It is our belief that the two biggest factors that drive the stock market are 1) Earnings and 2) Interest rates. Fundamentals, Technicals, Interest rates, and Sentiment are factors that we take seriously throughout selectively choosing a client’s holdings. If earnings are beating expectations and interest rates are low due to Fed quantitative easing, this traditionally leads to a favorable environment for equities. The big institutions and their pensions, hedge funds, and massive mutual funds control the markets. If these big institutions are not selling, stick with the trend.  (3-5)% dips happen every year. In fact, the market averages three, five percent dips every year. Not every (5)% dip leads to a recession despite what the news depicts. In fact, most of these dips lead to advancement in the stock market.

Oftentimes, people believe you need to find the “hidden gem” to exceed the S&P 500’s performance. In reality, most of these big institutions allocate large portions of their managed assets into to well-known names with large liquidity that allows for easily putting client’s monies to work. Sure, we throw a few names in portfolios that could hit a home-run; however, if client has saved properly throughout their lifetimes you don’t need to go after 100% a month gainers that have a lessor chance of accomplishing your actual long-term goals. 

Yes, we do view cash as position. During unhealthy market times, where we do not like the risk-reward, we will sit client’s assets in cash and wait for a dip in the market to eventually buy. We look for higher probability set-ups, which requires patience. During unhealthy market periods, our goal is to protect and preserve capital. Bottom line, we don’t believe investors should have all dollars invested at all times. There are times where bonds and equities skyrocket throughout a year and oftentimes lead to a collective sell-off (E.g. October-December 2018). 

While the S&P 500, “the Market”, is difficult to beat, it can be done, as proven time and time again.  While the S&P 500, “the Market”, is difficult to outperform, we believe it can be done through hard work, discipline, and mental toughness. While we strive to outperform specific benchmarks, I can promise you we won’t outperform every year. This is the reality. There are times where we get ahead of moves, which might make us look wrong short-term, but oftentimes proves its validity mid-term; as has been proven in our performance. Through a combination of studying fundamentals (financials of the individual companies) and technicals (charts & historical data), we determine healthy markets and diversify across areas we believe to be leading sectors in the market. 

In reality, half of our job is being an “emotional intelligence”/”behavioral science” coach to clients. We are emotional creatures and this fact alone often leads to many individuals making dumb investment decisions. For some, while we try to give a general overview, it can be best to not watch the news and simply let us deal with the supposed “world-ending news”. Sadly, it is oftentimes the same emotional investor that wants to sell after a (20)% dip that chooses to buy after a 10% month in the classic fear of missing out (FOMO) episode. This is emotional investing at its finest. We bring a logical approach in both bull and bear markets. There will be concerning times, but we will always attempt to give a real, non-bias perspective through direct communication, market commentaries, and videos.

There are some years we will trade frequently more than others. Usually we average about 7-10 trades a year for client accounts. Some years we are more active, while others we want to be passive and have patience. If we see signals that are pointing to “overbought” or “oversold” levels, we will often react accordingly. In summary, there are times for both active management and passive management based on whether we believe it is a healthy or unhealthy market. Passive funds continually preach outperformance, but what if you took a long-term view in high-quality stocks and shifted based on where the market shows strength or weakness? In short, we believe there are times to be patient and more passive and other times where taking gains is wise. So, in reality we are long-term investors, yet believe there are times to raise cash and wait for a better day. Our track record shows this style of asset management can reduce downside. 

First off, and ETF or Mutual Fund does not actually give you advice. If you don’t need financial planning advice and don’t believe you can beat the market, then there is nothing wrong with choosing the low-fee index ETF’s that follows a buy & hold strategy. Just know this route will not automatically change exposure during times of overbought or oversold levels. This simply is not our philosophy. We believe it is important to analyze healthy and unhealthy market patterns and adjust accordingly. Truthfully, if you feel that you cannot beat the market, save properly, have a financial plan including projections and insurance analysis, and you can emotionally handle managing your day-to-day job on top of managing your assets, there is nothing wrong with this and you can do “okay”. Where we are different is we provide all services incorporated into one management fee which incorporates all planning meetings, all reviews, all resources including tracking apps and projection software, and management of assets.

From an ETF or Mutual Fund you will never get the details you want from the actual asset manager, which is frustrating. Our fees are generally much cheaper than most active managers and you’ll be able to speak directly with the person managing your assets. Many advisers claim they manage your assets, but few actually do. Most firms use third-parties, which simply makes things more expensive for you. In short, we are usually much cheaper than others that actually manage assets, but might be comparable or a little more expensive to buy & hold funds that will never sell nor advise you along the way. Bottom line, we attempt to outperform our benchmarks, which usually more than offsets the costs; especially mid to long-term.

Simply put, there are times where it isn’t prudent to hold bonds when the data points favorably to stocks. Likewise, it is not prudent to hold stocks when the odds clearly favor bonds. In many cases, it is wise to hold a combination of stocks and bonds depending on risk tolerance. Remember, the miracle of compounding works both ways; for investors and against investors. Our approach is to reduce exposure in our growth portfolios when evidence shows signs of potential deterioration. As witnessed in our historical performance, we don’t have to beat the market every year to beat the market overtime. Mathematical draw-downs of (50)% + are difficult to recoup. Being realistic in raising cash after an impressive short-term gain, can be wise and potentially protect your portfolio value. Time and time again, we see 1-2 months of impressive moves, followed by a month of weakness. While the buy-and-hold has proven to be a long-term sound strategy, it can also lead to long periods of making no progress in the stock market. 

As a Fiduciary who started my career in the Broker/Producer world, I can tell you first-hand that clients should want their advice given by a fiduciary! Does this mean that that Brokers and Insurance Agents are all bad advisers? Absolutely not. Bottom line, Brokers and Agents are oftentimes tempted through sales goals and different payout structures to push their clients into products that might not be best for them. Fiduciaries are simply held to a higher standard. At Gurney Financial, we want your holistic plan to work; not push you to purchase products or high levels of insurance that are not necessary. We want your insurances to be as cheap as possible so you can save more for retirement. This often is not the case for many other Brokers and Insurance Agents as they are paid based on size of product. At Gurney Financial we are fee-based and are not incentivized by recommending some large insurance product that you likely don’t need. So, what’s the difference?

Fiduciary: Make up nearly 1.6% of financial advisers – A Fiduciary puts the client’s interests ahead of his/her own and are incentivized to evaluate plans, cut out inefficiencies, and give unbiased advice that fits the client’s objectives. The definition specifically reads: A legal obligation of one party to act in the best interest of another. Fiduciaries are held to a higher standard from a compliance standpoint. A Fiduciary could lose their license for recommending something that doesn’t fit the client’s objectives/situation. In short, more compliance, higher standards, and are fee-based as opposed to commission/product based.

Brokers: Make up 90% of financial advisers – Sellers of products and receive commission. Oftentimes, Brokers are often incentivized to sell specific products, funds, or stocks that most benefit the company’s bottom line. Certainly, not all Brokers are bad advisers, though the pressure from the corporation is certainly present to keep their status within the firm.

Quasi-fiduciaries: Make up 8.4% of financial advisers – Really, this is a grey area in legal system where the adviser is independent Fiduciary, yet maintain a connection with a broker dealer to maintain their ability to sell products. Oftentimes, these advisers tout of independence and claim they are Fiduciaries, when in reality, many of these advisers have one foot in the door and the other foot out. Again, not every Quasi-Fiduciary is a bad adviser!

Insurance Agents/Producers: Whether connected with one specific company or not, if a person is solely an Insurance Agent, be extra cautious if they are attempting to give holistic financial planning advice. Time and time again, I see people get stuck in products they had no idea would put them in catastrophic financial situation. The agent is typically paid commission based on the amount you pay for the product. So, whether you need specific coverage or not, they are paid based on how much you spend. You can see where this system creates problems.

To be clear, not all Brokers, Quasi-fiduciaries, nor Insurance Agents/Producers are bad advisers nor sketchy people! Though there is certainly more oversight for Fiduciaries and are, undoubtedly, held to a higher standard. As a firm, we take pride in helping the industry shift from commission-based planning products to fee-based planning. This is where the industry is headed, so you as the client should prioritize it! I tell you the above information candidly as a ex-Producer/Broker. While it was a difficult transition and cost gobs of money to switch, it was the right decision!

The below is a “harsh reality lesson” that many new investors need to be told from the very beginning. While we take pride in helping clients that are in various stages in life, smaller accounts are psychologically difficult to see account balance movement, unless you continuously contribute. For example, a 10% gain on a $1,000,000 account is a $100,000 gain and the client feels good about this. Whereas, a client a client with a $1,000 account that gains 10% is only up $100 and feels as if there is no progress. This oftentimes leads to stopping contributions and giving-up on their financial plan altogether. Small accounts take time and discipline to build! We all have to start somewhere and we are here to help if you remain discipline.

There is a reason many advisers have account minimums! The fact is, on small accounts, advisers often lose money on these accounts as a business every year. Gurney Financial is happy to help clients get started, but you must do your part and consistently contribute per the financial plan to be able to retire. If you think you’re smarter than the market and eventually lose hope, you’re never going to do well in the market. We are here to help tame your emotions and give you a balanced approach. These are often difficult conversations to have, but they are a reality. 

If you are an investor that says, “We don’t want to lose monies, but expect 7% a year,” you need to be enlightened. We use the S&P 500 as our benchmark for equity based portfolios of medium to higher risk. Therefore, if you are conservative and want to minimize potential downside, you should not expect a 7-8% rate of return that the S&P 500 has averaged throughout history. Mind you, the 7% average comes with some years up 35% and other years down (50)% that all averages out to 7% over the course of several years. Each year the market averages three separate and distinct (5)% declines. You will hear recession talk every time this occurs. Ignore the news! (5)% are normal movements. If you are adding consistently, we will be able to pounce on these dips. Over the past 40 years through 2018, the average intra-year decline has been (13.9)%. This means somewhere within the year (on average), you’re going to see (13.9)% decline and the S&P 500 will still average 7-8% higher for the year. The point being, we will educate you on realistic expectations. Desiring 10% while saying you are conservative, does not add-up. We will help narrow the scope and educate you on realistic expectations. 10% returns are undoubtedly possible, but not probable within a low-risk portfolio. Let’s chat and discuss realistic expectations.

As analysts, we are realists in the fact that the market goes as the buying and selling from the large institutions flow. If we don’t see big moves on large volume over the course of several days, it likely isn’t institutional buying or selling. If we don’t have a full week of selling pressure, it is likely not institutional selling. In general, we want to be invested as the “big boys” are invested, as they dictate the market. We use several technical indicators to aid in measuring where new monies are flowing. Overall, we take a look through several different lenses: Fundamentals, Technicals, Interest Rates, & Sentiment. 

We closely watch growth-names to determine healthy and unhealthy markets. If growth-names are struggling, it is highly probable the market will struggle advancing without growth-names following suit. May – Nov. 2019, was an interesting shift where growth-names struggled building a base while value-names outperformed after years of under-performance. For higher risk tolerance clients, growth-names will be a huge factor in our portfolio construction. While it certainly isn’t always the case, the market often goes as growth-names go.

Politicians often enjoy boasting of the market’s performance during their time in office. The reality is the market can be strong during not-so-hot financial periods and do horribly during strong periods. From October – December 2018, we had a near (20)% decline in the S&P 500 during a time when earnings per share data was coming in at the second highest levels since 2010. This is one of the many examples. The point being, the market saw a (20)% decline when things from a fundamental standpoint, things appeared pretty stable. Meanwhile, 3Q 2019 GAAP earnings are down over (4)%, the worst decline since 2015, and the S&P 500 is up 24.29% YTD (as of 11.20.2019 at 10:33 ET) and up 7.42% over the past 3 months. Hopefully, you get the point. The market has a way of surprising investors. Logically these moves do not make sense. Let this be a lesson. THE MARKET DOESN’T HAVE TO MAKE SENSE! As stressed in a separate FAQ, we believe earnings and interest rates are the biggest factors in determining a healthy market. Remain discipline and let us help you manage through these difficult periods. The market is difficult, but discipline is almost always rewarded. 

From a behavioral science standpoint, we can’t stress enough how true the following statement is: “There’s nothing like price to change sentiment.” The point is, if price goes down people oftentimes feel negative about the market and feel like they need to sell. Conversely, when the market has had a huge advancement in a month the “Fear of Missing Out” (FOMO) kicks in and tends to lead to greediness and overconfidence. Both sides of the spectrum can lead to making poor investment decisions. The emotions attributed to FOMO can be just as strong if not stronger than the desire to sell when they believe the world is ending. It is our job to help balance out these emotional circumstances and keep you grounded. If we have a 10% month, we will likely take some gains. Whereas, if we see a (20)% decline in the market, we will likely begin shifting toward more growth-names and adding as much money as we can with the hopes for quicker recoupment at lower prices. In general, uneducated and emotional investors tend to make decisions that are inversely correlated to those of a sound investor. When you get that pit in your stomach from a (20)% decline over a 3 month period, it is highly probable that buying and entering new monies is great decision; especially long-term.