Webinar • Market Volatility • Wisdom from Warren Buffet
Monthly AIRE Perspectives – May 2022
Dear Friends and Valued Clients,
Please see below for The MAP – Monthly AIRE Perspectives for this month. Please make sure to review this each month!
Our First Webinar Event: June 1st!
Given the recent rise in interest rates, we have been receiving many questions on bonds, mortgages and fixed income investments in general. As a result, we felt it would be both timely and important for us to present an educational session on all of these topics and their ramifications to portfolios.
On Wednesday, June 1st at 1pm PT / 4pm ET, please join us for our first webinar event – Fixed Income Markets: The Essential Guide to Interest Rates and How Bonds Work. Virtually all of our clients own bonds to some extent, so we strongly feel that this is a much-needed and important informational session. In this webinar, we will begin with a concise and simple explanation of how bonds work. This basic understanding will allow us to more clearly explain and review all of the following:
What do we mean when we say “interest rates” move up or down?
Interest rate risk and how bond prices move with interest rates.
How cash and short-term CD rates are affected by interest rates.
How mortgage rates are affected by interest rates.
The various types of risks involved with fixed income instruments.
The why interest rates are unpredictable and how to build bond portfolios, given this unpredictability.
How call options affect bond prices (most bonds are callable, so it is important to understand what “calls” are).
Premium versus discount bonds.
Short-term versus long-term bonds.
Taxation of various types of bonds.
Individual bonds versus bond funds or ETFs.
Bond pricing in accounts and how bonds trade.
The yield curve: what it means and what it might indicate.
A question-and-answer session to review any remaining questions.
DETAILS AND REGISTRATION INFORMATION FOR THIS WEBINAR WILL FOLLOW – PLEASE LOOK FOR AN EMAIL FROM US!
Market Volatility and Reminders of Best Practices
Whenever the markets get more volatile, we feel it is imperative that we provide additional guidance and education on our processes and what we feel are the best practices in investing. In short, we believe that trying to time markets is not a productive activity and that market predictions are virtually useless. To recap some of what we discussed in our February 2022 email:
We believe that long-term investing success tends to come from sticking to the principles of proper portfolio construction and planning, rather than from predictions. The one prediction that has been probably the most consistent is that stocks and real estate will likely be higher in 10 years. In fact, historically, the US stock market has been up 73% of the time over the course of 1 year, 87% of the time over the course of 5 years, more than 98% of the time over the course of 10 years, and 100% of the time over the course of 15 years. Having said this, there is no guarantee that the markets will be up over the next 10 or 15 years. In fact, Europe, Japan and other regions of the world have had 15- and 20-year losing periods, but historically, betting against a rising market in the long run has not been favorable. So the question is: if you believe the markets will be higher in 10 years or longer, then what should you do in the meantime to maximize your return? Should you try to get in and out of markets during ups and downs, or should you stay the course? The overwhelming amount of statistics and data suggests that you are better off staying the course, rather than making predictions. To us, the answer has been – and continues to be – that we only invest funds in the stock market that we will not need to tap into for at least several years (and ideally at least 10 years), and we expect to have numerous market drops throughout that time period.
Wisdom from Warren Buffett
To support some of what we discuss above (and regularly), we thought we would share a great CNBC article sent to us by a valued client and friend, titled: Warren Buffett Guide to Investing. We encourage you to click on the aforementioned title to read the entire article, but here are some quotes (along with CNBC commentary) we thought were worth highlighting:
On stock picking:
“They (advisors) come in and they talk for hours, and you pay them a large fee, and they always suggest something other than just sitting on your rear end and participating in American business without cost.” — 2016 BERKSHIRE ANNUAL MEETING
To prove his point, in 2007, he made a massive 10-year bet for charity with a proponent of active investing that a low-cost Vanguard S&P 500 index fund would outperform a hand-picked basket of hedge funds, which charge large fees. At the end of the wager, the S&P index fund had gained 125.8%. The hedge funds were up an average of around 36%.
On market timing:
Charlie (Munger, Buffett’s longtime business partner) and I haven’t the faintest idea where the stock market is going to go next week, next month, or next year. We never talk about it…
“We don’t have an opinion about where the stock market’s going to go tomorrow or next week or next month. So, to sit around and not do something that’s sensible because you think there will be something even more attractive, that’s just not our approach to it…Picking bottoms, I think, is probably impossible.”— 2009 BERKSHIRE ANNUAL MEETING
On market drops:
“My enthusiasm for stocks is in direct proportion to how far they go down. I like it when things I like go down in price…Am I better off if I have to pay high prices or low prices? So, it’s not bad news for us when stocks go down at all. Now, you know, it’s bad news for us when something goes wrong with a company. But the fact that something gets cheaper, I mean, if I walked into McDonald’s tomorrow and they’ve cut the prices of hamburgers by half, you know, I will be happy because I’m going to be buying hamburgers for a long time.” — CNBC SQUAWK BOX INTERVIEW, MARCH 1, 2010
On behavioral finance and the importance of emotional discipline:
“If you have a temperament that when others are fearful you’re going to get scared yourself, you know, you are not going to make a lot of money in securities over time, in all probability. You know, people really — if they didn’t look at quotations — but, of course, the whole world is urging them to look at quotations, and more than that, do something based on small changes in quotations… Think how much more rational investing in a farm is than the way many people buy stocks. If you buy a farm, do you get a quote next week, do you get a quote next month? If you buy an apartment house, do you get a quote next week or month? No, you look at the apartment house or the farm and you say, I expect it to produce so many bushels of soybeans and corn, and if it does that, it meets my expectations… Some people really do not have the — apparently, they don’t have the temperament, or emotional stability, or whatever it may be, to invest in securities… In the end, what counts is buying a good business at a decent price, and then forgetting about it for a long, long, long time. And some people can do it and some people can’t.” — 2010 BERKSHIRE ANNUAL MEETING
On the fear of missing out (“FOMO”) and being envious of people making money from risky behavior:
“People win lotteries every day, but there’s no reason to have that effect you at all. You shouldn’t be jealous about it. If they want to do mathematically unsound things, and one of them occasionally gets lucky, and they put the one person on television, and the million that contributed to the winnings, with the big slice taken out for the state don’t get on — it’s nothing to worry about. All you have to do is figure out what makes sense… Let the rest of the world go its own way. You don’t want to get into a stupid game just because it’s available.” — 2016 BERKSHIRE ANNUAL MEETING
Once again, we would like to thank you for your trust and loyalty, and look forward to speaking with you in the upcoming month.
The commentary and opinions expressed in our articles on this page reflects the personal opinions, viewpoints and analyses of the AIRE Advisors, LLC employees writing the article. The articles on our website should not be regarded as a description of advisory services provided by our firm or performance returns of any AIRE Advisors, LLC’s clients. Any past performance discussed in these articles is no guarantee of future results. The views reflected in the articles are general in nature and made to provide education about the financial industry. These views and opinions are subject to change without notice. Any mention of a particular security, sector, and related performance data is not a recommendation to buy or sell that security or in that sector. Our firm manages client accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the articles. To determine what kind of investments may be appropriate for you, please consult your financial advisor prior to investing. Also, please note that all investing involves risk and the possible loss of principal capital.
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