Friday, July 03, 2009

Sell in May and go away?

June has been a very busy month, stay with me here. I spent the first week in Washington, D.C. trying to fill my head with as much knowledge as I could, from people who I am not sure had a good handle on what they were trying to say. Does anyone in Washington really read all of their bills, understand all of their jobs and/or really mean what they say?

The second week I got back to working with clients and trying to understand what in the world was going on in the stock markets.

June 13th was Kathy's and my 40th wedding anniversary and, as most of you know, I almost always take this week off to be with Kathy. We went to the lake, rode bicycles, visited with friends and took a trip to Mackinaw City site seeing. We pretty much lay around and lowered our blood pressure during the third week.

The fourth week found us back in the office with appointments, two funerals and a trip to Chicago for some strategic planning. I was also elected President of the National Association of Personal Financial Advisors' Midwest Board of Directors. It means I will have to do a little traveling, but is a big honor and will help clients by exposing me to new and helpful information from some of the very best and brightest advisors in the world. I am not sure the best and the brightest are always the same people, but don't quote me on that.

Now I am back for the last two days of the month and the beginning of the next month, working with clients and getting ready to head back to the lake for the 4th of July week-end.

So why is this important enough for me to be wasting your time on it, because this is the normal life of most Americans, including investment professionals, during the summer months. It is also where the saying "Sell in May and stay away" came from. During the summer months the volume of investments is usually very low. It does not take a lot of trading to create a move up or down and most trends are short term.

I had expected the current stock market down turn to have occurred at the beginning of June when Chrysler and General Motors were in Chapter 11. I was actually disappointed that it did not happen then. Well, people seem to have been on vacation and too busy to do it then, so they are doing it now.

I don't mean to sound cold, withdrawn or unfeeling. This is just the way most summers go. If the stock markets would have reacted to the Chrysler and General Motors filings and gone down, I was ready to invest the other half of our clients' money. There are no guarantees, but since the markets have done what they have, I actually expect them to drift or trade within a range for the rest of the summer. Then I expect them to give us some real direction. The chart below shows what the markets have done so far this year and how our current investments have fared. It shows that March 9th was probably the low point of the year for the stock markets, and, unless we retest those lows, I am not too worried. It also shows the level of the stock markets when we started investing again, when they hit their 2009 high on June 15th and where we are today. It shows we are better off than we might have thought, but not as well as we probably wanted to be. It shows we may be starting into that summer range-bound trading area. Once the kids are back in school and vacations are over, traders will get more serious and will give us some direction.

Finally, it still looks like this decade will go down as the worst in history. The first decade of the 21st Century will not be over until the end of 2009; however, through December 31, 2008, the S&P 500 has lost a total of 32.9%, for an average annual rate of return of -4.4%. For every $100,000 invested January 1, 2000, investors would have $67,251 on December 31, 2008. The S&P 500 will need to have a return in excess of 41.7% in 2009, and that does not appear likely, in order to avoid it becoming the worst investment decade on record. Be thankful that our stops worked last year and got us out of our investments. The normal asset allocation's buy and hold did not work during this decade.

God bless!