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Archive by author: Frederick F. Kramer IV, J.D.Return

Frederick F. Kramer IV, J.D. is Vice President and a founder of our firm. Rick was an early advocate of the Scientific Factoring methodology of investing and is passionate about our Investment Philosophy. He brings over 35 years of wealth management experience to designing and monitoring our on-going portfolio structure.  Rick is the author of our Quarterly Newsletter which has become a must read as it provides amazing insight, education and always a touch of humor.  Rick is a cum laude graduate of Bucknell University and Dickenson School of Law - Pennsylvania State University. 

During any crisis, the question is always: “Is it different this time?” Our former Chief Investment Officer, Rick Kramer, has lived through some of the worst bear markets this country has ever experienced and in this episode he offers his insights on the current market environment as well historical perspective.
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The Sick Market

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The Sick Market
When a market reaction is as violent as the current one, it is always due to fear. More specifically, fear of the unknown. Having no idea what will occur tomorrow, much less the next several weeks, months or years in the future, allows human emotions and psyches to run rampant and envision the absolute worst possible situation.
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Everything Old is New Again There is always a newer, cooler investment to catch your interest.  The large majority of those may seem to be too good to be true, and usually are.  This phenomenon didn’t just start in the last few months, years, or decades.  See below for charts of a really old one and a fairly recent one.
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Current Market Volatility In Perspective After reaching an all-time market high on September 21st, the S&P 500 entered a bear market (20% decline) in late December, falling to levels last reached in early 2017.  Having experienced positive returns through September, the S&P was down just over 4% for the year.  All other domestic and international equity asset classes had greater full year losses.  Declines of this magnitude naturally cause one to wonder what the future holds and if they should make changes to their portfolios. While it may be difficult to remain calm during a substantial market decline, it is important to remember that volatility is a regular part of investing in stocks.  As a client of DHG Wealth Advisors, you’ve likely been invested through one of the five declines over 10% for the S&P 500 that we’ve experienced since 2008. The biggest, which was a 19% drop at the end of 2011, saw a recovery in just 5 months - although many take longer than that to recover.
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Many people would agree with the above statement.  A little, fuzzy, snuggly puppy keeping your lap warm would indeed make most people happy.  But what if the warmth was coming from the puppy urinating on you?  Would you feel the same?  Would your feelings about  a “warm puppy” be different in that scenario?  We have purposely used this tasteless example to underline the fact that a person’s expectation has a lot to do with their feelings.  If someone’s expectations are met, or exceeded, then most people are happy about that occurrence.  If something doesn’t meet expectations, then typically there is an unhappy or disappointed result.
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The Incredible Shrinking Market  Over the last 20 years there has been an interesting phenomenon in the US stock market.   Simply stated, the number of listed stocks on US stock exchanges has decreased dramatically.  See Exhibit 1 below:Source: DFA Inc.Note that the number of listed stocks peaked in 1997 and has continued to decrease almost every year since.  Also notice that the number of foreign listed stocks has increased or remained stable during that time. To view this in another way, see Exhibit 2 below:Each year there are new stock listings and delistings. Note that in most years since 1996, there are a greater number of Delists than New Lists.  This continuing trend is happening for three basic reasons:   Public mergers and acquisitions   Private mergers and acquisitions (private equity)   Many new companies are staying longer in the private sector  Public mergers, such as Amazon buying Whole Foods or AT...
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After months and months of experiencing an extraordinary period of muted volatility, we finally encountered stock market fluctuations that have grabbed investors’ attention. 
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2017 was a beautifully sweet, heady year for global stock markets.  Proof of this can be seen in the consistency of the performance of returns.  For the first time in the history of the world (literally), global stocks had 12 straight months of gains (as measured by the MSCI All Country Equity Index).  That means the last day of each month was higher than the first day of that month, for all 12 months -- the first time this has occurred since tracking began.* In addition, the S&P 500 set an all-time record for the number of days the index endured less than a 3% drawdown (over 300 days and counting).
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W.O.W.Global stock markets have continued their seemingly indefatigable upward trends during the third quarter, even showing strength during some historically negative US events.  For instance, Hurricane Irma ravaged many portions of Florida over a weekend.  The following Monday, US stock markets made new, all-time highs. Wow.  On Sunday October 1, a lone gunman in Las Vegas committed the largest mass shooting in our country’s history.  The next day, even with this atrocity, US stock markets made another new high.  Wow, again.   But those are not the “wows” we’re talking about in the title.  All great bull markets climb a wall of worry (WOW), or fear.  If there was no fear, all investors would be fully invested and there would be no one left to buy stocks.  The current bull market is no different than past ones, although it appears that the market’s chutzpah, its boldness and temerity, have been at all-time...
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Look Out Below!!Did that get your attention?  Sorry, we just couldn’t help ourselves.  The clever title is supposed to scare you into thinking we were talking about the market going down.  If you read or listen to just about any news source, you have undoubtedly heard some expert warn about stocks going down.  They have been doing this for several years.  After all, we are in our ninth year of a bull market.  It makes sense that we should get a meaningful downturn sooner than later.  Doesn’t it? The fact is that we will indeed have a meaningful market correction – sometime.  Whether it is next month, or next quarter, next year or a few from now, we will indeed have a bear market, defined as a correction of at least 20% from a recent high.  And when it comes, it will take many people by surprise.  Most likely it will start innocently, with a pullback much like others we have experienced over the last few years.&nbs...
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