May 2018 IssueLong scroll reading

It’s going to get worse before it gets better

By David Snowball

Not the stock market. I have no earthly clue about what it’s going to do, when, or why. I mean the headlines.

On April 24, the Dow dropped by 425 points. That’s 1.7%, which isn’t large and isn’t saying “the market” dropped by 1.7%. The Dow is a narrow and quirky construct. The broader market is reflected in the performance of the Vanguard Total Stock Market Index Fund (VTSMX), which declined by 1.2%.

On whole, I would prefer that my portfolio not decline. It did decline that day, by 0.41%. In reaction to the drop, Chip and I had a nice dinner (she provided the wine, I roasted a chicken with some root vegetables) and read for a while.

People whose job it is to scare the bejeebers out of you, though, couldn’t take the evening off. Here’s a quick synopsis of stories that crossed my desk in the past 24 hours:

Here’s where the markets stand after Tuesday’s beating (TheStreet) – 1.2%. Not a “beating.” I would allow you “a kerfuffle.”

Can’t blame 3% yield for this stock rout (Bloomberg) – I wasn’t blamed anyone. And it wasn’t a “rout,” either.

Stocks try to rebound following Tuesday’s plunge (Fox News) – 1.2%. No, not a “plunge.” Keep your rhetorical powder dry, dude. I sat through a day in which the Dow dropped twenty-times that much; what are you going to use for descriptors in a real decline if you use up all your terror-words on market stumbles?

America’s confidence in the stock market is crumbling (CNN Money) – my confidence remains unshaken; I’m very confident that, over short periods, the stock market moves with the predictability and speed of an armed lunatic

Yet another ‘outside day’ in stocks is an ominous sign (MarketWatch)


Financial markets are at an inflection point (Seeking Alpha) – my general view is that this sort of thing is just marketing talk; “trust me, I see that shadow of the iron cordon is soon to pass over the shire.”

S&P 500’s last line of defense holds firm (Bloomberg) – “last line of defense”? It’s not a war, it’s attention-deficient traders passing slips of paper back and forth as fast as they can.

 ‘Just around the bend.’ This is when the stock market will crash according to 5 famous investors (Money) – David Stockman, who isn’t typically described as a ‘famous investor,’ thinks there’s “a doozy just around the corner.”

The Dow rose modestly on April 25 and 26 and, suddenly, all of these headlines disappeared, replaced by knowing talk about earnings that are (or aren’t) “baked in” to equity prices, a trillion dollars in buybacks and dividends, and the unbearable attractiveness of gold. (Ed Studzinksi reported, back in March, that wine has been a vastly better investment than gold. Charles raised a glass of an approachable and unprepossessing Central Coast vintage in affirmation.)

I don’t blame writers for writing, nor headline writers for writing headlines. It’s how they feed their families. That does not change the fact that it’s hysterical, misleading and driven by the simple need to make you look. (The absence of links to any of those articles is intentional.) Even in the best of times, financial journalists were derided as purveyors of financial pornography, writing salacious tales of the acts of prostitutes.

That world where the beautiful and wondrous act of romance and procreation is to reduced to one pitiful act. A sham ritual in which the customer’s appetite for lies is equaled by the prostitute’s willingness to tell those lies in whatever detail he is ready to pay for. The tones of lies are vulgar facts. But they are not noble sounds.

Stanley Crouch, “Premature Autopsies” from The Majesty of the Blues (1989)

This, sadly, is not the best of times.

What’s a body to do? Our suggestion is, protect yourself.

Protect yourself from the noise. If you use social media, remember to use it for socializing. It’s a great way to keep up with friends from high school; a wretched way to make sense of the worlds of politics and finance. If you don’t use social media, good but don’t get all self-righteous or people will mistake you for a Prius owner. Support good journalism. It’s out there. In print and online, The Wall Street Journal and the Financial Times are consistently first-rate and consistently sober. In audio, there are few better sources than Marketplace which works hard to make things sensible and not scary. Planet Money, from NPR, is solid and informative (Chip and I were just discussing their piece on “brushing,” a scam by which online sellers generate the illusion of good reviews) though less extensive. Both are available, free, as podcasts.

Unless you’re in the financial services industry, you don’t need a daily dose of noise. Keep informed, keep calm and keep centered on what actually brings you joy.

Protect yourself from the market.  More correctly, “protect yourself from your own reactions to the market.” At some point, perhaps sooner than later, the market is going to do something really horrifying. At some other point, perhaps sooner than later, the market is going to do something really horrifying and extended. It happens.

You’re got four options. Pick the one that works for you.

  1. Completely ignore it all. Period. Chuck Jaffe once shared the finding that the best-performing brokerage accounts are those that have been forgotten or belong to the dead. MFO noted that one of the best performing funds in history, Voya Corporate Leaders (LEXCX), is a ghost ship that has sailed without a manager or a change of portfolio since 1933. If you’re in your 30s or 40s, do ye likewise: set up a sensible investment portfolio, fund it automatically each month, and give it nary a thought.
  2. Do something simple. Simply put, hold a part of your portfolio in cash instead of in risk assets. While you can actively manage your portfolio (that is, fund a strategic cash alternative such as RPHYX or ZEOIX until the equity prices are amazingly cheap), most of us shouldn’t because (a) we’re amateurs and (b) it requires paying a lot of attention to the market. A better move is to entrust part of your portfolio to absolute value managers who will hold cash when stocks are expensive and move in when to stock when stocks are bloodied and everyone else is running away. Trust the folks at FPA, Intrepid, River Road or a fund like Centaur Total Return (TILDX) or Pinnacle Value (PVFIX). The upside of “simple” is that it’s a cheap and reliable strategy. The downside is that it is a pure beta strategy; it reduces volatility but does not add to short-term returns.
  3. Do something complicated. Find a good long-short, market-neutral or event-arbitrage manager to handle part of your portfolio. Most of the funds in these categories are overpriced, complicated messes. Still, there are some gems. We’re written about RiverPark Long-Short Opportunity (RLSFX), LS Opportunity (LSOFX), and AMG River Road Long-Short (ARLSX). We’ll soon write about Camelot Event-Arbitrage née Pennsylvania Avenue Event-Arbitrage and might soon profile 361 Global Long/Short Equity (AGAQX). The upside of “complicated” is that it adds alpha; that is, these guys are trying to drive returns up. The downside is that it tends to be expensive and, like equity, works in fits and starts.
  4. Wait until the moment comes, then panic and ruin both your finances and your health. It’s a surprisingly common strategy, though one that continues to mystify me.

Bottom line: the mere fact that it’s not the best of times does not mean you’re powerless. It means that circumstances seem to be conspiring against you. It happens. Fortunately, you’re strong. Stronger than you’ll admit. And we’re here. We’ll help.

Some people might ask, “What is this man doing talking about nobility? Doesn’t he know that this is a dragon-spawned and blood-encrusted century? Doesn’t he know that the dragon breath of our time is breathing down the neck of the year 2000? Doesn’t he know that this is the era of flash and cash?” … But I will answer them also by saying that nobility is always born somewhere out there in the world, and when you live in a democratic nation you have to face the mysterious fact that nobility has no permanent address, you have to face the fact that nobody has nobility’s private phone number. Nobility is not listed in the phone book. Nobility is not listed in the society column, nobility shows up where it feels like showing up, and where it feels like showing up might be just about anywhere. If it could rise like a mighty light from among the human livestock of the plantation, you know it can come from anywhere it wants to. You see, nobility is listed though. Yes, it is listed. Nobility lists itself in the human spirit, and its purpose is to enlist the ears of the listeners in the bittersweet song of spiritual concerns.

Stanley Crouch, “Premature Autopsies” from The Majesty of the Blues (1989)

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About David Snowball

David Snowball, PhD (Massachusetts). Cofounder, lead writer. David is a Professor of Communication Studies at Augustana College, Rock Island, Illinois, a nationally-recognized college of the liberal arts and sciences, founded in 1860. For a quarter century, David competed in academic debate and coached college debate teams to over 1500 individual victories and 50 tournament championships. When he retired from that research-intensive endeavor, his interest turned to researching fund investing and fund communication strategies. He served as the closing moderator of Brill’s Mutual Funds Interactive (a Forbes “Best of the Web” site), was the Senior Fund Analyst at FundAlarm and author of over 120 fund profiles. David lives in Davenport, Iowa, and spends an amazing amount of time ferrying his son, Will, to baseball tryouts, baseball lessons, baseball practices, baseball games … and social gatherings with young ladies who seem unnervingly interested in him.