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Oaktree Financial Advisors Blog

Financial Media is Perpetually Pessimistic and Often Wrong. Ignore It.

Written by Ed Snyder on .


The Dow Jones Industrial Average finished down 237.85 points or 1.14% yesterday. This is no big deal. In fact, the market has declined 5% or more every 5 months on average since 1946*. That's 183 times. Dare I say it's normal. Here's an excerpt from an excellent article that appeared at, written by Charles Lieberman about the media's nearly constant shouting at us about the doom and gloom to come.

Volatility has declined very sharply, so quite naturally, pundits suggest that investors are complacent and conditions are ripe for a nasty surprise. Such warnings deserve harsh criticism.

First, volatility should be down, given the performance of the economy and markets. Second, focusing on volatility encourages short-term thinking, which is extremely harmful to investors trying to achieve their long term goals. Third, it is entirely useless to warn against a potential market decline when the warning is provided without any kind of time framework.

High volatility is a normally occurring, yet unpredictable, event, at least insofar as timing is concerned. Market declines of 10 percent occur almost annually, and even multiple times within a calendar year. This is simply within the normal range of historical volatility. Yet when it happens, some pundits go wild, suggesting the drop is just the first leg down of a much larger decline. In fact, several such declines have occurred since March 2009, yet the market has risen more than 200 percent off that low. When the decline proves to be temporary, such negative market commentary disappears temporarily, waiting for the next opportunity to warn of another bout of market volatility. Or, they forecast that the decline in volatility demonstrates that investors have become complacent and vulnerable.

Why shouldn't the markets be complacent right now? Economic growth has been on an incredibly consistent, yet moderate 2 percent trajectory for some years. Unemployment is less than 5 percent, down from 10 percent in 2009. Corporate profits are rising again, after faltering due to a large slowdown in the oil patch following the big drop in crude prices. That took inflation close to zero, which some pundits suggested would start a problematic bout of deflation. Instead, it proved to be just a temporary interlude before prices converged to the higher "core", which declined only slightly. Now, both are reverting to 2 percent, which has enabled the Fed to start gradually normalizing interest rates.

I would care little about these Chicken Littles and their desire to instill fear in the hearts of investors for their purposes, except that they inflict enormous harm on individual investors. How often do retail investors read such warnings and decide that to be safe, they should reduce their exposure to the market? Some pull out entirely. It happens far too frequently. I know of one individual, a close friend of a client, who converted his entire portfolio into cash late in 2008 and has been unable to bring himself to buy back in to this very day! For years now, he thinks he's missed the recovery, because he's read warnings that stock prices are high and vulnerable.

I'm back. I said above that a 5% decline happens about twice a year on average. It was off 1% yesterday. I don't know how often that happens, but obviously much more often than twice a year. If it's normal to have a 5% or more decline a couple times a year then it stands to reason that it's also normal to have a 1%-plus decline several times a year, on average. But no one has told the media. They must not realize how normal it is. Look at some of the headlines after the market close.

Not only do they not realize how normal it is, they insist on tying a reason, or multiple reasons or causes to the market's pullback – or as one headline put it "came to a screeching halt." One article stated "The catalyst for Tuesday's slump wasn't definitive." How about, sometimes the market just goes down. However, that same article went on to say "some market participants attributed the slump in equities to fears that Trump's legislative agenda as it pertains to Wall Street would face delays as the GOP-led health-care overhaul plans appeared set to struggle on congress". And "Perhaps factoring in the decline for financials was a slide in Treasurys..." You can see it in the headline above, "Trump honeymoon over: Markets are now scared his policy promises won't come true."

The truth is that the events of the day and the fact that the market was down are independent of one another, for the most part. I mean, sure, there are factors that can drive the market down but no one can pinpoint the timing of those factors or the degree to which they impact the market. Just look at the election as an example. Everyone and their brother said that if Trump was elected the market would hate it. All of the so-called experts couldn't have been more wrong. I feel sorry for the people that made any investment decisions based on those predictions! The Dow is up over 12% and more than 2,300 points since the election.

If they keep predicting bad things long enough they will eventually be right. As Paul Samuelson is famous for saying, "Wall Street indices predicted nine out of the last five recessions."

Ignore the headlines. It's just noise. Focus on the long term. (this is a 10 year chart)

Not the short term. (this is a one day chart)

And for crying out loud keep a positive outlook and attitude.  With that in mind, I'll leave you with this from Barry Ritholtz - "The data strongly suggest that very good years in the U.S. stock market are followed by more good years." 

* American Funds - Long-Term Investors Can Weather Market Declines

Headlines from of CNBC, CNN, MSN.

Charts: From showing Dow Jones Industrial Average

All indices are unmanaged and investors cannot actually invest directly into an index. Unlike investments, indices do not incur management fees, charges, or expenses. Past performance does not guarantee future results. Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Dow: A price-weighted average of 30 actively traded blue-chip stocks, primarily industrials including stocks that trade on the New York Stock Exchange.


How to Save Money and Time on Stuff You Buy and Never Leave Your House

Written by Ed Snyder on .

woman on computer blog

Don't you love going to the grocery store and loading up your cart with the toilet paper, paper towels, diapers and dog food? By the time you've got these in the cart, there's no room for the groceries. Or how many times has this happened? You get an email from home that you're out of dog food and can you please pick some up on the way home. You likely just want to get home and don't want to stop anywhere.

Many times in today's society we pay more for convenience. It comes down to a trade-off between your time and your money. What if I told you that you could save time and money. You don't have to make the trade-off. You can have both! You could be done with hauling a 30 pound bag of dog food out of the store with your other 12 bags of groceries.

How to Reduce Income Taxes on a Severance Package

Written by Ed Snyder on .

eli lilly corporate center blog

Business and industries are constantly under pressure from many different directions – shareholders, government agencies, consumers and competitors. In reaction to these pressures and in preparation for the future continued success of the business, many times companies lay people off. Among those companies recently is Eli Lilly. Unfortunately, these are the pressures of business, especially in a highly-competitive and rapidly changing industry like pharmaceuticals.

A severance package is offered to help bridge the gap between employment or into retirement. The severance benefit offered to employees has generally been from 3 months to 18 month's compensation based on the employee's years of service and it's paid out in a lump sum. That means you get one check with the entire amount. The lump sum is subject to ordinary income tax. With a large amount of money like this received in one year, especially if combined with other income earned during the year, you can easily find yourself in a higher tax bracket as a result of the severance payment. Even though income tax is withheld from your severance check, it may not be enough to cover the full tax liability on the lump sum.

Dow 20,000. Now What?

Written by Ed Snyder on .

dow 1987 - 2017 

The Dow hit 20,000 yesterday. We've been waiting weeks for this. It got oh so close three weeks ago on January 6th and again on January 11th.  But then it retreated more than 220 points in the next eight days closing at 19,732 on January 19th, leaving one to wonder if maybe it would be awhile yet before the market hit this milestone we'd been so close to. And just as we may have been thinking that, the market marched up 336 points in 4 short business days to breach that highly anticipated number – 20,000.

The Dow's moves in January are a microcosm of how it's moved over the last 40 years. In 1987 the Dow peaked at 2722 (an all-time high at that time) on August 25th. On October 19th, known as "Black Monday", the Dow dropped over 500 points from 2246 to 1738. It took two more years, until August of 1989 for the Dow to get back to 2722. The Dow roared through the 1990s opening at 2810 and ended 1999 at 11,497. As exciting as the 90s was for stocks, the 2000s was anything but, with the Dow opening at 11,497 on January 3, 2000 and closing at 10,428 at the end of 2009. In October 2008 the Dow dropped from 10,831 on the 1st to 8,451 by the 10th and continued downward to 6,547 on March 9, 2009. That was the bottom and since then the market has been ascending to its current level of 20,068.

So here we are. Now what? Some will say that the market is overvalued and we're due or overdue for a huge correction. Others will say that we can go marching upward from here. The reality is that no one knows for sure. I'll be the first to tell you that I don't have any idea. But the good news is that we don't need to know.

Most people can probably admit to themselves that they don't know where the market will go from here. Where a lot of people have a problem is accepting that fact. They watch the investment shows on TV and hear a guy on the radio or see an article online and try to get some "insight" into where the market's headed next.

I'm okay not knowing where the market may go in the short term. I'm not investing for the short term. I'm confident of where the market is going over the long term – and that's what I'm investing for. If you can get okay with the fact that you don't need to try to figure out the market's short term moves, you will be one step closer to investment success – and you will sleep better at night.

Since 1987 the Dow has been all over the place – way up in the 90s, flat for a decade from 2000–2009, way down in 2008-2009, and back up again from 2009 until now. But long-term, big picture, it's increased ten-fold. You didn't have to know any of those market moves were going to happen. All you had to do was continue investing. The market was going to go up ten-fold with or without you. So don't sweat the short-term, don't worry about where the market's going from here. It's time in the market that matters, not timing the market.

15 Things to do When You Lose Your Job

on .

cellphone pen notebook 

Whatever employers like to call it, being laid off, downsized, restructured or right-sized, the result is the same – you're out of a job. And regardless of why, being laid off from a job can be a traumatic, stressful experience, one that can cause you to lose sight of your own self-worth, your value as a worker and provider for your family, and even your career direction and purpose. The bad news is that it will probably happen to most of us during our careers, including you. The good news is that with a little preparation and smart thinking you can lessen its blow and more easily make the transition to the next chapter in your work life.

Here are few tips to help you handle a lay off:

1. DON'T TAKE IT PERSONALLY. Being laid off is not about you or your contribution to your company. It's about your company's need to reduce expenses. It's not about your failure; it's about your company's failure to raise enough money to support all of its workers. Often, very talented people are laid off.