And Other Lessons from PeeWee Football…

One of the joys of being a parent is occasionally having the opportunity (and maybe sometimes obligation!) of coaching your child’s sports teams.  Of all the sports, football for 6-7 year olds is one of the most challenging.  It requires sequencing and players doing different things at the same time (snap the ball, quarterback hands the ball off, etc.).  This weekend as our good little group of players were marching in for a score, we huddled up for the play and went over in detail who was doing what and who was getting the ball. Just seconds after breaking the huddle our running back turned around and asked, “What am I doing again on this play?”.  “You just get the ball and run right”, I whispered in his ear to which he nodded in apparent understanding.  Well, as it turns out, he gets the ball from the QB and proceeds to run the wrong way toward the other team’s goal line!  Fortunately the other team caught him before he could score a safety for them and afterwards everyone had a good laugh about it.

Investing is not so forgiving if you are inexperienced or don’t stay disciplined, particularly in markets like we have seen recently.  Between May 21st and August 24th the S&P 500 declined 12.35% with the value and small cap indexes falling even more, creating many opportunities for the experienced investor.  Any pullback of 10% or more is considered a correction.  Since 1926 there have been 28 such declines, with an average magnitude of -14.55%.  However, the average return over the next 3 years after these events averages 8.89%, and 13.33% after the next 5 years. International markets tend to yield similar results after 10% or greater pull backs, returning 12.89% in subsequent 5 yr periods.

If you are a client of E|Financial Alliance you know that we believe strongly in having tilts toward value and smaller (ie. small cap) stocks. Why?  Because 100 years of market data indicates that many investors abandon these strategies in short-term turbulent times and head for safety.  This creates long-term (and often short-term) opportunities for the rest of us to rebalance into inexpensive, out of favor markets to harvest incremental return over the long term.  It is easy to rationalize giving up after a quarter or two – it’s just human nature.  As one of the world’s most successful investors (and Tennessee native) Sir John Templeton famously said, “people are always asking where is the outlook good? But that’s the wrong question. The right question is where is the outlook miserable!”.  We believe that in the absence of fear there is less opportunity, so let’s be disciplined and not find ourselves running the wrong way!

Strategic Tax Planning Opportunities

With less than three months left in 2015, we will be pro-actively working to reduce your tax liabilities for 2015 in investment accounts. If you would like to discuss these strategies, please let us know. As always, at E|Financial Alliance our mission is to help you “Plan Today for an Inspired Tomorrow”.  Thank you for allowing Destin and I to partner with you on your future success.

Mitch