April 30, 2019

Sell in May and Go Away? No Way!

This is the time of year when pundits trot out even more opinions as to why one should be pulling out of the stock market. Sure, there is a seasonal bias to the markets, it often proves stronger in colder months and weaker in warmer months, but relying on averages while investing can be dangerous to your wealth. Just consider the man who drowns crossing the stream that averages only 3’ deep.

In the average year more money is made in stocks from November until May than in other months. However, if one looks just at the 3rd year of a presidential cycle there are often strong gains to be made during the summer months. And, 2019 is the third year of the cycle.

The reason for this is that presidential programs, designed to make an incumbent look good at election time, are in full swing with government spending to back them up.

So, don’t fall for the “sell in May and go away” drumbeat you will hear in the media over the next month. The economy is very strong as this item from economist Elliot Eisenberg, PhD notes:

“[Economic strength] . . . fluctuates dramatically quarter-to-quarter primarily because of three variables: government spending, inventories and exports. Stripping these variables out, one is left with a less noisy sequence that gets at the underlying strength of the US economy by zeroing in on sales to domestic buyers. And pleasantly, despite much global turbulence, this series has been generally drifting up since bottoming in Q3 of 2016, suggesting no fundamental deterioration in the national economy.”

A month ago, the buzz was about interest rates “inverting,” an event that precedes most recessions. However, not all inversions lead to recession, so don’t take this one to the bank quite yet.

What investors should keep in mind is that according to Robert Ross, editor of Yield Shark, In the Money, and The Weekly Profit, the last five times when inverted rates have preceded recessions, the time lag has been an average of 18 months. And during those 18 months, the average gain for the S&P 500** was 32%! That is a huge gain, and one you don’t want to miss.

So, don’t let talk of recessions in our future scare you out of good investments. Stay invested until you actually see the effect of a recession on your investment.

Certain segments of the stock market perform better than others in the months between interest rate inversions and actual recessions, and I will be building those insights into our investment portfolios going forward. For details, call 928-778-4000 for an appointment to discuss my uncommon approach to investment management.

What the Markets Are Doing

Stock markets around the world did well in April (through this writing on April 26th), with indexes in the US, Europe, Asia and the Far East all posting solid gains. Even emerging markets indexes did well for the month.

Rising interest rates had government bonds posting losses in April, while corporate bonds, both high quality (the good stuff) and high yield (junk bonds) posted good gains.

Emerging markets bonds have led the global bond markets with strong gains for most of the year as international treasuries have struggled just to break even.

Gold continues to drift downward as oil’s steady rise continued through April.

The dollar continues strong against both the Euro and the Japanese Yen. This means it may be a good year to plan that trip abroad, as your dollars will buy a lot more over there than they used to.

College Classes Coming

Tax Tips for Arizona Newcomers

Tell your new friends that they can discover valuable tax savings from details about Arizona taxation that may differ from states in which they have previously lived. Tax deductions, tax credits, investment and estate planning considerations unique to Arizona will all be discussed. Wednesday, June 5th from 2:00-4:00 pm at Yavapai College. Register online with the link below or call the college at 928-717-7755 to register for class #SU19-121. Tuition is $45.

Fun-damentals of Investing for Retirees

Investing does not need to be dry. I try to make investing come alive with insights, humor and insider tips that allow you to discover how the principals being taught relate to you personally. This course can help you become more confident about your financial decisions. In an easy format, we discuss investments preferred by investors approaching or already in retirement. Learn the ins and outs of stocks, bonds, mutual funds, annuities and more. Topics include recognizing risk, controlling taxes on IRAs, planning to get the results you want, avoiding common investment mistakes and proven risk-reducing strategies that anyone can use. On 3 Wednesdays, June 12th-26th, from 2:00-4:00 p.m. Register online with the link below or call 928-717-7755 for class #SU19-117. Tuition is $45.

What’s Happening in Your Portfolio

Our Shock Absorber Growth* suite of strategies continues to post good numbers with accounts up around 10% for the year-to-date through April 26th.

Flexible Income* strategies also are performing well with around 3% gains, year-to-date.

Our Adaptive Growth* (80% growth and 20% income) and Adaptive Balance* (50/50 growth and income) suites of strategies will have performance numbers ranging somewhere between Shock Absorber Growth* and Flexible Income*, but regardless of strategies employed, this has been a good year for your investments.

Municipal Income* accounts also are having a good year.

We are currently fully invested in both growth and income strategies and I plan to stay that way until the market tells me it is time to again focus on capital preservation rather than growth.

Our gold allocations (currently 5%) have been in cash lately as the gold market drifts aimlessly.

Shock Absorber Growth* is our 100% growth portfolio.
Flexible Income* is our 100% income portfolio.
Adaptive Growth Portfolios* are currently allocated with 80% Shock Absorber Growth* and 20% Flexible Income*.
Adaptive Balance* is 50/50 between growth and income.

A Peek into the Future

This article is from Peter Diamandis’ Abundance Insider newsletter.

Alphabet’s Wing Drones Get FAA Approval for U.S. Package Delivery

What it is: The U.S. Federal Aviation Administration has awarded Alphabet-owned drone delivery startup Wing the first Air Carrier Certification. With this certification, the U.S. officially joins Canberra, Australia, where Wing has been testing delivery drones since 2014. The permit enables Wing to deliver goods from local businesses to homes, even flying over civilians and out of the drone operator’s line of sight. In “the coming weeks,” Wing will begin a pilot program in the Blacksburg and Christiansburg areas of Virginia.

Why it’s important: Delivery drones will transform how we move products around the planet. These vehicles remove the energy inefficiency of moving heavy steel trucks simply to deliver small packages. They also enable rapid point-to-point delivery of essential goods (e.g. medicines, blood plasma), creature comforts (e.g. toilet paper, toothpaste, shampoo) and, importantly, takeout food and groceries. With on-demand autonomous delivery, what essentials will you order directly to your door?

Do you Manage Investments by Default?

“Unpredictable” is how today’s stock market climate is best described, especially considering the degree that markets are moved by news — some real, some fake and some misinformation. What this means for you is that what worked before news cycles shortened may not be enough in the future.

At Hepburn Capital we believe that a wealth-management strategy that first manages risk, preserving wealth and minimizing losses, is the key to a financially secure retirement. But it can’t happen in a vacuum, it takes planning.

“Buy and hold” is often called a strategy but is really a lack of strategy. Buy and hold occurs by default when there is no sell strategy, and when you (or your adviser) has no good way to cut losses during bear markets, it can destroy your retirement.

The stock market is having a strong year, so now is the time to prepare for what might come next. What happened last month won’t make you any money. What happens tomorrow is what counts. Since downturns always follow strong markets, when times are good is when wise investors put risk management in place so they don’t give back their hard-earned gains.

The alternative to having a plan for managing your money is to float along as the markets ebb and flow, accepting whatever you get, even if your family’s savings might get destroyed in the next big market crash.

As a kid I was fascinated by the cliff divers in Acapulco who have to jump when the waves went out exposing the rocks below them to time their arrival at water level with the arrival of the next wave. If they wait to jump until the water covers the rocks, by the time they get down there the water has gone out and nothing but rocks are waiting.

Investing successfully seems backward to so many, and this dynamic of having to act before things look obvious is why my work is such a specialized profession.

You would never consider taking a trip across the country in a car that had only one gear — the forward gear, with your foot constantly pressed to the floor. There are times you need to slow down, stop, go into reverse, depending on driving conditions. The same thing applies to an investment strategy. You (or your adviser) must make adjustments along the road or you won’t get the results you want.

One of my favorite quotes is from the late market analyst, Marian McClellan, who said: “Some people buy when they have money and sell when they need money. I prefer a more sophisticated plan.”

Since 1987, I’ve designed investment strategies based on this philosophy with the goal of helping you get a proven, rules-based, risk-managed investment solution that can adapt to any market conditions.

Learn more about my modern approach to wealth management — and how I can help you build risk-managed investment solutions at www.HepburnCapital.com. Or, call 928-778-4000 for an appointment to learn what proactive risk management can mean for your future.

Who manages your money — you, a salesperson or a professional money manager?

Good News for Savers

In 2019 you will be able to put more money in your IRA or retirement plan accounts. The contribution limit will be $6,000 (up from $5,500). This is the first increase since 2013. The “catch-up” amount for those of us 50 and older allows an additional $1,000 contribution each year.

Mental Floss

Why do you have to “put your two cents in”… but it’s only a “penny for your thoughts”? Where’s that extra penny going? (taxes)

How is it that we put man on the moon before we figured out it would be a good idea to put wheels on luggage?

Why is it that people say they “slept like a baby” when babies wake up like every two hours?

Why do people pay to go up tall buildings and then put money in binoculars to look at things on the ground?

Can a hearse carrying a corpse drive in the carpool lane?

If the professor on Gilligan’s Island can make a radio out of a coconut, why can’t he fix a hole in a boat?

Have You Received a Statement This Quarter?

We arrange for independent custodians to send you account statements at least quarterly, even if there is no activity in your accounts.

Bernie Madoff made off with billions because he was allowed to produce his own phony statements. Your independently produced statements, sent to you directly from the custodian, are for your protection.

Whether you choose to get paper statements or electronic ones you can print when you choose to, it is very important that you receive statements one way or the other. If you have not received a statement this quarter, please call the office so we can correct that situation for you. (928) 778-4000

Our Spotlight Strategy – Adaptive Growth

With our Adaptive Growth Strategy, we strive to provide high total return from a combination of investments from both the equity and income markets with the emphasis on equities.

Our proprietary Stock Market Exposure Indicator is used to determine a stock market exposure that adapts to the strength or weakness of the market, directing exposure in the HCM Shock Absorber Growth strategy to range from 20% to a maximum of 80% of account value. The balance, 20% to 80% is invested using the HCM Flexible Income strategy. The HCM Safety Net indicator is designed to warn of sudden potential declines in which case stock market exposure is quickly reduced.

Click here to read more about Adaptive Growth.

A Slice of Life

This past month we spent a few quiet days in the beautiful Greer Valley, somewhere between Show Low, Arizona and Pie Town, New Mexico. At an elevation of around 8,300 feet, this area of northern Arizona is one of the best kept secrets in the country. Vast forests of tall trees, lots of lakes and streams, and due to the wet winter here in Arizona there were still some snowdrifts to be seen.

The weather during the day was mid-60s and sunny, making for good hiking, horseback riding, and trout fishing in the headwaters of the Little Colorado River.

Check out Greer, Arizona if you want a few days of beauty and solitude.

* The model accounts mentioned in this article are hypothetical examples of how the strategy may work as designed. Performance and activity in client accounts may be different from that in the model in amount of each investment, specific timing of trades, and actual security used, which may vary from account to account. Not all trades are profitable. It should not be assumed that current or future holdings will be profitable. A list of all trades in these accounts for the past 12 months will be provided upon written request.

** Indexes are unmanaged lists of stocks considered representative of a broad stock market segment. Investors cannot invest directly in an Index.

This newsletter may contain forward-looking statements, including, but not limited to, statements as to future events that involve various risks and uncertainties. Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause actual events or results to differ materially from those that were forecasted. Information in this newsletter may be derived from sources deemed to be reliable, however we cannot guarantee its accuracy. Please discuss any legal or tax matters with your advisors in those areas. Neither the information presented nor any opinions expressed herein constitute a solicitation for the purchase or sale of any security.

In all investing, past performance cannot assure future results, and as such, our efforts are not guaranteed. Losses can occur. All strategies offered by Hepburn Capital Management, LLC, adapt to changes in the markets by changing the investments they hold, therefore, comparisons to broad stock market indexes such as the unmanaged indexes mentioned may not be appropriate. Sometimes client accounts are invested in stocks or markets not included in these indexes. Past performance does not guarantee future results. Investment return and principal value will vary so that when redeemed, an investor’s account values may be worth more or less than when purchased. Mutual fund shares and other investments used in our managed accounts are not insured by the FDIC or any other agency, are not obligations of or guaranteed by any financial institution and involve investment risk, including possible loss of principal. Advisory services offered through Hepburn Capital Management, LLC, an Arizona Registered Investment Advisor. Adviser will not transact business unless properly registered and licensed in the potential client’s state of residence.