction of market activity. The opinions expressed are those of BLI. The opinions referenced are as of the date of publication and are subject to change without notice. BLI reserves the right to modify its current investment strategies based on changing market dynamics or client needs.

Past performance is not indicative of future results. This material is not financial advice or an offer to sell any product. The information contained herein should not be considered a recommendation to purchase or sell any particular security. Forward looking statements cannot be guaranteed.

Advisory services offered through Aptus Capital Advisors, LLC, a Registered Investment Adviser registered with the Securities and Exchange Commission. Registration does not imply a certain level or skill or training. More information about the advisor, its investment strategies and objectives, is included in the firm’s Form ADV Part 2, which can be obtained, at no charge, by calling (251) 517-7198. Aptus Capital Advisors, LLC is headquartered in Fairhope, Alabama.

Potential Perils of Passive Investing

Potential Perils of Passive Investing

 

According to Standard and Poor’s (S&P), nearly 89% of active mutual fund managers underperformed their benchmarks over five years, and 82% did the same over the last decade ending in 2014. When reading statistics like these, why would any investor consider an investment strategy outside of passive index investing? In other words, why not just use mutual funds that mimic the index that also happen to charge a low internal fee? After all, “if you can’t beat them, join them,” as they say. There are few reasons to be unhappy as a passive investor when stock markets are rising, but what happens when stock markets are falling? Remember, passive index investing is like a ball floating on the ocean going wherever the tide takes it. Before embracing passive index investing you might want to consider some of the invisible costs which include: (1) the Relative Cost, (2) the Time Cost; and (3) the Opportunity Cost.

The Relative Cost

I recently met a gentleman who uses a well-known mutual fund family for all of his investments. The primary reason for using such a strategy is the “low cost” of the index mutual funds. But I asked him if he ever compared the internal cost of the investment in relation to the gain or loss during different stock cycles?

For instance, if he had originally invested $100,000 in a specific US stock market index fund, the annual expense would be 0.15%, or $150 per year. Seems cheap, right? But is it cheap relative to the result from being invested from the peak of the market in 2000 until the bottom in 2003? The result from such a passive indexing strategy would have been a loss of more than 48%, or a decline in dollar terms of more than $52,000 on a $100,000 initial investment. Would you consider that a “low-cost” investment when considered in relative terms?

The Time Cost

Have you ever heard the comment “the market always comes back?” Throughout history, that statement tends to bear true, but not always. Consider a passive index investor who bought into the Japanese stock market near the peak in 1989. At the time, the Nikkei Index was above 30,000 on its way towards 39,000. But fast forward to today, and it’s slightly above 20,500. After 26 years, a passive index investor is still waiting to get his or her original investment back. Could you afford to wait for over 26 years to get your original investment back if you made your initial investment at the wrong time?

The Opportunity Cost

The third cost, also related to the time cost, is the opportunity cost. Specifically, what an investor could have done with his or her money to be better off as an alternative to being passively invested in the stock market. For this reason, many investors “diversify” into other investment categories. Whether using certificates of deposit (CD’s), bonds of various types, gold, real estate, collectibles, or other investments, diversification can help investors put some of their money in areas that are rising in an attempt to ensure they don’t have all of their money in one area that is declining.

But can too much diversification be a bad thing? I believe the answer is yes. I believe this investment approach may diminish in future years as investors become wiser and more knowledgeable. I believe they will actively seek out strategies that focus on allocating more money towards investments that appear to be in positive trends while learning how to avoid allocating money towards investments that appear to be in negative trends just for the sake of “diversification.”

Whether you are an investor currently using a passive indexing strategy or one who is considering it, I hope you have a better understanding of some of the unseen costs and how they may negatively impact your long-term financial success. But before concluding this article, I have to say one thing I have always found curious. Besides statistics, many proponents of passive index investing say it is because no one can successfully “time” the market? But isn’t it ironic that one of the prime factors for why one passive investor is successful compared to another is due solely to the “timing” of when each makes their initial investment?

Jeffrey D. LINK

Disclosure:

The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the Nasdaq. The DJIA was invented by Charles Dow back in 1896. It is not available for direct investment. The Nikkei 225, more commonly called the Nikkei, the Nikkei index, or the Nikkei Stock Average is a stock market index for the Tokyo Stock Exchange (TSE).

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IMPORTANT DISCLOSURE NOTE: At the time this blog entry was published, Mr. Link was an Investment Adviser Representative with Guardian Capital Advisors, LLC (GCA, LLC). In December, 2015, GCA merged with Gordon Asset Management, LLC (GAM) a registered investment adviser, at which time Mr. Link’s registration as an Investment Adviser Representative was transferred to GAM. More information about GAM, including its investment strategies and objectives, can be obtained by visiting www.WealthQB.com, or in its Form ADV Part 2, which is available, at no charge, upon request, by calling (866) 216-1920.