Making sense of recent market volatility

This past week has been a very unsettling time for markets and investors. To help inform conversations, Jeff Raupp, CFA, Brinker Capital’s CIO, recorded a podcast that examines the recent market correction, including the catalyst for the sell-off and where we see the market heading into 2019.

Additionally, Dr. Daniel Crosby, Executive Director, The Center for Outcomes & Founder, Nocturne Capital, provides information to better understand market volatility and how to best react to the changes:

We hope you find these tools helpful and appreciate your continued confidence in Brinker Capital.

Brinker Capital, Inc., a registered investment advisor.

Investment Insights Podcast: Despite the noise and market volatility, it’s so far so good economically

Amy Magnotta, CFASenior Vice President, Brinker Capital

On this week’s podcast (recorded June 28, 2018), Amy discusses the recent noise and market volatility.

Quick hits:

  • We’ve seen a pickup in volatility again in global equity markets over the last week due to the unclear strategy toward global trade.
  • There are continued signs of strength in the US economy.
  • While we are in the latter half of the cycle, we continue to believe that the growth tailwinds are supportive of the markets, and risk assets, over the near term.

For Amy’s full insights, click here to listen to the audio recording.

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The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Holdings are subject to change. Brinker Capital, Inc., a registered investment advisor.

Vlog – Market volatility: It’s back! Why? And what comes next?

Brinker Capital’s Global Investment Strategist, Tim Holland, provides perspective around recent market volatility, what triggered it and what impact it’s having on our thinking and portfolio positioning.

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Holdings are subject to change. Brinker Capital, Inc., a Registered Investment Advisor.

The do’s and don’ts for periods of market volatility

Crosby_2015-150x150Dr. Daniel Crosby Executive Director, The Center for Outcomes & Founder, Nocturne Capital

We know it has been a stressful week for everyone involved in the market. In times like this, knowing what not to do is just as important as knowing what to do. Therefore, we created a list of things you should and shouldn’t be doing in periods of market volatility.

Do:

  • Do know your history
    • Despite what political pundits and TV commentators would have you believe, this is not an unusually scary time to be alive. Although you would never know it from watching cable, the economy is growing and most quality of life statistics have been headed in the right direction for years! Markets always have and always will climb a wall of worry, rewarding those who stay the course and punishing those who succumb to fear. Warren Buffet expressed this beautifully when he said, “In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shock; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.” Such it has ever been, thus will it ever be.
  • Do take responsibility
    • Which of the following do you think is most predictive of financial performance: a) market timing b) investment returns or c) financial behavior? Ask most men or women on the street and they are likely to tell you that timing and returns are the biggest drivers of financial performance, but the research tells you another story. In fact, the research says that you – that’s right – you, are the best friend and the worst enemy of your own portfolio. What happens in the financial markets in the coming years is absolutely out of your control. But, your ability to follow a plan, diversify across asset classes, and maintain your composure is squarely within your own power. At times when market moves can feel haphazard, it helps to remember who is really in charge.
  • Do work with a professional
    • Odds are that when you chose your financial advisor, you selected him or her because of his or her academic pedigree, years of experience, or a sound investment philosophy. Ironically, what you likely overlooked entirely is the largest value he or she adds – managing your behavior. Studies from across the industry put the added value from working with an advisor at 2 to 3% per year. Compound that effect over a lifetime and the power of financial advice quickly becomes evident.

Don’t:

  • Don’t equate risk with volatility
    • Repeat after me, “volatility does not equal risk.” Risk is the likelihood that you will not have the money you need at the time you need it to live the life you want to live. Nothing more, nothing less. Paper losses are not “risk” and neither are the gyrations of a volatile market.
  • Don’t focus on the minute-to-minute
    • Despite the enormous wealth-creating power of the market, looking at it too closely can be terrifying. A daily look at portfolio values means you see a loss 46.7% of the time, whereas a yearly look shows a loss merely 27.6% of the time. Limited looking leads to increase feelings of security and improved decision-making.
  • Don’t give into action bias
    • At most times and in most situations, increased effort leads to improved outcomes. Want to lose weight? Start running. Want to learn a new skill set? Go back to school. Investing is that rare world where doing less actually gets you more. James O’Shaughnessy of “What Works on Wall Street” relates an illustrative story of a study done at Fidelity. When they surveyed their accounts to see which had done best, they uncovered something counterintuitive: the best-performing stocks were those that had been forgotten entirely.

The Center for Outcomes, powered by Brinker Capital Holdings, has developed an educational program to help advisors employ the value of behavioral alpha across all aspects of their work – from business development to client service and retention. To learn more about The Center for Outcomes and Brinker Capital, call us at 800.333.4573.

Brinker Capital is a privately held investment management firm with $21.7 billion in assets under management (as of December 31, 2017). For 30 years, Brinker Capital’s purpose has been to deliver an institutional multi-asset class investment experience to individual clients. Brinker Capital’s highly strategic, disciplined approach has provided investors the potential to achieve their long-term goals while controlling risk. With a focus on wealth creation and management, Brinker Capital serves financial advisors and their clients by providing high-quality investment manager due diligence, asset allocation, portfolio construction, and client communication services. Brinker Capital, Inc. is a registered investment advisor.

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Brinker Capital, Inc., a registered investment advisor.

 

 

 

10 Surefire Ways to Ruin Your Financial Future

Crosby_2015Dr. Daniel Crosby, Executive Director, The Center for Outcomes

It’s been a brutal day, a long week, and just an overall rough start to the year for the markets. To head into the weekend on, hopefully, a lighter note, I’m taking a tongue-in-check approach to the irrational investor mindset:

  1. Ignore the impact of your behavior – Over the last 20 years, the market has returned an average of 8.25% per annum, but the average investor has gotten just over 4% of that due to poor investment behavior. But making prudent decisions is much less interesting than say, trying to time a bottom in oil prices, so by all means allocate your efforts there.
  2. Trust your gut – A meta-analysis of rules-based approaches to making decisions found that following the rules beats or equals trusting your gut 94% of the time. You know what you should be doing (stay the course, dollar-cost average, etc…), but rules are boring, so just do what feels right with your money!
  3. Live for right now – The worst ever 25-year return for stocks (that included the Great Depression) was 5.9% annualized. But patiently planning over an investment lifetime is sooo tedious, so be sure to check your stocks every single day, where you will see red about 45% of the time.
  4. Do as much as possible – When things get scary it feels good to act, right? Right. Disregard the research that shows that the most active traders in Sweden underperformed their buy-and-hold counterparts by 4% a year. Instead, freak out and sell everything!
  5. Equate volatility with risk – Stocks outperform other asset classes by about 5% annualized after adjusting for volatility, but the ups and downs can be a lot to handle! Volatility also provides opportunities to buy once-expensive names at a bargain. But go ahead and ignore all of the upside to volatility and do something “safe”, like buying treasuries that don’t keep up with inflation and lose real dollars every year.
  6. Go it alone – Aon Hewitt, Morningstar and Vanguard all place the value of financial advice at anywhere from 2 to 3% per year in excess returns, but don’t let that stop you. With multiple 24/7 news channels and hysteria-inducing magazines available to you, who needs personalized advice?
  7. Try and beat the benchmark – You could argue that beating an impersonal market benchmark like the S&P 500 has nothing to do with your goals or risk tolerance, but that takes all the fun out of it! Just go watch “The Big Short” and pick up a few pointers there.
  8. Read every article that mentions “recession” – The U.S. economy has been in a recession nearly 20% of the time since 1928, meaning that the average investor will experience 10 to 15 recessions over their lifetime. But by all means, read every scary article that you can rather than accepting the historical trend that recessions are a common occurrence and haven’t materially impacted the long-term ability of the market to compound wealth.
  9. Tune in to dramatic forecasts – David Dreman found that roughly 1 in 170 analyst forecasts are within 5% of reality and Philip Tetlock’s examination of 82,000 “expert” predictions shows that they barely outperform flipping a coin. So, ignore the robust body of evidence that says no one can predict the future and pick a market prophet to follow.
  10. Ignore history – JP Morgan reports that the average intrayear drawdown over the past 35 years has been just over 14%, a number we haven’t yet reached in 2016. What’s more, the market has ended higher in 27 of those 35 years. Forget the fact that the horror of 1987’s “Black Monday” (a 22.61% single day drop in the Dow) actually ended in a positive year for stocks. Ignore historical suggestions that double-digit volatility is the norm and instead imagine vivid Doomsday scenarios that leave you in financial tatters.

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Holdings are subject to change. Brinker Capital, Inc., a Registered Investment Advisor.

Early Concern in 2016 Yields Opportunity

Miller_HeadshotBill Miller, Chief Investment Officer

Overall global economic concerns and yesterday’s market events present a great opportunity to remind investors to stay focused on their goals. To that end, we highlight two performance metrics:

First, as illustrated below, some asset classes, including gold, U.S. Treasury bonds, TIPs and pipeline Master Limited Partnerships, finished up yesterday in the face of poor global equity performance. In some cases, this is the opposite of last year’s performance. Such a flip-flop in performance across asset classes only serves to highlight the value of Brinker Capital’s multi-asset class investment philosophy. A commitment to diversification can help calm investors on bad days and moderate enthusiasm on good days.

Performance Across Asset Classes

Source: Brinker Capital, FactSet

Second, big drops in the S&P are infrequent but certainly not an unfamiliar occurrence on an absolute basis. There have been single-day dips of 2% or greater in the S&P 500 a total of 222 times in the trailing 20 years, or just slightly under 5% of the total number of trading days.

More importantly, following these dips the median S&P return in the following month (2.44% over the subsequent 20 trading days) has been more than double that of the median 20-day S&P return over the period on a non-conditional basis (1.01%).

Over the last 20 years, a strategy that fled to cash for 20-day periods following those 2% S&P 500 declines would have fared 2% worse on an annualized basis than staying 100% invested in equity. That’s a cumulative return difference of 151%.

S&P 500 Performance

Source: Brinker Capital, FactSet

Again, yesterday’s volatility presents a great opportunity early in 2016 to remind investors that it’s not time to panic–it’s important to stay focused on their goals. While we can’t predict what specifically may happen in the future, Brinker Capital has been identifying trends and leveraging our six-asset class philosophy when positioning our portfolios to anticipate a period of increased market volatility in many of our strategic and tactical portfolios.

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Holdings are subject to change. Brinker Capital, Inc., a Registered Investment Advisor.

Investment Insights Podcast: An Update on The Current Market Environment

Magnotta-Audio-150x126Amy Magnotta, CFASenior Investment Manager, Brinker Capital

On this week’s podcast (recorded September 2), Amy takes the mic to provide an update on the current market environment and how the recent volatility can create opportunity. Highlights include:

  • S&P 500 finished month down 6%; international markets in worse shape
  • 12% correction from high reached in May
  • Still viewing the environment as a correction, not start of a bear market
  • Bear markets typically caused by recessions and tend to be preceded by central bank tightening or accelerating inflation—these conditions aren’t being met yet
  • U.S. growth still positive
  • If Fed begins to tighten in September, the pace will be measured as inflation is still below target
  • Looking for opportunities created by market volatility

Click here to listen to the audio recording.

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Holdings are subject to change.

The “Don’ts” for Periods of Market Volatility

Crosby_2015Dr. Daniel Crosby, Founder, Nocturne Capital

Having checked in this week with many of our advisors and the clients they serve, we know that this has been a stressful week for everyone involved in the market. On Monday, we wanted to provide a few proactive starting points and created a list of “do’s” for volatile markets. However, at times like this, knowing what not to do can be just as important as knowing what to do. With that, we present a list of things you should absolutely not be doing in periods of market volatility.

  • Don’t lose your sense of history – The average intrayear drawdown over the past 35 years has been just over 14%. The market ended the year higher on 27 of those 35 years. A relatively placid six years has lulled investors into a false reality, but nothing that we have experienced this year is out of the average by historical measures.
  • Don’t equate risk with volatility – Repeat after me, “volatility does not equal risk.” Risk is the likelihood that you will not have the money you need at the time you need it to live the life you want to live. Nothing more, nothing less. Paper losses are not “risk” and neither are the gyrations of a volatile market.
  • Don’t focus on the minute to minute – Despite the enormous wealth creating power of the market, looking at it too closely can be terrifying. A daily look at portfolio values means you see a loss 46.7% of the time, whereas a yearly look shows a loss a mere 27.6% of the time. Limited looking leads to increased feelings of security and improved decision-making.
  • Don’t forget how markets work – Do you know why stocks outperform other asset classes by about 5% on a volatility-adjusted basis? Because they can be scary at times, that’s why! Long term investors have been handsomely rewarded by equity markets, but those rewards come at the price of bravery during periods short-term uncertainty.
  • Don’t give in to action bias – At most times and in most situations, increased effort leads to improved outcomes. Want to lose weight? Start running! Want to learn a new skill set? Go back to school. Investing is that rare world where doing less actually gets you more. James O’Shaughnessy of “What Works on Wall Street” fame relates an illustrative story of a study done at Fidelity. When they surveyed their accounts to see which had done best, they uncovered something counterintuitive. The best-performing accounts were those that had been forgotten entirely. In the immortal words of Jack Bogle, “don’t do something, just stand there!”

Views expressed are for illustrative purposes only. The information was created and supplied by Dr. Daniel Crosby of Nocturne Capital, an unaffiliated third party. Brinker Capital Inc., a Registered Investment Advisor

Investment Insights Podcast – August 26, 2015

miller_podcast_graphicBill Miller, Chief Investment Officer

On this week’s podcast, Bill explains why investors should focus on growth and not Fed policy during this volatile time in the market (recorded August 25, 2015):

Highlights include:

  • Economists have echoed our thought that investors should focus on growth and not so much on Fed policy.
  • We’re seeing a shift from a policy-driven market to a more fundamental-driven market.
  • While the ECB and Bank of Japan stimulate their economies with policy, we must wait to see if that will support markets the way it supported markets in the U.S.
  • Appears consensus view is that markets are close to a bottom, but there is a large range between high expectation and bottom.
  • Potentially a lot of upside or a lot of downside, so patience is key as we head into the fourth quarter.

Click here to listen to the audio recording

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Holdings are subject to change.

What About The Correction?

Jeff RauppJeff Raupp, CFA, Senior Investment Manager

Over the holidays, I spent a lot of time with some family members that I don’t often get to see. We got together, had a little too much to eat and drink, and gave each other updates on what’s happening in our lives. Between the updates on kids, new careers, and new houses (no new spouses or kids this year), we never miss the opportunity to get some free advice from one another.

My two sisters are both in healthcare and handle all questions related to our aches and pains. My cousin the mechanic will venture out to the driveway and listen to the ping in your engine for the cost of getting him a beer. You get the idea.

My contribution is on the investment side, fielding questions about 529 plans, IRA distributions, 401(k) plans, etc. But the biggest question is always some version of “where is the market going?” This year’s edition, fueled by the huge returns in stocks in 2013 (and a good dose of CNBC), was “do you think we’re going to get a market correction?”

Hello, My Name is Free AdviceI suggested that when you look at how far the market has run and the high levels of investor sentiment right now—indicating that a lot of good news is priced into the market— I could easily see the market pulling back 5-10% on some unexpected bad news. The natural response from my family was, “What should I do?” “Nothing,” was my presumably blunt response.

My rationale is this: From a fundamental standpoint, the market looks good. Companies continue to grow earnings at a steady, albeit slow, rate. The market isn’t cheap, but it isn’t expensive either, and rarely does P/E compress without a recession. Speaking of the r-word, GDP growth continues to be sluggish, but it’s positive and expected to increase in 2014. Housing, the root cause of the last recession, continues to improve in spite of rising rates. And the Fed launched the previously-dreaded tapering of its quantitative easing without any market hiccup.

Depending on the attention span of my audience, all of that might boil down to simply saying, “We could get a correction, but if you’ve got at least 6-12 months, I think the market will be positive from here.”

Now, let’s go check out that leak on my car…