INSERT INTO `wp_posts` VALUES (8586,3,'2021-06-17 22:20:32','2021-06-17 22:20:32','<!-- wp:quote -->\n<blockquote class=\"wp-block-quote\"><p>This little-known indicator has a remarkable 93-year track record of signaling the best, low-risk buying opportunities in the stock market.</p><cite>InvesTech Research</cite></blockquote>\n<!-- /wp:quote -->\n\n<!-- wp:heading -->\n<h2>Originally developed over 50 years ago by Edwin S. Coppock.</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>It’s been described as a “barometer of the market’s emotional state,” methodically tracking the ebb and flow of equity markets from one extreme to another. By calculation, the Coppock Guide is the 10-month weighted moving total of a 14-month rate of change plus an 11-month rate of change of a market index. In simpler terms, it’s really just a momentum oscillator. Because of this, it reverses direction when the momentum or rate of change in the market reaches a peak or a trough.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>The historical value of the Coppock Guide lies in signaling or confirming low-risk buying opportunities that emerge once a bear market bottom is in place (black dotted lines on graph below). And since market bottoms are usually sudden or “spiked” reversals, the Coppock Guide works amazingly well – as it did immediately after the bottom in 2009.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"id\":5352,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<figure class=\"wp-block-image size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/coppock-1024x728.png\" alt=\"\" class=\"wp-image-5352\"/></figure>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p>Once the Coppock Guide drops to ‘0’ or below, a mere 1-point upturn can usually be treated as an excellent buying opportunity. And often, the more negative the Coppock Guide is when it turns upward, the more impressive the profits ahead. The only four false signals under this guideline were in 1938, 1941, 1947 and November 2001.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>However, the Coppock Guide has never been noted for timely sell signals. The reason is that market tops are usually slow, rounding formations in which momentum (and the Coppock) peak up to a year or more ahead of the market. <em>Except, that is, in a few cases…</em></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading -->\n<h2>Double-Tops</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>In the late 1960s a technician named Don Hahn observed another phenomenon about the Coppock Guide. <strong>When a double-top occurs without the Coppock falling to ‘0’, it identifies a bull market where corrections haven’t driven out nervous investors or cleansed excesses from the market. </strong>When those psychological excesses are not washed out, the nervousness can continue to build and extremes can multiply… with the result that the next downturn can become severe as everyone heads for the exits.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"align\":\"right\",\"id\":5353,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"alignright size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/coppock-table.png\" alt=\"\" class=\"wp-image-5353\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p><br>So there is a critical historical aspect to double-tops: <em>They can result in nasty bears! </em>Double-tops have occurred only 7 times in 93 years – with 5 of them accompanying the start of the most notorious bear markets of the 20th century: 1929, 1969, 1973, 2000 and 2007.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>The table at right shows the month of the second peak, along with the start of the S&amp;P 500 bear market. And a glance at those resulting bear markets reveals why the double-top in the Coppock Guide has been nicknamed a “Killer Wave.” The average decline (<em>excluding </em>the -86% loss in 1929) was almost -42%!</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading -->\n<h2>Summary</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>In summary, there are two critical lessons in this model. First is the inherent danger that accompanies a double-top in the Coppock Guide. Such a formation often precedes the biggest and most devastating bear markets. The second, and perhaps most important, lesson is the knowledge that the safest and most profitable buying opportunities appear after this Guide declines to (or below) ‘0’ and then turns upward.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>With its remarkable track record, the Coppock Guide should be a key tool in any investment strategy. When used with our other indicators, it can provide the discipline and patience to avoid treacherous bear market rallies and wait for the best buying opportunities that occur only a couple times each decade.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:separator -->\n<hr class=\"wp-block-separator\"/>\n<!-- /wp:separator -->\n\n<!-- wp:heading {\"level\":4} -->\n<h4>InvesTech Market Insight - Updated May 2013</h4>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>This special report is also available to<a href=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/06/coppock.pdf\" target=\"_blank\" rel=\"noreferrer noopener\"> read in PDF format.</a> </p>\n<!-- /wp:paragraph -->','The Coppock Guide - Double Tops','This little-known indicator has a remarkable 93-year track record of signaling the best, low-risk buying opportunities in the stock market. It’s been described as a “barometer of the market’s emotional state,” methodically tracking the ebb and flow of equity markets from one extreme to another.','inherit','closed','closed','','2476-revision-v1','','','2021-06-17 22:20:32','2021-06-17 22:20:32','',2476,'https://ns2020-investech.investech.com/?p=8586',0,'revision','',0);
INSERT INTO `wp_posts` VALUES (8587,3,'2021-06-17 22:20:51','2021-06-17 22:20:51','<!-- wp:heading -->\n<h2>\"How do I hate thee?  Let me count the ways...\"</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Without a doubt, this is already one of the most hated bull markets in history! Both analysts and the media are finding countless things wrong with the rally, the U.S. economy, and –it seems– the outlook for the entire world:</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p>Global Recession Deepens, Adding to U.S. Woes</p><cite>The Kiplinger Letter, 5/4/09</cite></blockquote>\n<!-- /wp:quote -->\n\n<!-- wp:paragraph -->\n<p>From the swine flu outbreak, to soaring bankruptcies and foreclosures, to weak trading volume and ominous selling by corporate insiders, Wall Street investors have no shortage of worries on their minds. <em>So why does the market continue to move relentlessly higher?</em></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>Inside this issue, we provide the historical answer to that question – which our more seasoned subscribers know already. Just eight weeks ago, our March 13 issue laid out the technical arguments for an important market bottom…</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p>A Buying Opportunity of a Lifetime?</p><p>... it is a historically indisputable fact that <em>we are heading toward a buying opportunity of a lifetime.</em></p><cite>InvesTech Research, 3/13/09</cite></blockquote>\n<!-- /wp:quote -->\n\n<!-- wp:paragraph -->\n<p>…and thus far, the low that week (at DJIA 6547) has proven to be the bear market low.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3><br><strong>The ultimate question: What now?</strong></h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Are we in a new bull market or is it a bear market rally? If it is a new bull market, will it be a cyclical bull that is destined to a short life span or fail to reach old highs? And is it too late to buy, with the market already rebounding over 25%? All of these worries simply add to headlines now weighing on investors’ shoulders.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p><br>So let’s tackle some of these major concerns…</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading -->\n<h2>Climbing a Wall of Worry</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Every seasoned investor knows that bull markets climb a proverbial “wall of worry” during their early months of existence. Yet each and every time, it doesn’t get any easier. There is always an emotional tug-of-war between gloomy media headlines, and the slow methodical improvement in the technical outlook…</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"id\":5380,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<figure class=\"wp-block-image size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/V09I05pg2-1024x752.png\" alt=\"DJIA with worrisome media headlines or a wall of worry\" class=\"wp-image-5380\"/></figure>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p><strong>But with all the blocks in place for a potential “best buy” opportunity in stocks [see table below], we need to pay close attention to the technical outlook <em>– which is dramatically changing!</em></strong></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"id\":5381,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<figure class=\"wp-block-image size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/V09I05pg2table.png\" alt=\"Bearish conditions that precede the &quot;best buy&quot; opportunities in stocks\" class=\"wp-image-5381\"/></figure>\n<!-- /wp:image -->\n\n<!-- wp:heading -->\n<h2>NLC: Now Bullish</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p><strong>The most dramatic technical change since our last issue has been a strong and steady increase in the bullish “SELLING VACUUM” [*1] from our  Negative Leadership Composite.</strong> Designed to measure the absence of downside or bear market leadership, this kind of +50 reading is  synonymous with past bull market launching pads (see dashed arrows). Note there have been only 2 false signals (greater than +20) from our NLC Selling Vacuum in the past 42 years – and both occurred at significantly lower levels. </p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>We also want to point out that the lingering “DISTRIBUTION” [*2 –lower half] is not a problem from a technical viewpoint. Internal calculations show that bear market Distribution ended on the March 9 low, and has not been “added to” since then. On climactic V-shaped bottoms, it is not unusual to see a lag in this component. For example, at the end of the 1973-74 bear market, there was a 14-week residual lag between the market bottom and when Distribution left its -100 reading. In 1987, there was an 11- week lag. Currently, we’re only 8 weeks past the March 9 bottom.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"id\":5420,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<figure class=\"wp-block-image size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/nlcV09I05-1024x736.png\" alt=\"InvesTech\'s negative leadership composite selling vacuum reaching +50 while the distribution component hit -100.\" class=\"wp-image-5420\"/></figure>\n<!-- /wp:image -->\n\n<!-- wp:heading -->\n<h2>BREADTH: Positive Divergence</h2>\n<!-- /wp:heading -->\n\n<!-- wp:image {\"align\":\"right\",\"id\":5421,\"width\":375,\"height\":402,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"alignright size-large is-resized\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/advdecv09i05.png\" alt=\"Advance-decline breaking to a new high\" class=\"wp-image-5421\" width=\"375\" height=\"402\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p><br>Throughout the lengthy 1929-32 bear market, as well as the 1973-74 bear market, there was never a “positive divergence” in market breadth. In other words, the advance-decline line <em>[cumulative sum of daily advancing issues minus declining issues] </em>led the bear market path every step of the way down. </p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>So to see a positive divergence today is yet another confirmation this bear market may be over. The A-D Line has broken well above its January rally high, thus leading the S&amp;P 500 upward since the March bottom. Some will argue this breadth gauge is less reliable since more ETFs and closed-end bond funds are traded on the NYSE. Perhaps. But we’ll simply let history speak for itself and give this technical tool our benefit of doubt until proven wrong.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading -->\n<h2>COPPOCK GUIDE: Is a Buy Signal Imminent?</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p><strong><em>If recent market gains hold, then a “Buy Signal” appears imminent in the Coppock Guide this month.</em></strong> </p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>The Coppock Guide was developed over 50 years ago by Edwin S. Coppock. Its historical value lies in signaling or confirming the best, low-risk buying opportunities in history <em>– and it is one of the few technical tools that would have kept anxious investors from stepping  prematurely into the middle of the record 1929-32 debacle or the 1973-74 bear market. </em></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>This index is actually the 10-month weighted moving total of a 14-month rate of change plus an 11-month rate of change of a market index. In mathematical terms, it’s really just a momentum oscillator. Because of  this, it reverses direction when the long-term momentum or velocity in the market peaks. After dropping to ‘0’ or below, a mere 1-point upturn in this index can usually be treated as an excellent buying opportunity. </p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p><em>Some of the best (most important) buying opportunities have appeared when the Coppock Guide bottomed at a negative extreme below -20, including 1921, 1932, 1970, 1974 and 2003.</em> And often, the more negative the Coppock Guide is when it turns upward, the more impressive the profits ahead. <em>Under this guideline, only two false signals in 88 years have been recorded – once in 1941 and again in November 2001. </em></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>Today, the Coppock Guide is at its most oversold level since the bear markets of the 1930s – over 70 years ago. As a monthly indicator, we won’t know for certain whether a formal buy signal has been triggered until the end of the month. However, forward testing<em> –based on current data– </em>reveals the Coppock will turn upward from below ‘0’ if the market stabilizes near present levels or continues rising.  <em>Remember – this is a <strong>projection</strong>, not necessarily a certainty. <strong>So stay tuned…</strong></em></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"id\":5427,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<figure class=\"wp-block-image size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/coppockV09I05-1024x784.png\" alt=\"Coppock guide over the S&amp;P 500 Index just starting to turn upward\" class=\"wp-image-5427\"/></figure>\n<!-- /wp:image -->\n\n<!-- wp:heading -->\n<h2>TWO MORE important shifts underway…</h2>\n<!-- /wp:heading -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Consumer Confidence:</h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p> After hitting a record 42-year low in February, Consumer Confidence just registered its largest monthly rebound in almost four years [ 1]. While no guarantee of an economic recovery ahead, this is clearly a move in the right direction. More importantly, the majority of that confidence rebound came in the “future expectations” component of this gauge – representing consumers’ outlook six months ahead. And our tracking of the “future minus present” surveys now shows a clear uptrend [2] … strikingly similar to the path that has typically led out of past recessions.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"id\":8523,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<figure class=\"wp-block-image size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/06/cons-conf-09-1024x443.png\" alt=\"Consumer Confidence registers largest monthly rebound in almost four years.\" class=\"wp-image-8523\"/></figure>\n<!-- /wp:image -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>RSI (Relative Strength Index):</h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Here is what we said in our March 13 issue…</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:quote -->\n<blockquote class=\"wp-block-quote\"><p>One of the technical gauges of oversold (or overbought) extremes in the stock market is the Relative Strength Index (RSI), developed by Welles Wilder. A long-term (18-month) version of this RSI has proven a valuable tool in helping to identify potential market bottoms –or the best buying opportunities for investors. </p><p>Basically, the Relative Strength Index compares the cumulative <strong>upward </strong>price changes over a defined period relative to the cumulative <strong>downward </strong>price changes. Here, once again, extremes in oversold conditions on Wall Street inevitably create the best buying opportunities. <strong>And the most oversold conditions can sometimes create a buying opportunity of a lifetime – at market levels that are never seen again!</strong></p><cite>InvesTech Market Analyst – March 13, 2009</cite></blockquote>\n<!-- /wp:quote -->\n\n<!-- wp:paragraph -->\n<p>Since then, this Relative Strength Index has turned decisively upward in response to the latest rally. <em>Notice that no upturn of this magnitude from this level has proven to be a false signal in the past 109 years!</em> It’s just one more cumulative piece of evidence that the stock market low eight weeks ago may have been an important bottom.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"id\":5429,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<figure class=\"wp-block-image size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/rsiv09i05-1024x627.png\" alt=\"Relative Strength Index turns decisively upward\" class=\"wp-image-5429\"/></figure>\n<!-- /wp:image -->\n\n<!-- wp:heading -->\n<h2>PERSONAL PERSPECTIVE</h2>\n<!-- /wp:heading -->\n\n<!-- wp:heading {\"textAlign\":\"center\"} -->\n<h2 class=\"has-text-align-center\">Housing – Light at the end of the tunnel</h2>\n<!-- /wp:heading -->\n\n<!-- wp:image {\"align\":\"right\",\"id\":5432,\"width\":402,\"height\":377,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"alignright size-large is-resized\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/bubblev09i05.png\" alt=\"InvesTech\'s housing bubble bellwether index overlaid on the internet index.  They appear to be mirror images.\" class=\"wp-image-5432\" width=\"402\" height=\"377\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p>Don’t count us among the raging bulls. If anything, we might be called a<em> “cautious bull with some residual concerns about systemic mortgage risk.” </em>But there, too, the outlook seems to be improving… </p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>First, our Housing Bubble Bellwether Index –which forewarned us in 2005 of the housing debacle ahead– is coming off a double-bottom, in which the March 9 low was <strong>not significantly lower</strong> than the low late last year. Even to this day, the parallel path of these housing-related stocks to the bursting of the 1990s Internet Bubble has been amazing!</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>In addition, much of the excess price inflation in housing appears to have been resolved. Nationally, the median family home price has fallen an unprecedented -29% since mid-2005, as shown in this graphic:</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"id\":5433,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<figure class=\"wp-block-image size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/pricingv09i05.png\" alt=\"Housing prices versus inflation showing median family homes dropping almost as low as the consumer price index\" class=\"wp-image-5433\"/></figure>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p>That does not mean that home prices won’t continue lower or overshoot the long-term inflation trend before hitting bottom in 2010. However, it suggests to us that the majority of damage is over. [And we reserve judgment on those areas of the country that peaked late, like Whitefish, Montana.]</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>It is also encouraging to see an upturn in the NAHB (National Association of Home Builders) surveys on both Builder Confidence and the traffic of prospective buyers. With inventories now down to pre-bubble levels, we believe this upturn will have more staying ability than the temporary rebound in 2006.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"align\":\"center\",\"id\":5435,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/nahbv09i05.png\" alt=\"NAHB Builder Confidence Survey, reading of 14\" class=\"wp-image-5435\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:heading {\"textAlign\":\"center\"} -->\n<h2 class=\"has-text-align-center\">Battling the Bears</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Frankly, we can come up with all sorts of reasons to remain a bit cautious about the market. Yet our objectivity compels us to gradually move our allocation in the direction of the evidence – and right now that is to the bullish side. Here’s what is <strong>not influencing our decisions,</strong> and why…</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Volume is too light for this to be a new bull market!</h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>This is an argument that we’ve heard more than once, and has some historical validity. Volume on this rally, and particularly on big “up” days has been disappointingly average. But one of the reasons for this is that most bear market bottoms are accompanied by a dramatic shift in Fed policy, accompanied by interest rate cuts. This time around, the Fed has no interest rate cards left to play. So regardless of when this bear market bottom occurs (or if it has already occurred), we expect volume to lag.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Sentiment never shifts bullish this fast – except on bear market rallies.</h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>We’re heard this statement from several noted analysts, however, we don’t see any factual basis for it. In fact, we continue to see a lot of skepticism and doubt (see “Wall of Worry” headlines on page 2). And currently at 8 weeks after the March bottom, the AAII survey shows only 36% of individual investors are bullish – compared to 49% bullish at the same time after the last bear market’s double-bottom in March 2003.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p><br>Meanwhile, the Investors Intelligence survey shows only 40% of advisory services have turned bullish. That compares to 48% bullish at 8 weeks after the March 2003 low, 37% bullish at 8 weeks after the 1982 bottom, and 53% bullish at 8 weeks after the December 1974 bottom. Bottom line: there  seems to be more doubt than bullishness today.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Insiders are already selling – so it must be a bear market rally.</h3>\n<!-- /wp:heading -->\n\n<!-- wp:columns -->\n<div class=\"wp-block-columns\"><!-- wp:column -->\n<div class=\"wp-block-column\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p>Insider Selling Hits Highest Levels Since Crisis Began</p><cite>Reuters - 4/27/09</cite></blockquote>\n<!-- /wp:quote --></div>\n<!-- /wp:column -->\n\n<!-- wp:column -->\n<div class=\"wp-block-column\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p>As stocks rebound, corporate insiders ramp up selling</p><cite>Los Angeles - 4/27/09</cite></blockquote>\n<!-- /wp:quote --></div>\n<!-- /wp:column -->\n\n<!-- wp:column -->\n<div class=\"wp-block-column\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p>Insider Selling Jumps to Highest Level Since 2007</p><cite>Bloomberg - 4/24/09</cite></blockquote>\n<!-- /wp:quote -->\n\n<!-- wp:paragraph -->\n<p></p>\n<!-- /wp:paragraph --></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:paragraph -->\n<p>To us, this is the <strong>worst argument </strong>to make, and history clearly supports us! As a group, corporate insiders usually make the worst investors. They often want to buy their stock when the market is falling (before a recession is recognized): i.e., 1973-74, and 1999-2000 at the dot-com peak. And even worse – their heaviest selling in history has occurred after early bull market run-ups in 1982 [1], 1985 [2], and 2003 [3]. <em>So if insiders are heavy sellers today, it’s not on our worry list.</em></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"align\":\"center\",\"id\":5441,\"width\":718,\"height\":617,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large is-resized\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/insider-trading.png\" alt=\"Chart of Insider Trading sales versus buys over the DJIA\" class=\"wp-image-5441\" width=\"718\" height=\"617\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>This is only a cyclical bull within a long-term secular bear.</h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Secular? Cyclical? Forget the semantics. And let’s just focus on the technical facts!</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:spacer {\"height\":24} -->\n<div style=\"height:24px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:image {\"align\":\"center\",\"id\":6180,\"width\":381,\"height\":44,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large is-resized\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/03/JBS.png\" alt=\"\" class=\"wp-image-6180\" width=\"381\" height=\"44\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:spacer {\"height\":39} -->\n<div style=\"height:39px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:separator -->\n<hr class=\"wp-block-separator\"/>\n<!-- /wp:separator -->\n\n<!-- wp:heading {\"level\":4} -->\n<h4><em>InvesTech Research</em> newsletter published May 8, 2009.</h4>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>  This newsletter is also available to<a href=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/06/V09I05-Unloved-Bull.pdf\" target=\"_blank\" rel=\"noreferrer noopener\"> read in PDF format. </a></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p></p>\n<!-- /wp:paragraph -->','The Unloved Bull','Archived Issue from May 8, 2009 - Are we in a new bull market or is it a bear market rally? If it is a new bull market, will it be a cyclical bull that is destined to a short life span or fail to reach old highs? And is it too late to buy, with the market already rebounding over 25%. In this issue, we provide the historical answers to these questions... more.','inherit','closed','closed','','2478-revision-v1','','','2021-06-17 22:20:51','2021-06-17 22:20:51','',2478,'https://ns2020-investech.investech.com/?p=8587',0,'revision','',0);
INSERT INTO `wp_posts` VALUES (8588,3,'2021-06-17 22:21:21','2021-06-17 22:21:21','<!-- wp:heading -->\n<h2>The Indexing Craze</h2>\n<!-- /wp:heading -->\n\n<!-- wp:columns -->\n<div class=\"wp-block-columns\"><!-- wp:column {\"width\":\"66.66%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:66.66%\"><!-- wp:paragraph -->\n<p>The indexing craze… it’s sure to be remembered as a hallmark of the 1990s! What has made investing in the S&amp;P 500 so popular these days? If you buy into a recent Business Week article, <em>“Index funds are cheap, easy–and they’re changing the way Americans invest.”</em> A value investor might disagree, since index funds are holding a group of stocks which are at their most overvalued levels in history.  However, in a sense, they are “cheap”… you don’t have to pay a fund manager to search for attractive stocks, and there are few transaction fees when the portfolio doesn’t change much from year to year. As for “easy,” that’s a different story. Our October 23, 1998 issue of the InvesTech Mutual Fund Advisor devoted considerable space to dispelling some of the myths of easy profits and safety that enthusiasts claim for these funds.</p>\n<!-- /wp:paragraph --></div>\n<!-- /wp:column -->\n\n<!-- wp:column {\"width\":\"33.33%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:33.33%\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p>Saving for Retirement Index Fever</p><cite>Fortune, 11/9/98</cite></blockquote>\n<!-- /wp:quote --></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:columns -->\n<div class=\"wp-block-columns\"><!-- wp:column {\"width\":\"33.33%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:33.33%\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p>Who Needs a Money Manager?</p><cite>Business Week, 2/22/99</cite></blockquote>\n<!-- /wp:quote --></div>\n<!-- /wp:column -->\n\n<!-- wp:column {\"width\":\"66.66%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:66.66%\"><!-- wp:paragraph -->\n<p>The popularity of investing in a large-cap index is a phenomenon of long-running bull markets, especially in the latter stages like today. There are several reasons for this. After years of positive gains in the stock market, new investors latch on to the implied idea that making money is simple. It’s also assumed that index funds are safer than other mutual funds because many S&amp;P 500 stocks have widely recognized names. And finally, index funds are the obvious choice for novice investors who tend to be drawn in during late stage bull markets.<em> [Just try to talk a non-investor into putting money into the stock market in the depths of a recession when bull markets are typically born!] </em>During the longest running bull markets, like today, index funds appear attractive even to more experienced investors, simply because that’s when they outperform other funds.</p>\n<!-- /wp:paragraph --></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:heading -->\n<h2>Historical Perspective</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>They may be at the height of popularity now, but index funds aren’t just a phenomenon of the 1990’s. If you were investing in 1975 you would have seen this announcement in <em>U.S. News &amp; World Report:</em></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p>INVEST IN THE STOCK-MARKET AVERAGE?</p><p>A new investment vehicle -the \"index mutual fund\"- is making a big pitch for some of the billions that pension funds, college endowments and other institutions invest in the stock market.  </p><p>For most of the big institutional investors, just keeping up with the general stock-market averages would present a large improvement over their performances in past years</p><cite>U.S. News &amp; World Report, 12/29/75</cite></blockquote>\n<!-- /wp:quote -->\n\n<!-- wp:paragraph -->\n<p>Index funds were a hot new concept in 1975, just in time to dramatically UNDERperform the majority of stocks. Over the next seven years, the smallest 20% of NYSE issues outperformed the S&amp;P 500 by more than 5-fold (752% versus 150%). After this less-than-spectacular start, the popularity of index funds came and went with the market cycles for the next decade. They really started to proliferate only when the current bull market turned into a large-cap bonanza beginning in 1994.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>Last year, index funds attracted nearly 19% of all money invested in mutual funds. And Vanguard Index 500 with $74 billion is close to passing #1 Fidelity Magellan in net assets. But that’s just the tip of the iceberg, as the majority of mutual funds are now investing in the “big 50 ” –the 50 largest-cap stocks in the S&amp;P 500– simply to keep pace with that index’s momentum. This flow of money into a handful of large stocks affects not only the market averages, but it can have long-term repercussions for the market as well as your future investment strategy.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading -->\n<h2>The Impact</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Here’s the current, and potential, impact as we see it…<br></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Investor psychology is distorted. </h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Many novices view index funds as a type of variable rate CD. In Canada, one of our readers reports roadside billboards are promoting a guaranteed principle type of market index investment over GICs (the Canadian equivalent of a CD). What happens when index funds fail to return that expected 11%, or worse, when a major bear market wipes out 40-50%. Someone’s going to be left holding the bag.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3,\"className\":\"unclear\"} -->\n<h3 class=\"unclear\">More and more “non-index” funds are actually indexing a large part of their portfolios. </h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>As index funds have been the only ones to keep pace with market averages in recent years, the natural reaction is for fund managers to change strategy. The philosophy seems to be, <em>“If I can’t outperform the market, at least try to imitate it.”</em> The result is an increasing number of equity funds that look like mini-index fund clones as managers are dragged into the same stocks. Any fund wanting to match or beat the averages must hold at least some of the “big 50 ” of the S&amp;P 500. To make this point, we looked at the portfolios of the ten top performing “non-index” growth funds for the past 12 months. On  Average, 5 of the top 10 holdings in each portfolio are among the 20 largest stocks in the S&amp;P.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>As an example, take the Fidelity Dividend Growth fund which, by its very name, seems to imply conservative growth with a focus on dividends. But there’s nothing conservative about an annual portfolio turnover rate exceeding 105% for each of the last 5 years. And its dividend yield is only 0.4% – less than one-third the dismal yield of the S&amp;P 500.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3,\"className\":\"unclear\"} -->\n<h3 class=\"unclear\">Investments in momentum related funds are funneling into the most overvalued stocks in the market, driving them even higher. </h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Remember, the S&amp;P 500 is a capitalization weighted index, so money going into index funds is not evenly distributed in all 500 stocks. Only fifty stocks account for 55% of S&amp;P 500 capitalization and 55% of an index fund portfolio. That leaves the other 450 stocks to split the rest. Indexing contributes to explosive run-up and overvaluation in these top 50 stocks. Microsoft today is valued at 1.4 times the total capitalization of GE, Intel, Merck, Wal-Mart, Pfizer, Exxon, Coca-Cola, IBM, Cisco, <strong>AND </strong>Microsoft in December of 1990 at the start of this bull market. And America Online, which has yet to show any significant earnings, is now valued at more than ANY of the ten largest companies in the U.S. in 1990!</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>Market volatility increases whenever interest narrows to just a few stocks. All eyes are on the same select group (the largest companies in the S&amp;P 500). Any news or earnings surprises can cause wild gyrations in price as funds scramble to dump or pile into hot movers. No wonder the intraday volatility in 1999 is running the highest for any bull market year since 1929!</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Finally, indexing amplifies the technical distortion in the markets. </h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>The current issue of the<em> InvesTech Market Analyst </em>takes an insightful look at what’s really happening in breadth and other technical divergences. With support from the “big-50\" stocks of the S&amp;P, the closely watched indexes like the DJIA and NASDAQ simply don’t reflect these divergences. For a broader view of the market, take a close look at the Russell 2000 Index (premier small cap index) or the Value-Line Composite Index (an equally weighted index of 1700 stocks).</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:media-text {\"mediaId\":5403,\"mediaType\":\"image\",\"mediaWidth\":40} -->\n<div class=\"wp-block-media-text alignwide is-stacked-on-mobile\" style=\"grid-template-columns:40% auto\"><figure class=\"wp-block-media-text__media\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/top-20.png\" alt=\"Top 20 stocks in the S&amp;P 500 Index as of 1999\" class=\"wp-image-5403 size-full\"/></figure><div class=\"wp-block-media-text__content\"><!-- wp:heading -->\n<h2>Investment Strategy</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>First, we advise that you examine the individual stock holdings in any mutual fund you own – especially for any funds that have “performed” well over the last couple years. Ask yourself,<em> “How ‘indexed’ is this fund?”</em> We’ve listed the 20 largest cap stocks of the S&amp;P 500 in the table shown at left. If you find more than 3 or 4 of these stocks in the top 20 portfolio holdings of your fund, then take heed – your fund is nibbling on indexing.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>In addition, avoid judging a future fund by its 1997-98 performance. If a fund was near the top of the performance list for these past two years, chances are it was momentum investing. Blue chip stocks are often the last to peak in a long-running bull market, benefiting from a “flight to safety” as other stocks falter. Unfortunately, when they fall from overvalued heights, they can be the last to recover from a recession.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>This past bull market illustrates our point. Index funds have enjoyed the run up in blue chip stocks, handily beating most actively managed funds over the last few years. Since 1994, the Vanguard 500 Index Fund has more than doubled the total return of the average small stock fund, and provided 1.6 times the return of the average value fund. This performance may seem unbeatable, but it’s only part of the story. </p>\n<!-- /wp:paragraph --></div></div>\n<!-- /wp:media-text -->\n\n<!-- wp:spacer {\"height\":10} -->\n<div style=\"height:10px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:image {\"align\":\"right\",\"id\":5406,\"width\":514,\"height\":530,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"alignright size-large is-resized\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/mutualfundperf.png\" alt=\"\" class=\"wp-image-5406\" width=\"514\" height=\"530\"/><figcaption>\"Mutual Fund Performance\" graph from 1991-93</figcaption></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p>This \"Mutual Fund Performance\" graph from 1991-93 reveals the comparative performance of the Vanguard 500 during the first three years of this bull market… the safest years to be invested. Note that the average “value” fund outperformed by a factor of 1.4… and the average small company fund literally doubled the return of the Vanguard 500 Index fund. </p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>From the perspective of risk management now (and future profits later), it’s never been more critical to know your mutual fund or prospective mutual fund. We firmly believe the big-cap leaders of today will again become the laggards after the next bear market washout. If that is the case, then you don’t want to find your portfolio indexed to under-performance at what may become one of the best buying opportunities of our lifetime.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:spacer {\"height\":38} -->\n<div style=\"height:38px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:separator -->\n<hr class=\"wp-block-separator\"/>\n<!-- /wp:separator -->\n\n<!-- wp:spacer {\"height\":3} -->\n<div style=\"height:3px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:heading {\"level\":4} -->\n<h4><em>InvesTech Research</em> newsletter originally published March 12, 1999</h4>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>This newsletter is also available to<a href=\"https://ns2020-investech.investech.com/wp-content/uploads/2020/08/InvesTech-V99I04-Indexing.pdf\" target=\"_blank\" rel=\"noreferrer noopener\"> read in PDF format.</a> </p>\n<!-- /wp:paragraph -->','The Lemming Principle','Just as relevant today as in the Tech Bubble of the 1990s, this issue (originally published in March 1999) is particularly enlightening in view of today\'s infatuation with passive and index investing. Instead of falling off a cliff, these lemmings fell into the largest bear market since the 1930s!','inherit','closed','closed','','2470-revision-v1','','','2021-06-17 22:21:21','2021-06-17 22:21:21','',2470,'https://ns2020-investech.investech.com/?p=8588',0,'revision','',0);
INSERT INTO `wp_posts` VALUES (8589,3,'2021-06-17 22:21:50','2021-06-17 22:21:50','<!-- wp:heading -->\n<h2>Is Wall Street in a \'New Paradigm Era\'... or merely an \'Old Bubble\' carried to New Extremes?</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Santayana, an early 20th Century philosopher, once said,<em> “Those who do not learn from the past, are doomed to repeat it.”</em> And Sir Isaac Newton, who lost the equivalent of over $1,000,000 investing in the South Sea bubble of 1720,  remarked, <em>“I can measure the motions of bodies, but I cannot measure human folly.” </em>However to this day, analysts cannot agree as to what constitutes a bubble… or how to recognize a bubble before the inevitable washout and aftermath.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>It is widely perceived that the U.S. economy and stock market have embarked on a <em>“New Paradigm Era”</em> in which old rules no longer apply and traditional barriers have been broken. Yet as Federal Reserve Chairman Alan Greenspan warned Congress on February 26th 1997, <em>“Regrettably, history is strewn with visions of such ‘new eras’ that, in the end, have proven to be a mirage.” </em>This is an insight into one such likely mirage…</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading -->\n<h2>What Constitutes A Bubble?</h2>\n<!-- /wp:heading -->\n\n<!-- wp:quote {\"align\":\"left\"} -->\n<blockquote class=\"wp-block-quote has-text-align-left\"><p>That the free enterprise economy is given to recurrent episodes of speculation will be agreed… This process, once it is recognized, is clearly evident, and especially so after the fact. So also, if more subjectively, are the basic attitudes of the participants. These take two forms. There are those who are persuaded that some new price-enhancing circumstance is in control, and they expect the market to stay up and go up, perhaps indefinitely… Then there are those, superficially more astute and generally fewer in number, who perceive or believe themselves to perceive the speculative mood of the moment. They are in to ride the upward wave; their particular genius, they are convinced, will allow them to get out before the speculation runs its course… For built into this situation is the eventual and inevitable fall. Built in also is the circumstance that it cannot come gently or gradually. When it comes it bears the grim face of disaster. That is because both of the groups of participants in the speculative situation are programmed for sudden efforts at escape. Something, it matters little –although it will always be debated– triggers the ultimate reversal.<br></p><cite><strong>A Short History of Financial Euphoria<br></strong>John Kenneth Galbraith</cite></blockquote>\n<!-- /wp:quote -->\n\n<!-- wp:paragraph -->\n<p>Historically, bubbles have always been a part of the lessons of investing. There was the Japanese stock market and real estate bubble which popped in 1989. In domestic real estate, there was the not so “recession-proof” California, as well as the price deflation or washouts of condominiums in Hawaii… residences in the Northeast… commercial office space in the oil belt… and numerous other regions in the 1980’s. Many investors may also remember $850 gold… $50 silver… $37 oil… numismatics… baseball cards… and the list goes on.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>In the stock market, bubbles are usually limited to individual sectors which ride high on excessively exuberant expectations – only to plunge back to earth later. Yet history has left several notable eras which were recognized as “bubbles” only in the eventual and inevitable devastation. Seasoned investors may remember the “Nifty Fifty” era… the “Go-Go Fund” era… or even the “Investment Trust” era of the 1920’s.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>A Short History of Financial Euphoria</h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>In essence, a bubble is created when objectivity, reasoning, and valuation give way to greed and the desire for profits. In <em>“A Short History of Financial Euphoria,” </em>author Galbraith describes the common seeds of past manias that inevitably give way to disastrous consequences:</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:list {\"ordered\":true} -->\n<ol><li>The basic premise that investing involves a trade-off between risk/reward is lost as investors are <em>“captured by the wondrous satisfaction from accruing wealth. The very increase in values thus captures the thoughts and minds of those being rewarded.”</em></li><li>The belief that <em>“some new price-enhancing circumstance is in control”</em> – that there is <em>“something new in the world”</em> that justifies a permanently higher level of valuation.</li><li>The illusion that, except for temporary setbacks, <em>“values are going up permanently and indefinitely.”</em></li><li>The <em>“condemnation at those who express doubt or dissent. … because of defective imagination or other mental inadequacy they are unable to grasp the new and rewarding circumstances.”</em></li></ol>\n<!-- /wp:list -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Healthy Bull Market to Dangerous Bubble</h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Yet only in the aftermath, is a “bubble” identified as a bubble. While in progress, it can only be recognized by its symptoms which are common with speculative eras of the past.<strong> At what point does a healthy bull market turn into a bubble ripe for the popping? Here are a few differences:</strong></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"align\":\"center\",\"id\":5946,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/03/marketbubble-1024x308.jpg\" alt=\"Table detailing the characteristics of a healthy bull market and the characteristics when it swings to a dangerous bubble.\" class=\"wp-image-5946\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:heading -->\n<h2>Time For A Reality Check...</h2>\n<!-- /wp:heading -->\n\n<!-- wp:image {\"align\":\"right\",\"id\":5953,\"width\":356,\"height\":351,\"sizeSlug\":\"medium\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"alignright size-medium is-resized\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/03/overvaluation-extremes-300x296.jpg\" alt=\"Overvalutaion dot chart showing the extremes present at historic market tops.\" class=\"wp-image-5953\" width=\"356\" height=\"351\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p>Wall Street consensus is that the U.S. has entered a “new era” of tame inflation, low interest rates, and rising productivity that will carry economic prosperity well into the new millennium. If so, say pundits, then today’s extreme valuation levels in the stock market are justified. Just how extreme is stock overvaluation? The figure at right shows the S&amp;P 500 Price-to-Dividend Ratio on the vertical scale, and the S&amp;P Industrials Price-to-Book Value Ratio on the horizontal scale. Simply, the higher on the chart, or the farther to the right a year appears, the more overvalued it is. <strong>Clearly, when compared to overvaluation at some of the most historic market tops such as 1929, 1968, 1972, and 1987… today (1998) is off-the-chart!</strong></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>Consensus on Wall Street is also that today’s investor is smarter, better informed, more patient, and longer-term oriented than in the past. Consequently, it is believed that today’s mutual fund holder will never panic in a bear market. However, not all agree with this consensus:</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:spacer {\"height\":37} -->\n<div style=\"height:37px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:quote {\"className\":\"is-style-default\"} -->\n<blockquote class=\"wp-block-quote is-style-default\"><p><strong>Investors may overreact to a downturn, SEC warns</strong><br>Inexperienced investors who have known only the bull market of the last decade could react ‘precipitously’ to a downturn and ‘at great cost to themselves and our markets’, Mr. Arthur Levitt, chairman of the Securities and Exchange Commission<br>warned yesterday.</p><cite>London Financial Times – Feb 26, 1997</cite></blockquote>\n<!-- /wp:quote -->\n\n<!-- wp:paragraph -->\n<p>And Federal Reserve officials also appear nervous as evidenced by this Congressional Testimony in early 1997:</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:quote {\"className\":\"is-style-default\"} -->\n<blockquote class=\"wp-block-quote is-style-default\"><p>History demonstrates that participants in financial markets are susceptible to waves of optimism… Excessive optimism sows the seeds of its own reversal in the form of imbalances that tend to grow over time. When unwarranted expectations ultimately are not realized, the unwinding of these financial excesses can act to amplify a downturn</p><cite>Federal Reserve Chairman Alan Greenspan<br>– Feb 26, 1997</cite></blockquote>\n<!-- /wp:quote -->\n\n<!-- wp:paragraph -->\n<p>Meanwhile, the cold fact remains that the assets in equity mutual funds now total $3,164 Billion, as compared to $226 Billion in October 1990 at the start of this bull market.<strong> Quite simply, 93% of the money in stock mutual funds has not experienced a bear market or even a -15% correction in blue chip averages!</strong></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>Perhaps more ominously, an overwhelming majority of fund investors believe they never will experience such a decline. This late 1996 Lou Harris poll reveals that 85% expect the next 10 years to be as spectacular or better than the past decade. 78% are not expecting a mild bear market of -20%. And almost half think that minor -10% corrections are a thing of the past:</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"align\":\"center\",\"id\":5954,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/03/surveyfundinvestors-1024x224.jpg\" alt=\"survey of fund investors expectations and the actual risk since 1900.\" class=\"wp-image-5954\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p><strong>Just how far out of touch are these investor expectations with reality?</strong> Compare the “actual risk” for <em><strong>all the years</strong></em> of this century (above right). A -10% correction has occurred in 65 years, or once every 1.5yrs on average – yet <em>7 years have lapsed since the last. </em>A -20% decline has triggered every 2.5yrs – <em>again, over 7 years since the last.</em> A -30% bear hits every 4.6yrs – last seen during the ’87 Crash. And a major bear, with -40% losses, strikes about every 8.7yrs… <em>last felt by investors 23 years ago!</em></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:spacer {\"height\":51} -->\n<div style=\"height:51px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:columns -->\n<div class=\"wp-block-columns\"><!-- wp:column -->\n<div class=\"wp-block-column\"><!-- wp:paragraph -->\n<p>Is it a contest to see who can forecast the highest level for the stock market? No… more likely it’s just a not-so-mild case of “irrational exuberance” feared by the Federal Reserve.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":4} -->\n<h4><strong><em>Reality Check: Bull or Bubble?</em></strong></h4>\n<!-- /wp:heading --></div>\n<!-- /wp:column -->\n\n<!-- wp:column -->\n<div class=\"wp-block-column\"><!-- wp:image {\"align\":\"right\",\"id\":5959,\"width\":414,\"height\":305,\"sizeSlug\":\"medium\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"alignright size-medium is-resized\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/03/dow10000-300x221.jpg\" alt=\"Newspaper clipping of When and How the Dow may hit 20,000 by 2007.\" class=\"wp-image-5959\" width=\"414\" height=\"305\"/></figure></div>\n<!-- /wp:image --></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:spacer {\"height\":20} -->\n<div style=\"height:20px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:columns -->\n<div class=\"wp-block-columns\"><!-- wp:column -->\n<div class=\"wp-block-column\"><!-- wp:image {\"align\":\"center\",\"id\":7533,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/05/assets.jpg\" alt=\"\" class=\"wp-image-7533\"/></figure></div>\n<!-- /wp:image --></div>\n<!-- /wp:column -->\n\n<!-- wp:column -->\n<div class=\"wp-block-column\"><!-- wp:paragraph -->\n<p></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:spacer {\"height\":163} -->\n<div style=\"height:163px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:paragraph -->\n<p>Public investment funds placed with the nation’s largest discount brokerage firm have risen over <em><strong>19-fold</strong></em> in less than a decade.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":4} -->\n<h4><strong><em>Reality Check: Bull or Bubble?</em></strong></h4>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Since 1981, the number of mutual funds have multiplied at a rate far above any historical experience… far above the “Go-Go Fund” era of the 1960’s… and far above the “Investment Trust” era of the 1920’s.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":4} -->\n<h4><strong><em>Reality Check: Bull or Bubble?</em></strong></h4>\n<!-- /wp:heading --></div>\n<!-- /wp:column -->\n\n<!-- wp:column -->\n<div class=\"wp-block-column\"><!-- wp:spacer {\"height\":222} -->\n<div style=\"height:222px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:image {\"align\":\"center\",\"id\":5963,\"width\":273,\"height\":349,\"sizeSlug\":\"full\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-full is-resized\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/03/mutualfunds.jpg\" alt=\"Bar chart of mutual funds increasing year over year.\" class=\"wp-image-5963\" width=\"273\" height=\"349\"/></figure></div>\n<!-- /wp:image --></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:spacer {\"height\":51} -->\n<div style=\"height:51px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:columns -->\n<div class=\"wp-block-columns\"><!-- wp:column -->\n<div class=\"wp-block-column\"><!-- wp:image {\"align\":\"center\",\"id\":5967,\"sizeSlug\":\"medium\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-medium\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/03/investmentsclubs-294x300.jpg\" alt=\"Bar chart of investment clubs surpassing the Go-Go Fund era.  \" class=\"wp-image-5967\"/></figure></div>\n<!-- /wp:image --></div>\n<!-- /wp:column -->\n\n<!-- wp:column -->\n<div class=\"wp-block-column\"><!-- wp:paragraph -->\n<p>The number of investment clubs has increased over 5-fold in the current bull market. Today, more than 1 in 3 adults own mutual funds – a 66% increase in four years. That easily surpasses the “Go-Go Fund” era in which 1 in 4 adults owned stocks when the washout began in 1969.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":4} -->\n<h4><strong><em>Reality Check: Bull or Bubble?</em></strong></h4>\n<!-- /wp:heading --></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:spacer {\"height\":51} -->\n<div style=\"height:51px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:columns -->\n<div class=\"wp-block-columns\"><!-- wp:column -->\n<div class=\"wp-block-column\"><!-- wp:paragraph -->\n<p>Market historians note that stock market bubbles have been accompanied by a “bubble” in the price of a seat on the New York Stock Exchange. In March 1998, a seat sold for a cool $2.0 million – far above the peak prior to the 1987 Crash. Also note the 1929 and 1966-69 peaks… which will become relevant in the next section of this report.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":4} -->\n<h4><strong><em>Reality Check: Bull or Bubble?</em></strong></h4>\n<!-- /wp:heading --></div>\n<!-- /wp:column -->\n\n<!-- wp:column -->\n<div class=\"wp-block-column\"><!-- wp:image {\"align\":\"center\",\"id\":5972,\"width\":269,\"height\":371,\"sizeSlug\":\"full\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-full is-resized\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/03/nyse-seat.jpg\" alt=\"Bar chart of cost of seat on NYSE soaring in 1998.\" class=\"wp-image-5972\" width=\"269\" height=\"371\"/></figure></div>\n<!-- /wp:image --></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:image {\"align\":\"left\",\"id\":5973,\"width\":382,\"height\":378,\"sizeSlug\":\"medium\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"alignleft size-medium is-resized\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/03/nasdaq-pe-ratio-300x297.jpg\" alt=\"NASDAQ P/E Ratio up to 81.2 in 1998.\" class=\"wp-image-5973\" width=\"382\" height=\"378\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>Safety in diversification? Certainly not in small-caps. The cumulative P/E ratio of all domestic NASDAQ stocks has been hitting unprecedented, frothy levels. It would require a decline of over -75% to take the NASDAQ P/E ratio back to where it started this bull market in October 1990.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":4} -->\n<h4><strong><em>Reality Check: Bull or Bubble?</em></strong></h4>\n<!-- /wp:heading -->\n\n<!-- wp:spacer {\"height\":51} -->\n<div style=\"height:51px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:image {\"align\":\"right\",\"id\":5978,\"width\":387,\"height\":334,\"sizeSlug\":\"medium\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"alignright size-medium is-resized\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/03/mergers-300x258.jpg\" alt=\"Mergers &amp; Acquisitions line chart also increasing in late 90s.\" class=\"wp-image-5978\" width=\"387\" height=\"334\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>Mergers and acquisitions? Since 1996, there’s been no “deal” too big, too expensive, or too leveraged for Wall Street to piece together.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":4} -->\n<h4><strong><em>Reality Check: Bull or Bubble?</em></strong></h4>\n<!-- /wp:heading -->\n\n<!-- wp:media-text {\"mediaPosition\":\"right\",\"mediaId\":5978,\"mediaLink\":\"https://ns2020-investech.investech.com/subscriber-library/the-new-paradigm/mergers/\",\"mediaType\":\"image\"} -->\n<div class=\"wp-block-media-text alignwide has-media-on-the-right is-stacked-on-mobile\"><figure class=\"wp-block-media-text__media\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/03/mergers.jpg\" alt=\"\" class=\"wp-image-5978 size-full\"/></figure><div class=\"wp-block-media-text__content\"><!-- wp:paragraph -->\n<p>Mergers and acquisitions? Since 1996, there’s been no “deal” too big, too expensive, or too leveraged for Wall Street to piece together.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":4} -->\n<h4><strong><em>Reality Check: Bull or Bubble?</em></strong></h4>\n<!-- /wp:heading --></div></div>\n<!-- /wp:media-text -->\n\n<!-- wp:spacer {\"height\":51} -->\n<div style=\"height:51px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:image {\"align\":\"left\",\"id\":5979,\"width\":392,\"height\":316,\"sizeSlug\":\"medium\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"alignleft size-medium is-resized\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/03/margin-debt66-300x242.jpg\" alt=\"Margin debt graph soaring to record levels in the late 90s.\" class=\"wp-image-5979\" width=\"392\" height=\"316\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p>Margin debt (money borrowed to purchase stocks) has soared to record levels – even relative to the size of the economy. Note how far it is above the dangerous peaks in 1987, 1972, and 1968… just prior to the three biggest bear markets of the past half century. And of course, this doesn’t include the second mortgages, refinancings, or record credit card debt that has been used to divert funds into the stock market.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":4} -->\n<h4><strong><em>Reality Check: Bull or Bubble?</em></strong></h4>\n<!-- /wp:heading -->\n\n<!-- wp:spacer {\"height\":51} -->\n<div style=\"height:51px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>The Inevitable Questions:</h3>\n<!-- /wp:heading -->\n\n<!-- wp:list -->\n<ul><li><strong>What has driven stocks to such overvalued extremes?</strong></li><li><strong>Why do the SEC and our Federal Reserve seem so worried?</strong></li><li><strong>Why are investor expectations so out-of-touch with reality?</strong></li><li><strong>What has created so many symptoms of a dangerous “bubble”?</strong></li></ul>\n<!-- /wp:list -->\n\n<!-- wp:heading -->\n<h2>TODAY: The <strong>Not So</strong> “New Paradigm Bubble”</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Many reasons, excuses, and theories have been postulated for Wall Street’s exuberance today. They range from advances in technology, to increases in productivity, to changing demographics (aging baby-boomers). Yet these all miss the mark in explaining how Wall Street arrived at DJIA 9000 from DJIA 800 in 1982. In 1981 when President Reagan took office, interest rates were above 13%, gold had recently hit $850/oz, the DJIA was at the same level as in 1966, and real estate was considered by all to be the safest, best long-term investment. What happened? What changed public opinion so dramatically?</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p><strong><em>The answer is “disinflation”.</em> </strong>As inflation receded over the past 16 years, so did the fear or expectations of inflation. Gold lost its luster. Real estate washouts in the oil belt, California, and the Northeast removed its “safe haven” perception. And as interest rates slipped year after year, thrifty CD and money market fund savers were pushed to seek other alternatives… the stock market. A “Disinflation Era” is not new… and neither is the dangerous bubble which it can create. Let’s examine historical precedent:</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"align\":\"right\",\"id\":5988,\"sizeSlug\":\"medium\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"alignright size-medium\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/03/90s-inflation-rate-300x298.jpg\" alt=\"5 year inflation rate graph over the djia increasing.\" class=\"wp-image-5988\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p><strong>THE INVESTMENT TRUST ’20s</strong><br><strong>Start:</strong> August 1921 – as the high inflation of World War I receded.<br><strong>Stocks:</strong> DJIA up 6-fold in 8 years.<br><strong>THE GO-GO FUND ’60s</strong><br><strong>Start:</strong> June 1949 – as the high inflation of World War II (and the Korean War) receded.<br><strong>Stocks:</strong> DJIA up 6-fold in 17 years (with subsequent tops in 1968 and 1973).<br><strong>THE MUTUAL FUND MANIA ’90s</strong><br><strong>Start:</strong> August 1982 – as the high inflation of the Vietnam War and the 1970s receded.<br><strong>Stocks:</strong> DJIA up 11-fold in 16 years.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Here are the ominous parallels and sequence of events in these “Disinflation Eras”:</h3>\n<!-- /wp:heading -->\n\n<!-- wp:image {\"align\":\"center\",\"id\":5989,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/03/1-correctionless-market-1024x167.jpg\" alt=\"Correctionless market contains an image with headlines from 1929, 1966, and today.\" class=\"wp-image-5989\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:image {\"align\":\"center\",\"id\":5990,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/03/2-mutual-fund-mania-1024x577.jpg\" alt=\"Mutual Fund Mania with headlines from 1929, 1966, and today.\" class=\"wp-image-5990\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:image {\"align\":\"center\",\"id\":5991,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/03/3-extreme-overvaluation-1024x235.jpg\" alt=\"Extreme overvaluation with headlines.\" class=\"wp-image-5991\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:image {\"align\":\"center\",\"id\":5992,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/03/4-old-rules-1024x442.jpg\" alt=\"Old Rules no longer apply headlines\" class=\"wp-image-5992\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:image {\"align\":\"center\",\"id\":5993,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/03/5-unparalleled-stability-1024x266.jpg\" alt=\"Unparalleled stability headlines\" class=\"wp-image-5993\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:image {\"align\":\"center\",\"id\":5994,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/03/6-supply-demand-1024x314.jpg\" alt=\"Supply and demand imbalance headlines\" class=\"wp-image-5994\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:image {\"align\":\"center\",\"id\":5995,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/03/7-riskless-attitude-1024x258.jpg\" alt=\"Riskless attitude headlines\" class=\"wp-image-5995\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:image {\"align\":\"center\",\"id\":5996,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/03/8-perpetual-prosperity-1024x442.jpg\" alt=\"Perpetual economic prosperity headlines\" class=\"wp-image-5996\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:image {\"align\":\"center\",\"id\":5997,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/03/9-new-era-hype-1024x452.jpg\" alt=\"New era hype headlines\" class=\"wp-image-5997\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:image {\"align\":\"center\",\"id\":5998,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/03/10-11-1024x567.jpg\" alt=\"Federal Reserve Censure and scolding the federal reserve headlines\" class=\"wp-image-5998\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:image {\"align\":\"center\",\"id\":5999,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/03/washout-1024x269.jpg\" alt=\"Inevitable washout headlines\" class=\"wp-image-5999\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:heading -->\n<h2>What the Future Holds...</h2>\n<!-- /wp:heading -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>A stock market bubble can be <em>prevented</em>, but it can’t be <em>corrected</em>…</h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Painful recessions and periodic bear markets can usually prevent the valuation extremes and sentiment excesses that create a dangerous bubble. Yet tragically, this simple, historic fact must be relearned every time. For example, after the Japanese stock market and real estate collapse, the former head of the Bank of Japan lamented:</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:quote -->\n<blockquote class=\"wp-block-quote\"><p>Looking back, we now feel that we should have applied the brakes on the excessive boom much earlier… However, back in those days, as [consumer] prices were not rising, it was difficult to obtain people’s understanding for a policy aimed at achieving sustainable economic growth by monetary tightening.</p><cite>Yasushi Mieno, Former Governor, Bank of Japan</cite></blockquote>\n<!-- /wp:quote -->\n\n<!-- wp:paragraph -->\n<p>The historical truth that bubbles can be <em>prevented </em>but not <em>corrected </em>even appears obvious to those involved in creating the current bubble, as evidenced by this 1996 quote from the former Federal Reserve Vice-Chairman:</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:quote -->\n<blockquote class=\"wp-block-quote\"><p>It’s very hard to surgically prick a balloon. You may let out a lot more air than you bargained for.</p><cite>Alan Blinder, Former Vice Chairman, Federal Reserve</cite></blockquote>\n<!-- /wp:quote -->\n\n<!-- wp:paragraph -->\n<p>And in an article from 30 years ago, the current Federal Reserve Chairman wrote this critique of the 1929 Crash:</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:quote -->\n<blockquote class=\"wp-block-quote\"><p>The excess credit which the Fed pumped into the economy spilled over into the stock market – triggering a fantastic speculative boom. Belatedly, Federal Reserve officials attempted to sop up the excess reserves and finally succeeded in braking the boom. But it was too late: by 1929 the speculative imbalances had become so overwhelming that the attempt precipitated a sharp retrenching and a consequent demoralizing of business confidence.</p><cite>Alan Greenspan, “Gold and Economic Freedom”, 1966</cite></blockquote>\n<!-- /wp:quote -->\n\n<!-- wp:paragraph -->\n<p>Yet the mere presence of a bubble, even with all the overvaluation and extremes, rarely pops itself. It may continue to inflate, transparent to those inside the bubble, until some external event causes the initial pinhole. As John Galbraith noted about past bubbles, <em>“Something, it matters little –although it will always be debated–  triggers the ultimate reversal.”</em></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>From whence could the pin or trigger come?…</h3>\n<!-- /wp:heading -->\n\n<!-- wp:image {\"align\":\"right\",\"id\":6002,\"sizeSlug\":\"medium\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"alignright size-medium\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/03/global-disc-rates-289x300.jpg\" alt=\"Global discount rates graph dropping\" class=\"wp-image-6002\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p>Global economic and financial turmoil offer a number of potential sources. Recessions in Germany and Japan have driven interest rates down to 1/3 of levels in 1991-92<em> (or 1/12 in the case of Japan).</em> However, the frenzied effort to jumpstart foreign economies has instead pushed excess liquidity into the U.S. financial markets.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"align\":\"left\",\"id\":6003,\"sizeSlug\":\"medium\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"alignleft size-medium\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/03/net-foreign-purchases-300x211.jpg\" alt=\"Net foreign purchases of U.S. Treasury Bonds and Notes\" class=\"wp-image-6003\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p>As a result, purchasing of U.S. Treasuries by foreign investors and central banks has soared to unprecedented levels. The short-term benefits have funded our trade deficit, supported the Dollar, and sloshed liquidity into Wall Street.<em> The obvious danger is what might happen now that this trend shows signs of reversing.</em></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"align\":\"right\",\"id\":6004,\"sizeSlug\":\"medium\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"alignright size-medium\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/03/global-derivatives-207x300.jpg\" alt=\"Global derivatives market bar chart increasing\" class=\"wp-image-6004\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p>Another potential trigger resides in the global derivatives market. It’s assumed by today’s young gun-slinging money managers that such leveraged derivatives are as liquid as cash – even in a falling market or financial crisis. However, note that the face value of these global derivatives now totals over $41 trillion… 6 times larger than in the last U.S. recession… and 17 times larger than when liquidity disappeared during the 1987 Crash. That $41 trillion has never experienced a true global recession or liquidity crisis.<em> What happens if speculators all want out at the same time?</em></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"align\":\"left\",\"id\":6005,\"sizeSlug\":\"medium\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"alignleft size-medium\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/03/household-credit-300x292.jpg\" alt=\"Household credit as a percentage of disposable personal income\" class=\"wp-image-6005\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p>Liquidity could also prove a problem for today’s consumers. Household debt (even as a percentage of income) continues to rise to record levels. Personal bankruptcies are also at record levels – even in this 8th year of economic expansion. <em>With consumer spending accounting for 2/3’s of GDP growth, how long can households keep heading the wrong way down a oneway street?</em></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"align\":\"right\",\"id\":6006,\"width\":374,\"height\":182,\"sizeSlug\":\"medium\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"alignright size-medium is-resized\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/03/ici-liquid-300x146.jpg\" alt=\"ICI liquid asset ratio decreasing to 5.1%\" class=\"wp-image-6006\" width=\"374\" height=\"182\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p>If illiquidity is the trigger, mutual funds are sitting on the target. Cash reserves, tracked by ICI, have been reduced to the lowest levels of this 16-year disinflation bull. Meanwhile, nervous fund families, including Fidelity and Vanguard, have requested permission from the SEC to borrow from money market funds to meet redemptions if necessary. Some are even “investing” cash reserves in stock index futures. <em>Is it confidence, ignorance, or recklessness that leads mutual funds down the same path as in the Go-Go Fund 1960’s, or as the Investment Trusts of the late 1920’s?</em></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Threat of a Crash…</h3>\n<!-- /wp:heading -->\n\n<!-- wp:list {\"className\":\"is-style-default\"} -->\n<ul class=\"is-style-default\"><li>This 7.8 years without a -15% correction in the DJIA is virtually double the previous record. Among the 5 longest such periods… are the 1929 Crash and 1987 Crash. <em>Coincidence?</em></li><li>This 16th year without the DJIA dropping under the previous year’s low is double the previous record of 8 years… which ended in the 1929 Crash. <em>Coincidence?</em></li><li>Intraday volatility (daily high-to-low) is averaging over 2% (~180 DJIA points) for 1997-98. Among the 3 previous records… again, 1929 and 1987. <em>Coincidence?</em></li></ul>\n<!-- /wp:list -->\n\n<!-- wp:paragraph -->\n<p>Historical precedent paints a foreboding picture. A “crash” is always a possibility in a correctionless, overvalued stock market. And none have been as correctionless or as overvalued as this one. Wall Street confidence relies heavily on the Federal Reserve and its ability to control or halt a meltdown scenario. Media has publicized the “un”official <em>Plunge Protection Team</em>, comprised of the Federal Reserve, Treasury, SEC, and CFTC – all of whom are <em>“thinking carefully about how they would respond to the unthinkable”</em> on Wall Street. Only time will tell if such confidence is misplaced…</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:quote -->\n<blockquote class=\"wp-block-quote\"><p><strong>Plunge Protection Team<br></strong>White House Group Shapes Plans to Ensure<br>Any Market Free Fall Is Contained</p><cite>The Washington Post</cite></blockquote>\n<!-- /wp:quote -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Weighing the Dangers…</h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Today’s parallels with history, and repeated warnings from the SEC and the Federal Reserve carry ominous overtones. A correctionless bull market, record overvaluation, plus public exuberance all add up to unprecedented risk – for the stock market, as well as the U.S. economy. By July 1998, stock market capitalization (in relation to GDP) has reached over twice the peak before the last recession or prior to the 1987 stock market crash. <strong>Simply stated, even a mild bear market of -25% from today’s lofty levels, would wipe out $2.8 trillion – with more economic impact than any bear market of the past 60 years!</strong></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"align\":\"right\",\"id\":6010,\"width\":358,\"height\":344,\"sizeSlug\":\"medium\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"alignright size-medium is-resized\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/03/stock-market-capitalization-300x288.jpg\" alt=\"\" class=\"wp-image-6010\" width=\"358\" height=\"344\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p>To Alan Greenspan, who wrote so astutely of the lessons of 1929, the threat must  weigh heavily. The anecdotal evidence is overwhelming that Wall Street is in some type of bubble – a mania where valuations and expectations have disconnected from reality. If that is indeed the case, then what lies ahead is inevitable. And the downside risk is grossly underestimated by today’s investor. With valuations based on the broad S&amp;P 500 Index (but downside risk expressed in more familiar DJIA point terms), the table below shows how far today’s stock market could tumble before hitting 70-year average valuations. NOTE:<em> This is only to average valuation levels since 1928, not the extreme lows that are typical in most bear markets!</em></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"align\":\"left\",\"id\":6012,\"width\":380,\"height\":166,\"sizeSlug\":\"medium\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"alignleft size-medium is-resized\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/03/valuation-risk-300x130.jpg\" alt=\"\" class=\"wp-image-6012\" width=\"380\" height=\"166\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p>In one sense, it doesn’t matter whether today’s bubble unwinds in a deflationary crisis as in 1929, or in a series of protracted bear markets as in the late 60’s. The consequences for the average investor were the same. Those who blindly followed a buy-&amp;-hold strategy were devastated, both financially and psychologically. Meanwhile, those investors who recognized the dangers and took evasive action weathered the fallout – or even profited handsomely in the years that followed.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>It also matters little, if it is a bubble, what circumstance or event is blamed for “pricking” the overinflated balloon. Inevitably, the fact remains that much of the fault must lie with Wall Street itself. If not for the sirens and aggressive marketing in an overextended, overheated, overvalued bull market, then the excesses and speculation couldn’t reach such extremes. </p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>The purpose of this special report is not to frighten or build the case for a crash. Our sole objective is to educate. It is a dangerous, perhaps even financially fatal assumption to think the next 5 years will be a repeat of the recent past. But historical precedent cannot be ignored. The 1980’s and 90’s are not the first era where investors have been pushed away from inflation hedges, real estate, bonds, and cash. And, as revealed inside, it would not be the first such bubble created by these disinflation forces. </p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>Only time, and 20/20 hindsight, will reveal if today’s “new era” is a mirage – merely  an old era carried to new levels of excess. Unfortunately, the symptoms are present and warning flags are flying high. <strong>Yet even if Wall Street is in a bubble destined to deflate, one must also remember that the devastation which followed the late 20’s and late 60’s created tremendous profit opportunities for those astute investors who understood and perceived what was happening. The historical perspective and evidence presented in this report serve as a vital step in that direction.</strong></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:block {\"ref\":5343} /-->\n\n<!-- wp:separator -->\n<hr class=\"wp-block-separator\"/>\n<!-- /wp:separator -->\n\n<!-- wp:block {\"ref\":5343} /-->\n\n<!-- wp:heading {\"level\":4} -->\n<h4>InvesTech Special Report published July 1998</h4>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>This report is also available to <a href=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/06/New-Paradigm-Report.pdf\" target=\"_blank\" rel=\"noreferrer noopener\">read in PDF format.</a> </p>\n<!-- /wp:paragraph -->','The New Paradigm... Era -or- Bubble?','A critical look at the unprecedented events that unfolded on Wall Street during the high-tech bubble of the late 1990s. Was it a New Era? Or was history repeating itself? What were the danger signs every investor should have known?','inherit','closed','closed','','2497-revision-v1','','','2021-06-17 22:21:50','2021-06-17 22:21:50','',2497,'https://ns2020-investech.investech.com/?p=8589',0,'revision','',0);
INSERT INTO `wp_posts` VALUES (8590,3,'2021-06-17 22:23:10','2021-06-17 22:23:10','<!-- wp:heading -->\n<h2>Strategy and Performance</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>As an investor in today’s volatile markets, you naturally have questions about our strategy and the historical performance of our Model Portfolio. Over the past 40 years, InvesTech has earned a widely respected reputation for our objective analysis and safety-first investment philosophy. While profits are important, we know that earning profits is only half the picture. Preserving one’s portfolio (and profits) through a severe bear market like 2000-02 or 2007-09 can make the difference between a comfortable retirement or financial disaster.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:columns -->\n<div class=\"wp-block-columns\"><!-- wp:column -->\n<div class=\"wp-block-column\"><!-- wp:paragraph -->\n<p>InvesTech\'s time-proven strategy involves measuring market risk – and taking maximum advantage of those investment opportunities when risk is the lowest. Our objective is to contain losses in a bear market to less than half of the decline of the broad market averages and to capture at least 80% of the upside during bull markets. Historically, we have been successful in achieving this goal which not only outperforms market averages over the long-term, but also significantly reduces volatility.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading -->\n<h2>Hulbert Ranking</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>The final issue of the <em>Hulbert Financial Digest,</em> published in February 2016, included the ranking of top mutual fund newsletters and showed that <em>InvesTech Research</em> was #1 in long-term performance –both for risk adjusted and unadjusted performance– with an annualized gain of 8.7% per year… almost double the Wilshire 5000\'s annual return over the same period.</p>\n<!-- /wp:paragraph --></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:image {\"align\":\"center\",\"id\":4522,\"width\":768,\"height\":394,\"sizeSlug\":\"large\"} -->\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large is-resized\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2020/11/Hulbert-1024x525.png\" alt=\"Clipping from Hulbert Financial Digest ranking InvesTech against other top mutual fund newsletters.\" class=\"wp-image-4522\" width=\"768\" height=\"394\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:heading -->\n<h2><strong>InvesTech’s Performance (2000 – current)</strong></h2>\n<!-- /wp:heading -->\n\n<!-- wp:image {\"align\":\"right\",\"id\":8240,\"width\":403,\"height\":512,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"alignright size-large is-resized\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/06/performance-806x1024.jpg\" alt=\"\" class=\"wp-image-8240\" width=\"403\" height=\"512\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p>Back-to-back devastating bear markets in 2000-02 and 2007-09 have left most investors questioning the viability of a buy-and-hold strategy. At InvesTech we do not follow a buy-and-hold investment philosophy. Instead, we adjust equity exposure according to our assessment of market risk. This judgment is made based on InvesTech\'s time-tested proprietary technical indicators, historical analysis, and current economic and political forces.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>Our safety-first investment philosophy led investors safely through the bear market of 2000-02. During this period, our defensive holdings and high-cash position protected subscribers from devastating bear market losses and kept our Model Portfolio essentially intact. In the 2007-09 bear market we achieved our objective of limiting losses to less than half the decline of the market averages (graph at right). In April 2009, just weeks after the official bear market low, we once again began increasing our invested allocation in anticipation of a new bull market. Since January 2000, the InvesTech Model Portfolio has gained 464.5%, while the S&amp;P 500 is up only 307.6% (including dividends). During the period January 1, 2000 through September 30, 2020, annualized performance of the InvesTech Model Portfolio was +8.5% compared to the S&amp;P 500 Total Return Index gain of +6.8%.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading -->\n<h2>During the Bubble Years (1996-1999)</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>InvesTech’s technical indicators were among the first to confirm the U.S. stock market had embarked on a dangerous valuation bubble. That placed our safety-first philosophy in direct conflict with the mania on Wall Street. We made a very difficult decision during this period to step aside from the bubble. While we did not track our Model Portfolio performance prior to 2000, <em>Hulbert Financial Digest</em> data showed our total return for 1996 closely approximated that of a money market fund.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>In defense of our high-cash position, we do not come across bubbles every day on Wall Street. This one, along with 1929, had been the only two clearly definable bubbles of the century. While we have developed new technical tools that will, hopefully, allow us to take part in and profit from similar situations in the future, we will never abandon the principles of our safety-first philosophy.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading -->\n<h2>Performance Prior to the Bubble (pre-1996)</h2>\n<!-- /wp:heading -->\n\n<!-- wp:columns -->\n<div class=\"wp-block-columns\"><!-- wp:column {\"width\":\"66.66%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:66.66%\"><!-- wp:paragraph -->\n<p>In 1996, InvesTech was recognized as one of only six financial advisory newsletters to have beaten the market on a risk-adjusted basis since inception in the early 1980s. And an October 1995 <em>Forbes </em>article described InvesTech’s long-term portfolio performance as <em>“more or less impervious to declines.”</em></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>The reason is simple: InvesTech has an established reputation for maximizing safety-first profits. But reducing risk from major bear markets can be even more important, as shown in 1987 when InvesTech received widespread recognition from <em>USA Today, The Washington Post,</em> and <em>Los Angeles Times</em> for moving to a 100% cash position just prior to the October Crash.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>As an experienced investor, you must decide what performance means to you. Someone who is willing to wait 10 years or more to recover after losing two-thirds of their portfolio in a generational bear market, may not agree with our safety-first approach. On the other hand, if you have a deep respect for market risk and the impact that a devastating bear market can have on your portfolio or emotional well-being, then <em>InvesTech Research</em> offers what you are looking for… a risk-averse strategy and the ability to identify and take advantage of the best profit opportunities when they appear.</p>\n<!-- /wp:paragraph --></div>\n<!-- /wp:column -->\n\n<!-- wp:column {\"width\":\"33.33%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:33.33%\"><!-- wp:image {\"id\":5838,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<figure class=\"wp-block-image size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/03/perf-table-533x1024.jpg\" alt=\"\" class=\"wp-image-5838\"/></figure>\n<!-- /wp:image --></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:separator {\"className\":\"is-style-dots\"} -->\n<hr class=\"wp-block-separator is-style-dots\"/>\n<!-- /wp:separator -->\n\n<!-- wp:paragraph -->\n<p>Also available to <a href=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/06/InvesTech-Performance-Letter.pdf\" target=\"_blank\" rel=\"noreferrer noopener\">read in PDF format</a><a href=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/06/InvesTech-Performance-Letter.pdf\">.</a></p>\n<!-- /wp:paragraph -->','Model Fund Portfolio Performance','As an investor in today’s volatile markets, you naturally have questions about our strategy and the historical performance of our Model Portfolio. ','inherit','closed','closed','','5821-revision-v1','','','2021-06-17 22:23:10','2021-06-17 22:23:10','',5821,'https://ns2020-investech.investech.com/?p=8590',0,'revision','',0);
INSERT INTO `wp_posts` VALUES (8591,3,'2021-06-17 22:28:57','2021-06-17 22:28:57','<!-- wp:columns -->\n<div class=\"wp-block-columns\"><!-- wp:column {\"verticalAlignment\":\"center\",\"width\":\"66.66%\"} -->\n<div class=\"wp-block-column is-vertically-aligned-center\" style=\"flex-basis:66.66%\"><!-- wp:heading -->\n<h2>Step-by-Step Guide</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>InvesTech\'s Personal Profit Guide is a valuable reference manual and is your step-by-step guide to using InvesTech\'s \"safety-first\" strategy. Discover specific investment strategies... how to easily use the model portfolio... secrets behind our proprietary indicators... plus much more.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Download the PDF</h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>The full guide is 36-pages and available to <a href=\"https://ns2020-investech.investech.com/wp-content/uploads/pdf_files_wp/Profit-Guide.pdf\" target=\"_blank\" rel=\"noreferrer noopener\">read in PDF format.</a></p>\n<!-- /wp:paragraph --></div>\n<!-- /wp:column -->\n\n<!-- wp:column {\"width\":\"33.33%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:33.33%\"><!-- wp:spacer -->\n<div style=\"height:100px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:image {\"align\":\"left\",\"id\":6434,\"width\":198,\"height\":256,\"sizeSlug\":\"large\",\"linkDestination\":\"none\",\"className\":\"border\"} -->\n<div class=\"wp-block-image border\"><figure class=\"alignleft size-large is-resized\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/03/Profit-Guide-1-791x1024.jpg\" alt=\"\" class=\"wp-image-6434\" width=\"198\" height=\"256\"/></figure></div>\n<!-- /wp:image --></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:spacer -->\n<div style=\"height:100px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->','InvesTech\'s Personal Profit Guide','This valuable reference manual is your step-by-step guide to using InvesTech’s “safety-first” strategy. Discover specific investment strategies… how to easily use the model portfolio… secrets behind our proprietary indicators… plus much more.','inherit','closed','closed','','2465-revision-v1','','','2021-06-17 22:28:57','2021-06-17 22:28:57','',2465,'https://ns2020-investech.investech.com/?p=8591',0,'revision','',0);
INSERT INTO `wp_posts` VALUES (8593,3,'2021-06-17 22:36:09','2021-06-17 22:36:09','<!-- wp:heading -->\n<h2>Is Wall Street in a \'New Paradigm Era\'... or merely an \'Old Bubble\' carried to New Extremes?</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Santayana, an early 20th Century philosopher, once said,<em> “Those who do not learn from the past, are doomed to repeat it.”</em> And Sir Isaac Newton, who lost the equivalent of over $1,000,000 investing in the South Sea bubble of 1720,  remarked, <em>“I can measure the motions of bodies, but I cannot measure human folly.” </em>However to this day, analysts cannot agree as to what constitutes a bubble… or how to recognize a bubble before the inevitable washout and aftermath.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>It is widely perceived that the U.S. economy and stock market have embarked on a <em>“New Paradigm Era”</em> in which old rules no longer apply and traditional barriers have been broken. Yet as Federal Reserve Chairman Alan Greenspan warned Congress on February 26th 1997, <em>“Regrettably, history is strewn with visions of such ‘new eras’ that, in the end, have proven to be a mirage.” </em>This is an insight into one such likely mirage…</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading -->\n<h2>What Constitutes A Bubble?</h2>\n<!-- /wp:heading -->\n\n<!-- wp:quote {\"align\":\"left\"} -->\n<blockquote class=\"wp-block-quote has-text-align-left\"><p>That the free enterprise economy is given to recurrent episodes of speculation will be agreed… This process, once it is recognized, is clearly evident, and especially so after the fact. So also, if more subjectively, are the basic attitudes of the participants. These take two forms. There are those who are persuaded that some new price-enhancing circumstance is in control, and they expect the market to stay up and go up, perhaps indefinitely… Then there are those, superficially more astute and generally fewer in number, who perceive or believe themselves to perceive the speculative mood of the moment. They are in to ride the upward wave; their particular genius, they are convinced, will allow them to get out before the speculation runs its course… For built into this situation is the eventual and inevitable fall. Built in also is the circumstance that it cannot come gently or gradually. When it comes it bears the grim face of disaster. That is because both of the groups of participants in the speculative situation are programmed for sudden efforts at escape. Something, it matters little –although it will always be debated– triggers the ultimate reversal.<br></p><cite><strong>A Short History of Financial Euphoria<br></strong>John Kenneth Galbraith</cite></blockquote>\n<!-- /wp:quote -->\n\n<!-- wp:paragraph -->\n<p>Historically, bubbles have always been a part of the lessons of investing. There was the Japanese stock market and real estate bubble which popped in 1989. In domestic real estate, there was the not so “recession-proof” California, as well as the price deflation or washouts of condominiums in Hawaii… residences in the Northeast… commercial office space in the oil belt… and numerous other regions in the 1980’s. Many investors may also remember $850 gold… $50 silver… $37 oil… numismatics… baseball cards… and the list goes on.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>In the stock market, bubbles are usually limited to individual sectors which ride high on excessively exuberant expectations – only to plunge back to earth later. Yet history has left several notable eras which were recognized as “bubbles” only in the eventual and inevitable devastation. Seasoned investors may remember the “Nifty Fifty” era… the “Go-Go Fund” era… or even the “Investment Trust” era of the 1920’s.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>A Short History of Financial Euphoria</h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>In essence, a bubble is created when objectivity, reasoning, and valuation give way to greed and the desire for profits. In <em>“A Short History of Financial Euphoria,” </em>author Galbraith describes the common seeds of past manias that inevitably give way to disastrous consequences:</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:list {\"ordered\":true} -->\n<ol><li>The basic premise that investing involves a trade-off between risk/reward is lost as investors are <em>“captured by the wondrous satisfaction from accruing wealth. The very increase in values thus captures the thoughts and minds of those being rewarded.”</em></li><li>The belief that <em>“some new price-enhancing circumstance is in control”</em> – that there is <em>“something new in the world”</em> that justifies a permanently higher level of valuation.</li><li>The illusion that, except for temporary setbacks, <em>“values are going up permanently and indefinitely.”</em></li><li>The <em>“condemnation at those who express doubt or dissent. … because of defective imagination or other mental inadequacy they are unable to grasp the new and rewarding circumstances.”</em></li></ol>\n<!-- /wp:list -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Healthy Bull Market to Dangerous Bubble</h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Yet only in the aftermath, is a “bubble” identified as a bubble. While in progress, it can only be recognized by its symptoms which are common with speculative eras of the past.<strong> At what point does a healthy bull market turn into a bubble ripe for the popping? Here are a few differences:</strong></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"align\":\"center\",\"id\":5946,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/03/marketbubble-1024x308.jpg\" alt=\"Table detailing the characteristics of a healthy bull market and the characteristics when it swings to a dangerous bubble.\" class=\"wp-image-5946\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:heading -->\n<h2>Time For A Reality Check...</h2>\n<!-- /wp:heading -->\n\n<!-- wp:image {\"align\":\"right\",\"id\":5953,\"width\":356,\"height\":351,\"sizeSlug\":\"medium\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"alignright size-medium is-resized\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/03/overvaluation-extremes-300x296.jpg\" alt=\"Overvalutaion dot chart showing the extremes present at historic market tops.\" class=\"wp-image-5953\" width=\"356\" height=\"351\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p>Wall Street consensus is that the U.S. has entered a “new era” of tame inflation, low interest rates, and rising productivity that will carry economic prosperity well into the new millennium. If so, say pundits, then today’s extreme valuation levels in the stock market are justified. Just how extreme is stock overvaluation? The figure at right shows the S&amp;P 500 Price-to-Dividend Ratio on the vertical scale, and the S&amp;P Industrials Price-to-Book Value Ratio on the horizontal scale. Simply, the higher on the chart, or the farther to the right a year appears, the more overvalued it is. <strong>Clearly, when compared to overvaluation at some of the most historic market tops such as 1929, 1968, 1972, and 1987… today (1998) is off-the-chart!</strong></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>Consensus on Wall Street is also that today’s investor is smarter, better informed, more patient, and longer-term oriented than in the past. Consequently, it is believed that today’s mutual fund holder will never panic in a bear market. However, not all agree with this consensus:</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:spacer {\"height\":37} -->\n<div style=\"height:37px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:quote {\"className\":\"is-style-default\"} -->\n<blockquote class=\"wp-block-quote is-style-default\"><p><strong>Investors may overreact to a downturn, SEC warns</strong><br>Inexperienced investors who have known only the bull market of the last decade could react ‘precipitously’ to a downturn and ‘at great cost to themselves and our markets’, Mr. Arthur Levitt, chairman of the Securities and Exchange Commission<br>warned yesterday.</p><cite>London Financial Times – Feb 26, 1997</cite></blockquote>\n<!-- /wp:quote -->\n\n<!-- wp:paragraph -->\n<p>And Federal Reserve officials also appear nervous as evidenced by this Congressional Testimony in early 1997:</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:quote {\"className\":\"is-style-default\"} -->\n<blockquote class=\"wp-block-quote is-style-default\"><p>History demonstrates that participants in financial markets are susceptible to waves of optimism… Excessive optimism sows the seeds of its own reversal in the form of imbalances that tend to grow over time. When unwarranted expectations ultimately are not realized, the unwinding of these financial excesses can act to amplify a downturn</p><cite>Federal Reserve Chairman Alan Greenspan<br>– Feb 26, 1997</cite></blockquote>\n<!-- /wp:quote -->\n\n<!-- wp:paragraph -->\n<p>Meanwhile, the cold fact remains that the assets in equity mutual funds now total $3,164 Billion, as compared to $226 Billion in October 1990 at the start of this bull market.<strong> Quite simply, 93% of the money in stock mutual funds has not experienced a bear market or even a -15% correction in blue chip averages!</strong></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>Perhaps more ominously, an overwhelming majority of fund investors believe they never will experience such a decline. This late 1996 Lou Harris poll reveals that 85% expect the next 10 years to be as spectacular or better than the past decade. 78% are not expecting a mild bear market of -20%. And almost half think that minor -10% corrections are a thing of the past:</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"align\":\"center\",\"id\":5954,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/03/surveyfundinvestors-1024x224.jpg\" alt=\"survey of fund investors expectations and the actual risk since 1900.\" class=\"wp-image-5954\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p><strong>Just how far out of touch are these investor expectations with reality?</strong> Compare the “actual risk” for <em><strong>all the years</strong></em> of this century (above right). A -10% correction has occurred in 65 years, or once every 1.5yrs on average – yet <em>7 years have lapsed since the last. </em>A -20% decline has triggered every 2.5yrs – <em>again, over 7 years since the last.</em> A -30% bear hits every 4.6yrs – last seen during the ’87 Crash. And a major bear, with -40% losses, strikes about every 8.7yrs… <em>last felt by investors 23 years ago!</em></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:spacer {\"height\":51} -->\n<div style=\"height:51px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:columns -->\n<div class=\"wp-block-columns\"><!-- wp:column -->\n<div class=\"wp-block-column\"><!-- wp:paragraph -->\n<p>Is it a contest to see who can forecast the highest level for the stock market? No… more likely it’s just a not-so-mild case of “irrational exuberance” feared by the Federal Reserve.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":4} -->\n<h4><strong><em>Reality Check: Bull or Bubble?</em></strong></h4>\n<!-- /wp:heading --></div>\n<!-- /wp:column -->\n\n<!-- wp:column -->\n<div class=\"wp-block-column\"><!-- wp:image {\"align\":\"right\",\"id\":5959,\"width\":414,\"height\":305,\"sizeSlug\":\"medium\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"alignright size-medium is-resized\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/03/dow10000-300x221.jpg\" alt=\"Newspaper clipping of When and How the Dow may hit 20,000 by 2007.\" class=\"wp-image-5959\" width=\"414\" height=\"305\"/></figure></div>\n<!-- /wp:image --></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:spacer {\"height\":20} -->\n<div style=\"height:20px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:columns -->\n<div class=\"wp-block-columns\"><!-- wp:column -->\n<div class=\"wp-block-column\"><!-- wp:image {\"align\":\"center\",\"id\":7533,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/05/assets.jpg\" alt=\"\" class=\"wp-image-7533\"/></figure></div>\n<!-- /wp:image --></div>\n<!-- /wp:column -->\n\n<!-- wp:column -->\n<div class=\"wp-block-column\"><!-- wp:paragraph -->\n<p></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:spacer {\"height\":163} -->\n<div style=\"height:163px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:paragraph -->\n<p>Public investment funds placed with the nation’s largest discount brokerage firm have risen <strong><em>over </em></strong><em><strong>19-fold</strong></em> in less than a decade.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":4} -->\n<h4><strong><em>Reality Check: Bull or Bubble?</em></strong></h4>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Since 1981, the number of mutual funds have multiplied at a rate far above any historical experience… far above the “Go-Go Fund” era of the 1960’s… and far above the “Investment Trust” era of the 1920’s.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":4} -->\n<h4><strong><em>Reality Check: Bull or Bubble?</em></strong></h4>\n<!-- /wp:heading --></div>\n<!-- /wp:column -->\n\n<!-- wp:column -->\n<div class=\"wp-block-column\"><!-- wp:spacer {\"height\":222} -->\n<div style=\"height:222px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:image {\"align\":\"center\",\"id\":5963,\"width\":273,\"height\":349,\"sizeSlug\":\"full\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-full is-resized\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/03/mutualfunds.jpg\" alt=\"Bar chart of mutual funds increasing year over year.\" class=\"wp-image-5963\" width=\"273\" height=\"349\"/></figure></div>\n<!-- /wp:image --></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:spacer {\"height\":51} -->\n<div style=\"height:51px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:columns -->\n<div class=\"wp-block-columns\"><!-- wp:column -->\n<div class=\"wp-block-column\"><!-- wp:image {\"align\":\"center\",\"id\":5967,\"sizeSlug\":\"medium\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-medium\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/03/investmentsclubs-294x300.jpg\" alt=\"Bar chart of investment clubs surpassing the Go-Go Fund era.  \" class=\"wp-image-5967\"/></figure></div>\n<!-- /wp:image --></div>\n<!-- /wp:column -->\n\n<!-- wp:column -->\n<div class=\"wp-block-column\"><!-- wp:paragraph -->\n<p>The number of investment clubs has increased <em><strong>over 5-fold </strong></em>in the current bull market. Today, more than 1 in 3 adults own mutual funds – a 66% increase in four years. That easily surpasses the “Go-Go Fund” era in which 1 in 4 adults owned stocks when the washout began in 1969.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":4} -->\n<h4><strong><em>Reality Check: Bull or Bubble?</em></strong></h4>\n<!-- /wp:heading --></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:spacer {\"height\":51} -->\n<div style=\"height:51px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:columns -->\n<div class=\"wp-block-columns\"><!-- wp:column -->\n<div class=\"wp-block-column\"><!-- wp:paragraph -->\n<p>Market historians note that stock market bubbles have been accompanied by a “bubble” in the price of a seat on the New York Stock Exchange. In March 1998, a seat sold for a cool $2.0 million – far above the peak prior to the 1987 Crash. Also note the 1929 and 1966-69 peaks… which will become relevant in the next section of this report.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":4} -->\n<h4><strong><em>Reality Check: Bull or Bubble?</em></strong></h4>\n<!-- /wp:heading --></div>\n<!-- /wp:column -->\n\n<!-- wp:column -->\n<div class=\"wp-block-column\"><!-- wp:image {\"align\":\"center\",\"id\":5972,\"width\":269,\"height\":371,\"sizeSlug\":\"full\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-full is-resized\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/03/nyse-seat.jpg\" alt=\"Bar chart of cost of seat on NYSE soaring in 1998.\" class=\"wp-image-5972\" width=\"269\" height=\"371\"/></figure></div>\n<!-- /wp:image --></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:image {\"align\":\"left\",\"id\":5973,\"width\":382,\"height\":378,\"sizeSlug\":\"medium\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"alignleft size-medium is-resized\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/03/nasdaq-pe-ratio-300x297.jpg\" alt=\"NASDAQ P/E Ratio up to 81.2 in 1998.\" class=\"wp-image-5973\" width=\"382\" height=\"378\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>Safety in diversification? Certainly not in small-caps. The cumulative P/E ratio of all domestic NASDAQ stocks has been hitting unprecedented, frothy levels. It would require a decline of over -75% to take the NASDAQ P/E ratio back to where it started this bull market in October 1990.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":4} -->\n<h4><strong><em>Reality Check: Bull or Bubble?</em></strong></h4>\n<!-- /wp:heading -->\n\n<!-- wp:spacer {\"height\":51} -->\n<div style=\"height:51px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:paragraph -->\n<p></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:media-text {\"mediaPosition\":\"right\",\"mediaId\":5978,\"mediaLink\":\"https://ns2020-investech.investech.com/subscriber-library/the-new-paradigm/mergers/\",\"mediaType\":\"image\"} -->\n<div class=\"wp-block-media-text alignwide has-media-on-the-right is-stacked-on-mobile\"><figure class=\"wp-block-media-text__media\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/03/mergers.jpg\" alt=\"\" class=\"wp-image-5978 size-full\"/></figure><div class=\"wp-block-media-text__content\"><!-- wp:paragraph -->\n<p>Mergers and acquisitions? Since 1996, there’s been no “deal” too big, too expensive, or too leveraged for Wall Street to piece together.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":4} -->\n<h4><strong><em>Reality Check: Bull or Bubble?</em></strong></h4>\n<!-- /wp:heading --></div></div>\n<!-- /wp:media-text -->\n\n<!-- wp:spacer {\"height\":51} -->\n<div style=\"height:51px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:image {\"align\":\"left\",\"id\":5979,\"width\":392,\"height\":316,\"sizeSlug\":\"medium\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"alignleft size-medium is-resized\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/03/margin-debt66-300x242.jpg\" alt=\"Margin debt graph soaring to record levels in the late 90s.\" class=\"wp-image-5979\" width=\"392\" height=\"316\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p>Margin debt (money borrowed to purchase stocks) has soared to record levels – even relative to the size of the economy. Note how far it is above the dangerous peaks in 1987, 1972, and 1968… just prior to the three biggest bear markets of the past half century. And of course, this doesn’t include the second mortgages, refinancings, or record credit card debt that has been used to divert funds into the stock market.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":4} -->\n<h4><strong><em>Reality Check: Bull or Bubble?</em></strong></h4>\n<!-- /wp:heading -->\n\n<!-- wp:spacer {\"height\":51} -->\n<div style=\"height:51px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>The Inevitable Questions:</h3>\n<!-- /wp:heading -->\n\n<!-- wp:list -->\n<ul><li><strong>What has driven stocks to such overvalued extremes?</strong></li><li><strong>Why do the SEC and our Federal Reserve seem so worried?</strong></li><li><strong>Why are investor expectations so out-of-touch with reality?</strong></li><li><strong>What has created so many symptoms of a dangerous “bubble”?</strong></li></ul>\n<!-- /wp:list -->\n\n<!-- wp:heading -->\n<h2>TODAY: The <strong>Not So</strong> “New Paradigm Bubble”</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Many reasons, excuses, and theories have been postulated for Wall Street’s exuberance today. They range from advances in technology, to increases in productivity, to changing demographics (aging baby-boomers). Yet these all miss the mark in explaining how Wall Street arrived at DJIA 9000 from DJIA 800 in 1982. In 1981 when President Reagan took office, interest rates were above 13%, gold had recently hit $850/oz, the DJIA was at the same level as in 1966, and real estate was considered by all to be the safest, best long-term investment. What happened? What changed public opinion so dramatically?</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p><strong><em>The answer is “disinflation”.</em> </strong>As inflation receded over the past 16 years, so did the fear or expectations of inflation. Gold lost its luster. Real estate washouts in the oil belt, California, and the Northeast removed its “safe haven” perception. And as interest rates slipped year after year, thrifty CD and money market fund savers were pushed to seek other alternatives… the stock market. A “Disinflation Era” is not new… and neither is the dangerous bubble which it can create. Let’s examine historical precedent:</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"align\":\"right\",\"id\":5988,\"sizeSlug\":\"medium\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"alignright size-medium\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/03/90s-inflation-rate-300x298.jpg\" alt=\"5 year inflation rate graph over the djia increasing.\" class=\"wp-image-5988\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p><strong>THE INVESTMENT TRUST ’20s</strong><br><strong>Start:</strong> August 1921 – as the high inflation of World War I receded.<br><strong>Stocks:</strong> DJIA up 6-fold in 8 years.<br><strong>THE GO-GO FUND ’60s</strong><br><strong>Start:</strong> June 1949 – as the high inflation of World War II (and the Korean War) receded.<br><strong>Stocks:</strong> DJIA up 6-fold in 17 years (with subsequent tops in 1968 and 1973).<br><strong>THE MUTUAL FUND MANIA ’90s</strong><br><strong>Start:</strong> August 1982 – as the high inflation of the Vietnam War and the 1970s receded.<br><strong>Stocks:</strong> DJIA up 11-fold in 16 years.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Here are the ominous parallels and sequence of events in these “Disinflation Eras”:</h3>\n<!-- /wp:heading -->\n\n<!-- wp:image {\"align\":\"center\",\"id\":5989,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/03/1-correctionless-market-1024x167.jpg\" alt=\"Correctionless market contains an image with headlines from 1929, 1966, and today.\" class=\"wp-image-5989\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:image {\"align\":\"center\",\"id\":5990,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/03/2-mutual-fund-mania-1024x577.jpg\" alt=\"Mutual Fund Mania with headlines from 1929, 1966, and today.\" class=\"wp-image-5990\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:image {\"align\":\"center\",\"id\":5991,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/03/3-extreme-overvaluation-1024x235.jpg\" alt=\"Extreme overvaluation with headlines.\" class=\"wp-image-5991\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:image {\"align\":\"center\",\"id\":5992,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/03/4-old-rules-1024x442.jpg\" alt=\"Old Rules no longer apply headlines\" class=\"wp-image-5992\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:image {\"align\":\"center\",\"id\":5993,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/03/5-unparalleled-stability-1024x266.jpg\" alt=\"Unparalleled stability headlines\" class=\"wp-image-5993\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:image {\"align\":\"center\",\"id\":5994,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/03/6-supply-demand-1024x314.jpg\" alt=\"Supply and demand imbalance headlines\" class=\"wp-image-5994\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:image {\"align\":\"center\",\"id\":5995,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/03/7-riskless-attitude-1024x258.jpg\" alt=\"Riskless attitude headlines\" class=\"wp-image-5995\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:image {\"align\":\"center\",\"id\":5996,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/03/8-perpetual-prosperity-1024x442.jpg\" alt=\"Perpetual economic prosperity headlines\" class=\"wp-image-5996\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:image {\"align\":\"center\",\"id\":5997,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/03/9-new-era-hype-1024x452.jpg\" alt=\"New era hype headlines\" class=\"wp-image-5997\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:image {\"align\":\"center\",\"id\":5998,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/03/10-11-1024x567.jpg\" alt=\"Federal Reserve Censure and scolding the federal reserve headlines\" class=\"wp-image-5998\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:image {\"align\":\"center\",\"id\":5999,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/03/washout-1024x269.jpg\" alt=\"Inevitable washout headlines\" class=\"wp-image-5999\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:heading -->\n<h2>What the Future Holds...</h2>\n<!-- /wp:heading -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>A stock market bubble can be <em>prevented</em>, but it can’t be <em>corrected</em>…</h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Painful recessions and periodic bear markets can usually prevent the valuation extremes and sentiment excesses that create a dangerous bubble. Yet tragically, this simple, historic fact must be relearned every time. For example, after the Japanese stock market and real estate collapse, the former head of the Bank of Japan lamented:</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:quote -->\n<blockquote class=\"wp-block-quote\"><p>Looking back, we now feel that we should have applied the brakes on the excessive boom much earlier… However, back in those days, as [consumer] prices were not rising, it was difficult to obtain people’s understanding for a policy aimed at achieving sustainable economic growth by monetary tightening.</p><cite>Yasushi Mieno, Former Governor, Bank of Japan</cite></blockquote>\n<!-- /wp:quote -->\n\n<!-- wp:paragraph -->\n<p>The historical truth that bubbles can be <em>prevented </em>but not <em>corrected </em>even appears obvious to those involved in creating the current bubble, as evidenced by this 1996 quote from the former Federal Reserve Vice-Chairman:</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:quote -->\n<blockquote class=\"wp-block-quote\"><p>It’s very hard to surgically prick a balloon. You may let out a lot more air than you bargained for.</p><cite>Alan Blinder, Former Vice Chairman, Federal Reserve</cite></blockquote>\n<!-- /wp:quote -->\n\n<!-- wp:paragraph -->\n<p>And in an article from 30 years ago, the current Federal Reserve Chairman wrote this critique of the 1929 Crash:</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:quote -->\n<blockquote class=\"wp-block-quote\"><p>The excess credit which the Fed pumped into the economy spilled over into the stock market – triggering a fantastic speculative boom. Belatedly, Federal Reserve officials attempted to sop up the excess reserves and finally succeeded in braking the boom. But it was too late: by 1929 the speculative imbalances had become so overwhelming that the attempt precipitated a sharp retrenching and a consequent demoralizing of business confidence.</p><cite>Alan Greenspan, “Gold and Economic Freedom”, 1966</cite></blockquote>\n<!-- /wp:quote -->\n\n<!-- wp:paragraph -->\n<p>Yet the mere presence of a bubble, even with all the overvaluation and extremes, rarely pops itself. It may continue to inflate, transparent to those inside the bubble, until some external event causes the initial pinhole. As John Galbraith noted about past bubbles, <em>“Something, it matters little –although it will always be debated–  triggers the ultimate reversal.”</em></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>From whence could the pin or trigger come?…</h3>\n<!-- /wp:heading -->\n\n<!-- wp:image {\"align\":\"right\",\"id\":6002,\"sizeSlug\":\"medium\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"alignright size-medium\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/03/global-disc-rates-289x300.jpg\" alt=\"Global discount rates graph dropping\" class=\"wp-image-6002\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p>Global economic and financial turmoil offer a number of potential sources. Recessions in Germany and Japan have driven interest rates down to 1/3 of levels in 1991-92<em> (or 1/12 in the case of Japan).</em> However, the frenzied effort to jumpstart foreign economies has instead pushed excess liquidity into the U.S. financial markets.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"align\":\"left\",\"id\":6003,\"sizeSlug\":\"medium\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"alignleft size-medium\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/03/net-foreign-purchases-300x211.jpg\" alt=\"Net foreign purchases of U.S. Treasury Bonds and Notes\" class=\"wp-image-6003\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p>As a result, purchasing of U.S. Treasuries by foreign investors and central banks has soared to unprecedented levels. The short-term benefits have funded our trade deficit, supported the Dollar, and sloshed liquidity into Wall Street.<em> The obvious danger is what might happen now that this trend shows signs of reversing.</em></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"align\":\"right\",\"id\":6004,\"sizeSlug\":\"medium\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"alignright size-medium\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/03/global-derivatives-207x300.jpg\" alt=\"Global derivatives market bar chart increasing\" class=\"wp-image-6004\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p>Another potential trigger resides in the global derivatives market. It’s assumed by today’s young gun-slinging money managers that such leveraged derivatives are as liquid as cash – even in a falling market or financial crisis. However, note that the face value of these global derivatives now totals over $41 trillion… 6 times larger than in the last U.S. recession… and 17 times larger than when liquidity disappeared during the 1987 Crash. That $41 trillion has never experienced a true global recession or liquidity crisis.<em> What happens if speculators all want out at the same time?</em></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"align\":\"left\",\"id\":6005,\"sizeSlug\":\"medium\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"alignleft size-medium\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/03/household-credit-300x292.jpg\" alt=\"Household credit as a percentage of disposable personal income\" class=\"wp-image-6005\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p>Liquidity could also prove a problem for today’s consumers. Household debt (even as a percentage of income) continues to rise to record levels. Personal bankruptcies are also at record levels – even in this 8th year of economic expansion. <em>With consumer spending accounting for 2/3’s of GDP growth, how long can households keep heading the wrong way down a oneway street?</em></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"align\":\"right\",\"id\":6006,\"width\":374,\"height\":182,\"sizeSlug\":\"medium\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"alignright size-medium is-resized\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/03/ici-liquid-300x146.jpg\" alt=\"ICI liquid asset ratio decreasing to 5.1%\" class=\"wp-image-6006\" width=\"374\" height=\"182\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p>If illiquidity is the trigger, mutual funds are sitting on the target. Cash reserves, tracked by ICI, have been reduced to the lowest levels of this 16-year disinflation bull. Meanwhile, nervous fund families, including Fidelity and Vanguard, have requested permission from the SEC to borrow from money market funds to meet redemptions if necessary. Some are even “investing” cash reserves in stock index futures. <em>Is it confidence, ignorance, or recklessness that leads mutual funds down the same path as in the Go-Go Fund 1960’s, or as the Investment Trusts of the late 1920’s?</em></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Threat of a Crash…</h3>\n<!-- /wp:heading -->\n\n<!-- wp:list {\"className\":\"is-style-default\"} -->\n<ul class=\"is-style-default\"><li>This 7.8 years without a -15% correction in the DJIA is virtually double the previous record. Among the 5 longest such periods… are the 1929 Crash and 1987 Crash. <em>Coincidence?</em></li><li>This 16th year without the DJIA dropping under the previous year’s low is double the previous record of 8 years… which ended in the 1929 Crash. <em>Coincidence?</em></li><li>Intraday volatility (daily high-to-low) is averaging over 2% (~180 DJIA points) for 1997-98. Among the 3 previous records… again, 1929 and 1987. <em>Coincidence?</em></li></ul>\n<!-- /wp:list -->\n\n<!-- wp:paragraph -->\n<p>Historical precedent paints a foreboding picture. A “crash” is always a possibility in a correctionless, overvalued stock market. And none have been as correctionless or as overvalued as this one. Wall Street confidence relies heavily on the Federal Reserve and its ability to control or halt a meltdown scenario. Media has publicized the “un”official <em>Plunge Protection Team</em>, comprised of the Federal Reserve, Treasury, SEC, and CFTC – all of whom are <em>“thinking carefully about how they would respond to the unthinkable”</em> on Wall Street. Only time will tell if such confidence is misplaced…</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:quote -->\n<blockquote class=\"wp-block-quote\"><p><strong>Plunge Protection Team<br></strong>White House Group Shapes Plans to Ensure<br>Any Market Free Fall Is Contained</p><cite>The Washington Post</cite></blockquote>\n<!-- /wp:quote -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Weighing the Dangers…</h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Today’s parallels with history, and repeated warnings from the SEC and the Federal Reserve carry ominous overtones. A correctionless bull market, record overvaluation, plus public exuberance all add up to unprecedented risk – for the stock market, as well as the U.S. economy. By July 1998, stock market capitalization (in relation to GDP) has reached over twice the peak before the last recession or prior to the 1987 stock market crash. <strong>Simply stated, even a mild bear market of -25% from today’s lofty levels, would wipe out $2.8 trillion – with more economic impact than any bear market of the past 60 years!</strong></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"align\":\"right\",\"id\":6010,\"width\":358,\"height\":344,\"sizeSlug\":\"medium\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"alignright size-medium is-resized\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/03/stock-market-capitalization-300x288.jpg\" alt=\"\" class=\"wp-image-6010\" width=\"358\" height=\"344\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p>To Alan Greenspan, who wrote so astutely of the lessons of 1929, the threat must  weigh heavily. The anecdotal evidence is overwhelming that Wall Street is in some type of bubble – a mania where valuations and expectations have disconnected from reality. If that is indeed the case, then what lies ahead is inevitable. And the downside risk is grossly underestimated by today’s investor. With valuations based on the broad S&amp;P 500 Index (but downside risk expressed in more familiar DJIA point terms), the table below shows how far today’s stock market could tumble before hitting 70-year average valuations. NOTE:<em> This is only to average valuation levels since 1928, not the extreme lows that are typical in most bear markets!</em></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"align\":\"left\",\"id\":6012,\"width\":380,\"height\":166,\"sizeSlug\":\"medium\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"alignleft size-medium is-resized\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/03/valuation-risk-300x130.jpg\" alt=\"\" class=\"wp-image-6012\" width=\"380\" height=\"166\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p>In one sense, it doesn’t matter whether today’s bubble unwinds in a deflationary crisis as in 1929, or in a series of protracted bear markets as in the late 60’s. The consequences for the average investor were the same. Those who blindly followed a buy-&amp;-hold strategy were devastated, both financially and psychologically. Meanwhile, those investors who recognized the dangers and took evasive action weathered the fallout – or even profited handsomely in the years that followed.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>It also matters little, if it is a bubble, what circumstance or event is blamed for “pricking” the overinflated balloon. Inevitably, the fact remains that much of the fault must lie with Wall Street itself. If not for the sirens and aggressive marketing in an overextended, overheated, overvalued bull market, then the excesses and speculation couldn’t reach such extremes. </p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>The purpose of this special report is not to frighten or build the case for a crash. Our sole objective is to educate. It is a dangerous, perhaps even financially fatal assumption to think the next 5 years will be a repeat of the recent past. But historical precedent cannot be ignored. The 1980’s and 90’s are not the first era where investors have been pushed away from inflation hedges, real estate, bonds, and cash. And, as revealed inside, it would not be the first such bubble created by these disinflation forces. </p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>Only time, and 20/20 hindsight, will reveal if today’s “new era” is a mirage – merely  an old era carried to new levels of excess. Unfortunately, the symptoms are present and warning flags are flying high. <strong>Yet even if Wall Street is in a bubble destined to deflate, one must also remember that the devastation which followed the late 20’s and late 60’s created tremendous profit opportunities for those astute investors who understood and perceived what was happening. The historical perspective and evidence presented in this report serve as a vital step in that direction.</strong></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:block {\"ref\":5343} /-->\n\n<!-- wp:separator -->\n<hr class=\"wp-block-separator\"/>\n<!-- /wp:separator -->\n\n<!-- wp:block {\"ref\":5343} /-->\n\n<!-- wp:heading {\"level\":4} -->\n<h4>InvesTech Special Report published July 1998</h4>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>This report is also available to <a href=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/06/New-Paradigm-Report.pdf\" target=\"_blank\" rel=\"noreferrer noopener\">read in PDF format.</a> </p>\n<!-- /wp:paragraph -->','The New Paradigm... Era -or- Bubble?','A critical look at the unprecedented events that unfolded on Wall Street during the high-tech bubble of the late 1990s. Was it a New Era? Or was history repeating itself? What were the danger signs every investor should have known?','inherit','closed','closed','','2497-revision-v1','','','2021-06-17 22:36:09','2021-06-17 22:36:09','',2497,'https://ns2020-investech.investech.com/?p=8593',0,'revision','',0);
INSERT INTO `wp_posts` VALUES (8595,3,'2021-06-17 22:37:09','2021-06-17 22:37:09','<!-- wp:heading -->\n<h2>Is Wall Street in a \'New Paradigm Era\'... or merely an \'Old Bubble\' carried to New Extremes?</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Santayana, an early 20th Century philosopher, once said,<em> “Those who do not learn from the past, are doomed to repeat it.”</em> And Sir Isaac Newton, who lost the equivalent of over $1,000,000 investing in the South Sea bubble of 1720,  remarked, <em>“I can measure the motions of bodies, but I cannot measure human folly.” </em>However to this day, analysts cannot agree as to what constitutes a bubble… or how to recognize a bubble before the inevitable washout and aftermath.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>It is widely perceived that the U.S. economy and stock market have embarked on a <em>“New Paradigm Era”</em> in which old rules no longer apply and traditional barriers have been broken. Yet as Federal Reserve Chairman Alan Greenspan warned Congress on February 26th 1997, <em>“Regrettably, history is strewn with visions of such ‘new eras’ that, in the end, have proven to be a mirage.” </em>This is an insight into one such likely mirage…</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading -->\n<h2>What Constitutes A Bubble?</h2>\n<!-- /wp:heading -->\n\n<!-- wp:quote {\"align\":\"left\"} -->\n<blockquote class=\"wp-block-quote has-text-align-left\"><p>That the free enterprise economy is given to recurrent episodes of speculation will be agreed… This process, once it is recognized, is clearly evident, and especially so after the fact. So also, if more subjectively, are the basic attitudes of the participants. These take two forms. There are those who are persuaded that some new price-enhancing circumstance is in control, and they expect the market to stay up and go up, perhaps indefinitely… Then there are those, superficially more astute and generally fewer in number, who perceive or believe themselves to perceive the speculative mood of the moment. They are in to ride the upward wave; their particular genius, they are convinced, will allow them to get out before the speculation runs its course… For built into this situation is the eventual and inevitable fall. Built in also is the circumstance that it cannot come gently or gradually. When it comes it bears the grim face of disaster. That is because both of the groups of participants in the speculative situation are programmed for sudden efforts at escape. Something, it matters little –although it will always be debated– triggers the ultimate reversal.<br></p><cite><strong>A Short History of Financial Euphoria<br></strong>John Kenneth Galbraith</cite></blockquote>\n<!-- /wp:quote -->\n\n<!-- wp:paragraph -->\n<p>Historically, bubbles have always been a part of the lessons of investing. There was the Japanese stock market and real estate bubble which popped in 1989. In domestic real estate, there was the not so “recession-proof” California, as well as the price deflation or washouts of condominiums in Hawaii… residences in the Northeast… commercial office space in the oil belt… and numerous other regions in the 1980’s. Many investors may also remember $850 gold… $50 silver… $37 oil… numismatics… baseball cards… and the list goes on.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>In the stock market, bubbles are usually limited to individual sectors which ride high on excessively exuberant expectations – only to plunge back to earth later. Yet history has left several notable eras which were recognized as “bubbles” only in the eventual and inevitable devastation. Seasoned investors may remember the “Nifty Fifty” era… the “Go-Go Fund” era… or even the “Investment Trust” era of the 1920’s.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>A Short History of Financial Euphoria</h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>In essence, a bubble is created when objectivity, reasoning, and valuation give way to greed and the desire for profits. In <em>“A Short History of Financial Euphoria,” </em>author Galbraith describes the common seeds of past manias that inevitably give way to disastrous consequences:</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:list {\"ordered\":true} -->\n<ol><li>The basic premise that investing involves a trade-off between risk/reward is lost as investors are <em>“captured by the wondrous satisfaction from accruing wealth. The very increase in values thus captures the thoughts and minds of those being rewarded.”</em></li><li>The belief that <em>“some new price-enhancing circumstance is in control”</em> – that there is <em>“something new in the world”</em> that justifies a permanently higher level of valuation.</li><li>The illusion that, except for temporary setbacks, <em>“values are going up permanently and indefinitely.”</em></li><li>The <em>“condemnation at those who express doubt or dissent. … because of defective imagination or other mental inadequacy they are unable to grasp the new and rewarding circumstances.”</em></li></ol>\n<!-- /wp:list -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Healthy Bull Market to Dangerous Bubble</h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Yet only in the aftermath, is a “bubble” identified as a bubble. While in progress, it can only be recognized by its symptoms which are common with speculative eras of the past.<strong> At what point does a healthy bull market turn into a bubble ripe for the popping? Here are a few differences:</strong></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"align\":\"center\",\"id\":5946,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/03/marketbubble-1024x308.jpg\" alt=\"Table detailing the characteristics of a healthy bull market and the characteristics when it swings to a dangerous bubble.\" class=\"wp-image-5946\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:heading -->\n<h2>Time For A Reality Check...</h2>\n<!-- /wp:heading -->\n\n<!-- wp:image {\"align\":\"right\",\"id\":5953,\"width\":356,\"height\":351,\"sizeSlug\":\"medium\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"alignright size-medium is-resized\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/03/overvaluation-extremes-300x296.jpg\" alt=\"Overvalutaion dot chart showing the extremes present at historic market tops.\" class=\"wp-image-5953\" width=\"356\" height=\"351\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p>Wall Street consensus is that the U.S. has entered a “new era” of tame inflation, low interest rates, and rising productivity that will carry economic prosperity well into the new millennium. If so, say pundits, then today’s extreme valuation levels in the stock market are justified. Just how extreme is stock overvaluation? The figure at right shows the S&amp;P 500 Price-to-Dividend Ratio on the vertical scale, and the S&amp;P Industrials Price-to-Book Value Ratio on the horizontal scale. Simply, the higher on the chart, or the farther to the right a year appears, the more overvalued it is. <strong>Clearly, when compared to overvaluation at some of the most historic market tops such as 1929, 1968, 1972, and 1987… today (1998) is off-the-chart!</strong></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>Consensus on Wall Street is also that today’s investor is smarter, better informed, more patient, and longer-term oriented than in the past. Consequently, it is believed that today’s mutual fund holder will never panic in a bear market. However, not all agree with this consensus:</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:spacer {\"height\":37} -->\n<div style=\"height:37px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:quote {\"className\":\"is-style-default\"} -->\n<blockquote class=\"wp-block-quote is-style-default\"><p><strong>Investors may overreact to a downturn, SEC warns</strong><br>Inexperienced investors who have known only the bull market of the last decade could react ‘precipitously’ to a downturn and ‘at great cost to themselves and our markets’, Mr. Arthur Levitt, chairman of the Securities and Exchange Commission<br>warned yesterday.</p><cite>London Financial Times – Feb 26, 1997</cite></blockquote>\n<!-- /wp:quote -->\n\n<!-- wp:paragraph -->\n<p>And Federal Reserve officials also appear nervous as evidenced by this Congressional Testimony in early 1997:</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:quote {\"className\":\"is-style-default\"} -->\n<blockquote class=\"wp-block-quote is-style-default\"><p>History demonstrates that participants in financial markets are susceptible to waves of optimism… Excessive optimism sows the seeds of its own reversal in the form of imbalances that tend to grow over time. When unwarranted expectations ultimately are not realized, the unwinding of these financial excesses can act to amplify a downturn</p><cite>Federal Reserve Chairman Alan Greenspan<br>– Feb 26, 1997</cite></blockquote>\n<!-- /wp:quote -->\n\n<!-- wp:paragraph -->\n<p>Meanwhile, the cold fact remains that the assets in equity mutual funds now total $3,164 Billion, as compared to $226 Billion in October 1990 at the start of this bull market.<strong> Quite simply, 93% of the money in stock mutual funds has not experienced a bear market or even a -15% correction in blue chip averages!</strong></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>Perhaps more ominously, an overwhelming majority of fund investors believe they never will experience such a decline. This late 1996 Lou Harris poll reveals that 85% expect the next 10 years to be as spectacular or better than the past decade. 78% are not expecting a mild bear market of -20%. And almost half think that minor -10% corrections are a thing of the past:</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"align\":\"center\",\"id\":5954,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/03/surveyfundinvestors-1024x224.jpg\" alt=\"survey of fund investors expectations and the actual risk since 1900.\" class=\"wp-image-5954\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p><strong>Just how far out of touch are these investor expectations with reality?</strong> Compare the “actual risk” for <em><strong>all the years</strong></em> of this century (above right). A -10% correction has occurred in 65 years, or once every 1.5yrs on average – yet <em>7 years have lapsed since the last. </em>A -20% decline has triggered every 2.5yrs – <em>again, over 7 years since the last.</em> A -30% bear hits every 4.6yrs – last seen during the ’87 Crash. And a major bear, with -40% losses, strikes about every 8.7yrs… <em>last felt by investors 23 years ago!</em></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:spacer {\"height\":51} -->\n<div style=\"height:51px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:columns -->\n<div class=\"wp-block-columns\"><!-- wp:column -->\n<div class=\"wp-block-column\"><!-- wp:paragraph -->\n<p>Is it a contest to see who can forecast the highest level for the stock market? No… more likely it’s just a not-so-mild case of “irrational exuberance” feared by the Federal Reserve.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":4} -->\n<h4><strong><em>Reality Check: Bull or Bubble?</em></strong></h4>\n<!-- /wp:heading --></div>\n<!-- /wp:column -->\n\n<!-- wp:column -->\n<div class=\"wp-block-column\"><!-- wp:image {\"align\":\"right\",\"id\":5959,\"width\":414,\"height\":305,\"sizeSlug\":\"medium\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"alignright size-medium is-resized\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/03/dow10000-300x221.jpg\" alt=\"Newspaper clipping of When and How the Dow may hit 20,000 by 2007.\" class=\"wp-image-5959\" width=\"414\" height=\"305\"/></figure></div>\n<!-- /wp:image --></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:spacer {\"height\":20} -->\n<div style=\"height:20px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:columns -->\n<div class=\"wp-block-columns\"><!-- wp:column -->\n<div class=\"wp-block-column\"><!-- wp:image {\"align\":\"center\",\"id\":7533,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/05/assets.jpg\" alt=\"\" class=\"wp-image-7533\"/></figure></div>\n<!-- /wp:image --></div>\n<!-- /wp:column -->\n\n<!-- wp:column -->\n<div class=\"wp-block-column\"><!-- wp:paragraph -->\n<p></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:spacer {\"height\":163} -->\n<div style=\"height:163px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:paragraph -->\n<p>Public investment funds placed with the nation’s largest discount brokerage firm have risen <strong><em>over </em></strong><em><strong>19-fold</strong></em> in less than a decade.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":4} -->\n<h4><strong><em>Reality Check: Bull or Bubble?</em></strong></h4>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Since 1981, the number of mutual funds have multiplied at a rate far above any historical experience… far above the “Go-Go Fund” era of the 1960’s… and far above the “Investment Trust” era of the 1920’s.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":4} -->\n<h4><strong><em>Reality Check: Bull or Bubble?</em></strong></h4>\n<!-- /wp:heading --></div>\n<!-- /wp:column -->\n\n<!-- wp:column -->\n<div class=\"wp-block-column\"><!-- wp:spacer {\"height\":222} -->\n<div style=\"height:222px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:image {\"align\":\"center\",\"id\":5963,\"width\":273,\"height\":349,\"sizeSlug\":\"full\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-full is-resized\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/03/mutualfunds.jpg\" alt=\"Bar chart of mutual funds increasing year over year.\" class=\"wp-image-5963\" width=\"273\" height=\"349\"/></figure></div>\n<!-- /wp:image --></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:spacer {\"height\":51} -->\n<div style=\"height:51px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:columns -->\n<div class=\"wp-block-columns\"><!-- wp:column -->\n<div class=\"wp-block-column\"><!-- wp:image {\"align\":\"center\",\"id\":5967,\"sizeSlug\":\"medium\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-medium\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/03/investmentsclubs-294x300.jpg\" alt=\"Bar chart of investment clubs surpassing the Go-Go Fund era.  \" class=\"wp-image-5967\"/></figure></div>\n<!-- /wp:image --></div>\n<!-- /wp:column -->\n\n<!-- wp:column -->\n<div class=\"wp-block-column\"><!-- wp:paragraph -->\n<p>The number of investment clubs has increased <em><strong>over 5-fold </strong></em>in the current bull market. Today, more than 1 in 3 adults own mutual funds – a 66% increase in four years. That easily surpasses the “Go-Go Fund” era in which 1 in 4 adults owned stocks when the washout began in 1969.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":4} -->\n<h4><strong><em>Reality Check: Bull or Bubble?</em></strong></h4>\n<!-- /wp:heading --></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:spacer {\"height\":51} -->\n<div style=\"height:51px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:columns -->\n<div class=\"wp-block-columns\"><!-- wp:column -->\n<div class=\"wp-block-column\"><!-- wp:paragraph -->\n<p>Market historians note that stock market bubbles have been accompanied by a “bubble” in the price of a seat on the New York Stock Exchange. In March 1998, a seat sold for a cool $2.0 million – far above the peak prior to the 1987 Crash. Also note the 1929 and 1966-69 peaks… which will become relevant in the next section of this report.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":4} -->\n<h4><strong><em>Reality Check: Bull or Bubble?</em></strong></h4>\n<!-- /wp:heading --></div>\n<!-- /wp:column -->\n\n<!-- wp:column -->\n<div class=\"wp-block-column\"><!-- wp:image {\"align\":\"center\",\"id\":5972,\"width\":269,\"height\":371,\"sizeSlug\":\"full\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-full is-resized\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/03/nyse-seat.jpg\" alt=\"Bar chart of cost of seat on NYSE soaring in 1998.\" class=\"wp-image-5972\" width=\"269\" height=\"371\"/></figure></div>\n<!-- /wp:image --></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:image {\"align\":\"left\",\"id\":5973,\"width\":382,\"height\":378,\"sizeSlug\":\"medium\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"alignleft size-medium is-resized\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/03/nasdaq-pe-ratio-300x297.jpg\" alt=\"NASDAQ P/E Ratio up to 81.2 in 1998.\" class=\"wp-image-5973\" width=\"382\" height=\"378\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>Safety in diversification? Certainly not in small-caps. The cumulative P/E ratio of all domestic NASDAQ stocks has been hitting unprecedented, frothy levels. It would require a decline of over -75% to take the NASDAQ P/E ratio back to where it started this bull market in October 1990.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":4} -->\n<h4><strong><em>Reality Check: Bull or Bubble?</em></strong></h4>\n<!-- /wp:heading -->\n\n<!-- wp:spacer {\"height\":51} -->\n<div style=\"height:51px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:paragraph -->\n<p></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:media-text {\"mediaPosition\":\"right\",\"mediaId\":5978,\"mediaLink\":\"https://ns2020-investech.investech.com/subscriber-library/the-new-paradigm/mergers/\",\"mediaType\":\"image\"} -->\n<div class=\"wp-block-media-text alignwide has-media-on-the-right is-stacked-on-mobile\"><figure class=\"wp-block-media-text__media\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/03/mergers.jpg\" alt=\"\" class=\"wp-image-5978 size-full\"/></figure><div class=\"wp-block-media-text__content\"><!-- wp:paragraph -->\n<p>Mergers and acquisitions? Since 1996, there’s been no “deal” too big, too expensive, or too leveraged for Wall Street to piece together.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":4} -->\n<h4><strong><em>Reality Check: Bull or Bubble?</em></strong></h4>\n<!-- /wp:heading --></div></div>\n<!-- /wp:media-text -->\n\n<!-- wp:spacer {\"height\":51} -->\n<div style=\"height:51px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:image {\"align\":\"left\",\"id\":5979,\"width\":392,\"height\":316,\"sizeSlug\":\"medium\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"alignleft size-medium is-resized\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/03/margin-debt66-300x242.jpg\" alt=\"Margin debt graph soaring to record levels in the late 90s.\" class=\"wp-image-5979\" width=\"392\" height=\"316\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p>Margin debt (money borrowed to purchase stocks) has soared to record levels – <strong><em>even relative to the size of the economy. </em></strong>Note how far it is above the dangerous peaks in 1987, 1972, and 1968… just prior to the three biggest bear markets of the past half century. And of course, this doesn’t include the second mortgages, refinancings, or record credit card debt that has been used to divert funds into the stock market.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":4} -->\n<h4><strong><em>Reality Check: Bull or Bubble?</em></strong></h4>\n<!-- /wp:heading -->\n\n<!-- wp:spacer {\"height\":51} -->\n<div style=\"height:51px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>The Inevitable Questions:</h3>\n<!-- /wp:heading -->\n\n<!-- wp:list -->\n<ul><li><strong>What has driven stocks to such overvalued extremes?</strong></li><li><strong>Why do the SEC and our Federal Reserve seem so worried?</strong></li><li><strong>Why are investor expectations so out-of-touch with reality?</strong></li><li><strong>What has created so many symptoms of a dangerous “bubble”?</strong></li></ul>\n<!-- /wp:list -->\n\n<!-- wp:heading -->\n<h2>TODAY: The <strong>Not So</strong> “New Paradigm Bubble”</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Many reasons, excuses, and theories have been postulated for Wall Street’s exuberance today. They range from advances in technology, to increases in productivity, to changing demographics (aging baby-boomers). Yet these all miss the mark in explaining how Wall Street arrived at DJIA 9000 from DJIA 800 in 1982. In 1981 when President Reagan took office, interest rates were above 13%, gold had recently hit $850/oz, the DJIA was at the same level as in 1966, and real estate was considered by all to be the safest, best long-term investment. What happened? What changed public opinion so dramatically?</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p><strong><em>The answer is “disinflation”.</em> </strong>As inflation receded over the past 16 years, so did the fear or expectations of inflation. Gold lost its luster. Real estate washouts in the oil belt, California, and the Northeast removed its “safe haven” perception. And as interest rates slipped year after year, thrifty CD and money market fund savers were pushed to seek other alternatives… <em>the stock market</em>. A “Disinflation Era” is not new… and neither is the dangerous bubble which it can create. Let’s examine historical precedent:</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"align\":\"right\",\"id\":5988,\"sizeSlug\":\"medium\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"alignright size-medium\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/03/90s-inflation-rate-300x298.jpg\" alt=\"5 year inflation rate graph over the djia increasing.\" class=\"wp-image-5988\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p><strong>THE INVESTMENT TRUST ’20s</strong><br><strong>Start:</strong> August 1921 – as the high inflation of World War I receded.<br><strong>Stocks:</strong> DJIA up 6-fold in 8 years.<br><strong>THE GO-GO FUND ’60s</strong><br><strong>Start:</strong> June 1949 – as the high inflation of World War II (and the Korean War) receded.<br><strong>Stocks:</strong> DJIA up 6-fold in 17 years (with subsequent tops in 1968 and 1973).<br><strong>THE MUTUAL FUND MANIA ’90s</strong><br><strong>Start:</strong> August 1982 – as the high inflation of the Vietnam War and the 1970s receded.<br><strong>Stocks:</strong> DJIA up 11-fold in 16 years.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Here are the ominous parallels and sequence of events in these “Disinflation Eras”:</h3>\n<!-- /wp:heading -->\n\n<!-- wp:image {\"align\":\"center\",\"id\":5989,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/03/1-correctionless-market-1024x167.jpg\" alt=\"Correctionless market contains an image with headlines from 1929, 1966, and today.\" class=\"wp-image-5989\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:image {\"align\":\"center\",\"id\":5990,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/03/2-mutual-fund-mania-1024x577.jpg\" alt=\"Mutual Fund Mania with headlines from 1929, 1966, and today.\" class=\"wp-image-5990\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:image {\"align\":\"center\",\"id\":5991,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/03/3-extreme-overvaluation-1024x235.jpg\" alt=\"Extreme overvaluation with headlines.\" class=\"wp-image-5991\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:image {\"align\":\"center\",\"id\":5992,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/03/4-old-rules-1024x442.jpg\" alt=\"Old Rules no longer apply headlines\" class=\"wp-image-5992\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:image {\"align\":\"center\",\"id\":5993,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/03/5-unparalleled-stability-1024x266.jpg\" alt=\"Unparalleled stability headlines\" class=\"wp-image-5993\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:image {\"align\":\"center\",\"id\":5994,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/03/6-supply-demand-1024x314.jpg\" alt=\"Supply and demand imbalance headlines\" class=\"wp-image-5994\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:image {\"align\":\"center\",\"id\":5995,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/03/7-riskless-attitude-1024x258.jpg\" alt=\"Riskless attitude headlines\" class=\"wp-image-5995\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:image {\"align\":\"center\",\"id\":5996,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/03/8-perpetual-prosperity-1024x442.jpg\" alt=\"Perpetual economic prosperity headlines\" class=\"wp-image-5996\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:image {\"align\":\"center\",\"id\":5997,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/03/9-new-era-hype-1024x452.jpg\" alt=\"New era hype headlines\" class=\"wp-image-5997\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:image {\"align\":\"center\",\"id\":5998,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/03/10-11-1024x567.jpg\" alt=\"Federal Reserve Censure and scolding the federal reserve headlines\" class=\"wp-image-5998\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:image {\"align\":\"center\",\"id\":5999,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/03/washout-1024x269.jpg\" alt=\"Inevitable washout headlines\" class=\"wp-image-5999\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:heading -->\n<h2>What the Future Holds...</h2>\n<!-- /wp:heading -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>A stock market bubble can be <em>prevented</em>, but it can’t be <em>corrected</em>…</h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Painful recessions and periodic bear markets can usually prevent the valuation extremes and sentiment excesses that create a dangerous bubble. Yet tragically, this simple, historic fact must be relearned every time. For example, after the Japanese stock market and real estate collapse, the former head of the Bank of Japan lamented:</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:quote -->\n<blockquote class=\"wp-block-quote\"><p>Looking back, we now feel that we should have applied the brakes on the excessive boom much earlier… However, back in those days, as [consumer] prices were not rising, it was difficult to obtain people’s understanding for a policy aimed at achieving sustainable economic growth by monetary tightening.</p><cite>Yasushi Mieno, Former Governor, Bank of Japan</cite></blockquote>\n<!-- /wp:quote -->\n\n<!-- wp:paragraph -->\n<p>The historical truth that bubbles can be <em>prevented </em>but not <em>corrected </em>even appears obvious to those involved in creating the current bubble, as evidenced by this 1996 quote from the former Federal Reserve Vice-Chairman:</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:quote -->\n<blockquote class=\"wp-block-quote\"><p>It’s very hard to surgically prick a balloon. You may let out a lot more air than you bargained for.</p><cite>Alan Blinder, Former Vice Chairman, Federal Reserve</cite></blockquote>\n<!-- /wp:quote -->\n\n<!-- wp:paragraph -->\n<p>And in an article from 30 years ago, the current Federal Reserve Chairman wrote this critique of the 1929 Crash:</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:quote -->\n<blockquote class=\"wp-block-quote\"><p>The excess credit which the Fed pumped into the economy spilled over into the stock market – triggering a fantastic speculative boom. Belatedly, Federal Reserve officials attempted to sop up the excess reserves and finally succeeded in braking the boom. But it was too late: by 1929 the speculative imbalances had become so overwhelming that the attempt precipitated a sharp retrenching and a consequent demoralizing of business confidence.</p><cite>Alan Greenspan, “Gold and Economic Freedom”, 1966</cite></blockquote>\n<!-- /wp:quote -->\n\n<!-- wp:paragraph -->\n<p>Yet the mere presence of a bubble, even with all the overvaluation and extremes, rarely pops itself. It may continue to inflate, transparent to those inside the bubble, until some external event causes the initial pinhole. As John Galbraith noted about past bubbles, <em>“Something, it matters little –although it will always be debated–  triggers the ultimate reversal.”</em></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>From whence could the pin or trigger come?…</h3>\n<!-- /wp:heading -->\n\n<!-- wp:image {\"align\":\"right\",\"id\":6002,\"sizeSlug\":\"medium\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"alignright size-medium\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/03/global-disc-rates-289x300.jpg\" alt=\"Global discount rates graph dropping\" class=\"wp-image-6002\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p>Global economic and financial turmoil offer a number of potential sources. Recessions in Germany and Japan have driven interest rates down to 1/3 of levels in 1991-92<em> (or 1/12 in the case of Japan).</em> However, the frenzied effort to jumpstart foreign economies has instead pushed excess liquidity into the U.S. financial markets.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"align\":\"left\",\"id\":6003,\"sizeSlug\":\"medium\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"alignleft size-medium\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/03/net-foreign-purchases-300x211.jpg\" alt=\"Net foreign purchases of U.S. Treasury Bonds and Notes\" class=\"wp-image-6003\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p>As a result, purchasing of U.S. Treasuries by foreign investors and central banks has soared to unprecedented levels. The short-term benefits have funded our trade deficit, supported the Dollar, and sloshed liquidity into Wall Street.<em> The obvious danger is what might happen now that this trend shows signs of reversing.</em></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"align\":\"right\",\"id\":6004,\"sizeSlug\":\"medium\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"alignright size-medium\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/03/global-derivatives-207x300.jpg\" alt=\"Global derivatives market bar chart increasing\" class=\"wp-image-6004\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p>Another potential trigger resides in the global derivatives market. It’s assumed by today’s young gun-slinging money managers that such leveraged derivatives are as liquid as cash – even in a falling market or financial crisis. However, note that the face value of these global derivatives now totals over $41 trillion… 6 times larger than in the last U.S. recession… and 17 times larger than when liquidity disappeared during the 1987 Crash. That $41 trillion has never experienced a true global recession or liquidity crisis.<em> What happens if speculators all want out at the same time?</em></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"align\":\"left\",\"id\":6005,\"sizeSlug\":\"medium\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"alignleft size-medium\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/03/household-credit-300x292.jpg\" alt=\"Household credit as a percentage of disposable personal income\" class=\"wp-image-6005\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p>Liquidity could also prove a problem for today’s consumers. Household debt (even as a percentage of income) continues to rise to record levels. Personal bankruptcies are also at record levels – even in this 8th year of economic expansion. <em>With consumer spending accounting for 2/3’s of GDP growth, how long can households keep heading the wrong way down a oneway street?</em></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"align\":\"right\",\"id\":6006,\"width\":374,\"height\":182,\"sizeSlug\":\"medium\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"alignright size-medium is-resized\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/03/ici-liquid-300x146.jpg\" alt=\"ICI liquid asset ratio decreasing to 5.1%\" class=\"wp-image-6006\" width=\"374\" height=\"182\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p>If illiquidity is the trigger, mutual funds are sitting on the target. Cash reserves, tracked by ICI, have been reduced to the lowest levels of this 16-year disinflation bull. Meanwhile, nervous fund families, including Fidelity and Vanguard, have requested permission from the SEC to borrow from money market funds to meet redemptions if necessary. Some are even “investing” cash reserves in stock index futures. <em>Is it confidence, ignorance, or recklessness that leads mutual funds down the same path as in the Go-Go Fund 1960’s, or as the Investment Trusts of the late 1920’s?</em></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Threat of a Crash…</h3>\n<!-- /wp:heading -->\n\n<!-- wp:list {\"className\":\"is-style-default\"} -->\n<ul class=\"is-style-default\"><li>This 7.8 years without a -15% correction in the DJIA is virtually double the previous record. Among the 5 longest such periods… are the 1929 Crash and 1987 Crash. <em>Coincidence?</em></li><li>This 16th year without the DJIA dropping under the previous year’s low is double the previous record of 8 years… which ended in the 1929 Crash. <em>Coincidence?</em></li><li>Intraday volatility (daily high-to-low) is averaging over 2% (~180 DJIA points) for 1997-98. Among the 3 previous records… again, 1929 and 1987. <em>Coincidence?</em></li></ul>\n<!-- /wp:list -->\n\n<!-- wp:paragraph -->\n<p>Historical precedent paints a foreboding picture. A “crash” is always a possibility in a correctionless, overvalued stock market. And none have been as correctionless or as overvalued as this one. Wall Street confidence relies heavily on the Federal Reserve and its ability to control or halt a meltdown scenario. Media has publicized the “un”official <em>Plunge Protection Team</em>, comprised of the Federal Reserve, Treasury, SEC, and CFTC – all of whom are <em>“thinking carefully about how they would respond to the unthinkable”</em> on Wall Street. Only time will tell if such confidence is misplaced…</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:quote -->\n<blockquote class=\"wp-block-quote\"><p><strong>Plunge Protection Team<br></strong>White House Group Shapes Plans to Ensure<br>Any Market Free Fall Is Contained</p><cite>The Washington Post</cite></blockquote>\n<!-- /wp:quote -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Weighing the Dangers…</h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Today’s parallels with history, and repeated warnings from the SEC and the Federal Reserve carry ominous overtones. A correctionless bull market, record overvaluation, plus public exuberance all add up to unprecedented risk – for the stock market, as well as the U.S. economy. By July 1998, stock market capitalization (in relation to GDP) has reached over twice the peak before the last recession or prior to the 1987 stock market crash. <strong>Simply stated, even a mild bear market of -25% from today’s lofty levels, would wipe out $2.8 trillion – with more economic impact than any bear market of the past 60 years!</strong></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"align\":\"right\",\"id\":6010,\"width\":358,\"height\":344,\"sizeSlug\":\"medium\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"alignright size-medium is-resized\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/03/stock-market-capitalization-300x288.jpg\" alt=\"\" class=\"wp-image-6010\" width=\"358\" height=\"344\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p>To Alan Greenspan, who wrote so astutely of the lessons of 1929, the threat must  weigh heavily. The anecdotal evidence is overwhelming that Wall Street is in some type of bubble – a mania where valuations and expectations have disconnected from reality. If that is indeed the case, then what lies ahead is inevitable. And the downside risk is grossly underestimated by today’s investor. With valuations based on the broad S&amp;P 500 Index (but downside risk expressed in more familiar DJIA point terms), the table below shows how far today’s stock market could tumble before hitting 70-year average valuations. NOTE:<em> This is only to <strong>average </strong>valuation levels since 1928, not the extreme lows that are typical in most bear markets!</em></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"align\":\"left\",\"id\":6012,\"width\":380,\"height\":166,\"sizeSlug\":\"medium\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"alignleft size-medium is-resized\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/03/valuation-risk-300x130.jpg\" alt=\"\" class=\"wp-image-6012\" width=\"380\" height=\"166\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p>In one sense, it doesn’t matter whether today’s bubble unwinds in a deflationary crisis as in 1929, or in a series of protracted bear markets as in the late 60’s. The consequences for the average investor were the same. Those who blindly followed a buy-&amp;-hold strategy were devastated, both financially and psychologically. Meanwhile, those investors who recognized the dangers and took evasive action weathered the fallout – or even profited handsomely in the years that followed.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>It also matters little, if it is a bubble, what circumstance or event is blamed for “pricking” the overinflated balloon. Inevitably, the fact remains that much of the fault must lie with Wall Street itself. If not for the sirens and aggressive marketing in an overextended, overheated, overvalued bull market, then the excesses and speculation couldn’t reach such extremes. </p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>The purpose of this special report is not to frighten or build the case for a crash. Our sole objective is to educate. It is a dangerous, perhaps even financially fatal assumption to think the next 5 years will be a repeat of the recent past. But historical precedent cannot be ignored. The 1980’s and 90’s are not the first era where investors have been pushed away from inflation hedges, real estate, bonds, and cash. And, as revealed inside, it would not be the first such bubble created by these disinflation forces. </p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>Only time, and 20/20 hindsight, will reveal if today’s “new era” is a mirage – merely  an old era carried to new levels of excess. Unfortunately, the symptoms are present and warning flags are flying high. <strong>Yet even if Wall Street is in a bubble destined to deflate, one must also remember that the devastation which followed the late 20’s and late 60’s created tremendous profit opportunities for those astute investors who understood and perceived what was happening. The historical perspective and evidence presented in this report serve as a vital step in that direction.</strong></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:block {\"ref\":5343} /-->\n\n<!-- wp:separator -->\n<hr class=\"wp-block-separator\"/>\n<!-- /wp:separator -->\n\n<!-- wp:block {\"ref\":5343} /-->\n\n<!-- wp:heading {\"level\":4} -->\n<h4>InvesTech Special Report published July 1998</h4>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>This report is also available to <a href=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/06/New-Paradigm-Report.pdf\" target=\"_blank\" rel=\"noreferrer noopener\">read in PDF format.</a> </p>\n<!-- /wp:paragraph -->','The New Paradigm... Era -or- Bubble?','A critical look at the unprecedented events that unfolded on Wall Street during the high-tech bubble of the late 1990s. Was it a New Era? Or was history repeating itself? What were the danger signs every investor should have known?','inherit','closed','closed','','2497-revision-v1','','','2021-06-17 22:37:09','2021-06-17 22:37:09','',2497,'https://ns2020-investech.investech.com/?p=8595',0,'revision','',0);
INSERT INTO `wp_posts` VALUES (8597,3,'2021-06-17 22:38:56','2021-06-17 22:38:56','<!-- wp:heading -->\n<h2>The Indexing Craze</h2>\n<!-- /wp:heading -->\n\n<!-- wp:columns -->\n<div class=\"wp-block-columns\"><!-- wp:column {\"width\":\"66.66%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:66.66%\"><!-- wp:paragraph -->\n<p>The indexing craze… it’s sure to be remembered as a hallmark of the 1990s! What has made investing in the S&amp;P 500 so popular these days? If you buy into a recent Business Week article, <em>“Index funds are cheap, easy–and they’re changing the way Americans invest.”</em> A value investor might disagree, since index funds are holding a group of stocks which are at their most overvalued levels in history.  However, in a sense, they are “cheap”… you don’t have to pay a fund manager to search for attractive stocks, and there are few transaction fees when the portfolio doesn’t change much from year to year. As for “easy,” that’s a different story. Our October 23, 1998 issue of the InvesTech Mutual Fund Advisor devoted considerable space to dispelling some of the myths of easy profits and safety that enthusiasts claim for these funds.</p>\n<!-- /wp:paragraph --></div>\n<!-- /wp:column -->\n\n<!-- wp:column {\"width\":\"33.33%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:33.33%\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p>Saving for Retirement Index Fever</p><cite>Fortune, 11/9/98</cite></blockquote>\n<!-- /wp:quote --></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:columns -->\n<div class=\"wp-block-columns\"><!-- wp:column {\"width\":\"33.33%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:33.33%\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p>Who Needs a Money Manager?</p><cite>Business Week, 2/22/99</cite></blockquote>\n<!-- /wp:quote --></div>\n<!-- /wp:column -->\n\n<!-- wp:column {\"width\":\"66.66%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:66.66%\"><!-- wp:paragraph -->\n<p>The popularity of investing in a large-cap index is a phenomenon of long-running bull markets, especially in the latter stages like today. There are several reasons for this. After years of positive gains in the stock market, new investors latch on to the implied idea that making money is simple. It’s also assumed that index funds are safer than other mutual funds because many S&amp;P 500 stocks have widely recognized names. And finally, index funds are the obvious choice for novice investors who tend to be drawn in during late stage bull markets.<em> [Just try to talk a non-investor into putting money into the stock market in the depths of a recession when bull markets are typically born!] </em>During the longest running bull markets, like today, index funds appear attractive even to more experienced investors, simply because that’s when they outperform other funds.</p>\n<!-- /wp:paragraph --></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:heading -->\n<h2>Historical Perspective</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>They may be at the height of popularity now, but index funds aren’t just a phenomenon of the 1990’s. If you were investing in 1975 you would have seen this announcement in <em>U.S. News &amp; World Report:</em></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p>INVEST IN THE STOCK-MARKET AVERAGE?</p><p>A new investment vehicle -the \"index mutual fund\"- is making a big pitch for some of the billions that pension funds, college endowments and other institutions invest in the stock market.  </p><p>For most of the big institutional investors, just keeping up with the general stock-market averages would present a large improvement over their performances in past years</p><cite>U.S. News &amp; World Report, 12/29/75</cite></blockquote>\n<!-- /wp:quote -->\n\n<!-- wp:paragraph -->\n<p>Index funds were a hot new concept in 1975, just in time to dramatically UNDERperform the majority of stocks. Over the next seven years, the smallest 20% of NYSE issues outperformed the S&amp;P 500 by more than 5-fold (752% versus 150%). After this less-than-spectacular start, the popularity of index funds came and went with the market cycles for the next decade. They really started to proliferate only when the current bull market turned into a large-cap bonanza beginning in 1994.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>Last year, index funds attracted nearly 19% of all money invested in mutual funds. And Vanguard Index 500 with $74 billion is close to passing #1 Fidelity Magellan in net assets. But that’s just the tip of the iceberg, as the majority of mutual funds are now investing in the “big 50 ” –the 50 largest-cap stocks in the S&amp;P 500– simply to keep pace with that index’s momentum. This flow of money into a handful of large stocks affects not only the market averages, but it can have long-term repercussions for the market as well as your future investment strategy.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading -->\n<h2>The Impact</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Here’s the current, and potential, impact as we see it…<br></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Investor psychology is distorted. </h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Many novices view index funds as a type of variable rate CD. In Canada, one of our readers reports roadside billboards are promoting a guaranteed principle type of market index investment over GICs (the Canadian equivalent of a CD). What happens when index funds fail to return that expected 11%, or worse, when a major bear market wipes out 40-50%. Someone’s going to be left holding the bag.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3,\"className\":\"unclear\"} -->\n<h3 class=\"unclear\">More and more “non-index” funds are actually indexing a large part of their portfolios. </h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>As index funds have been the only ones to keep pace with market averages in recent years, the natural reaction is for fund managers to change strategy. The philosophy seems to be, <em>“If I can’t outperform the market, at least try to imitate it.”</em> The result is an increasing number of equity funds that look like mini-index fund clones as managers are dragged into the same stocks. Any fund wanting to match or beat the averages must hold at least some of the “big 50 ” of the S&amp;P 500. To make this point, we looked at the portfolios of the ten top performing “non-index” growth funds for the past 12 months. On  Average, 5 of the top 10 holdings in each portfolio are among the 20 largest stocks in the S&amp;P.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>As an example, take the Fidelity Dividend Growth fund which, by its very name, seems to imply conservative growth with a focus on dividends. But there’s nothing conservative about an annual portfolio turnover rate exceeding 105% for each of the last 5 years. And its dividend yield is only 0.4% – less than one-third the dismal yield of the S&amp;P 500.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3,\"className\":\"unclear\"} -->\n<h3 class=\"unclear\">Investments in momentum related funds are funneling into the most overvalued stocks in the market, driving them even higher. </h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Remember, the S&amp;P 500 is a capitalization weighted index, so money going into index funds is not evenly distributed in all 500 stocks. Only fifty stocks account for 55% of S&amp;P 500 capitalization and 55% of an index fund portfolio. That leaves the other 450 stocks to split the rest. Indexing contributes to explosive run-up and overvaluation in these top 50 stocks. Microsoft today is valued at 1.4 times the total capitalization of GE, Intel, Merck, Wal-Mart, Pfizer, Exxon, Coca-Cola, IBM, Cisco, <strong>AND </strong>Microsoft in December of 1990 at the start of this bull market. And America Online, which has yet to show any significant earnings, is now valued at more than ANY of the ten largest companies in the U.S. in 1990!</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Market volatility increases whenever interest narrows to just a few stocks.</h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>All eyes are on the same select group (the largest companies in the S&amp;P 500). Any news or earnings surprises can cause wild gyrations in price as funds scramble to dump or pile into hot movers. No wonder the intraday volatility in 1999 is running the highest for any bull market year since 1929!</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Finally, indexing amplifies the technical distortion in the markets. </h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>The current issue of the<em> InvesTech Market Analyst </em>takes an insightful look at what’s really happening in breadth and other technical divergences. With support from the “big-50\" stocks of the S&amp;P, the closely watched indexes like the DJIA and NASDAQ simply don’t reflect these divergences. For a broader view of the market, take a close look at the Russell 2000 Index (premier small cap index) or the Value-Line Composite Index (an equally weighted index of 1700 stocks).</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:media-text {\"mediaId\":5403,\"mediaType\":\"image\",\"mediaWidth\":40} -->\n<div class=\"wp-block-media-text alignwide is-stacked-on-mobile\" style=\"grid-template-columns:40% auto\"><figure class=\"wp-block-media-text__media\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/top-20.png\" alt=\"Top 20 stocks in the S&amp;P 500 Index as of 1999\" class=\"wp-image-5403 size-full\"/></figure><div class=\"wp-block-media-text__content\"><!-- wp:heading -->\n<h2>Investment Strategy</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>First, we advise that you examine the individual stock holdings in any mutual fund you own – especially for any funds that have “performed” well over the last couple years. Ask yourself,<em> “How ‘indexed’ is this fund?”</em> We’ve listed the 20 largest cap stocks of the S&amp;P 500 in the table shown at left. If you find more than 3 or 4 of these stocks in the top 20 portfolio holdings of your fund, then take heed – your fund is nibbling on indexing.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>In addition, avoid judging a future fund by its 1997-98 performance. If a fund was near the top of the performance list for these past two years, chances are it was momentum investing. Blue chip stocks are often the last to peak in a long-running bull market, benefiting from a “flight to safety” as other stocks falter. Unfortunately, when they fall from overvalued heights, they can be the last to recover from a recession.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>This past bull market illustrates our point. Index funds have enjoyed the run up in blue chip stocks, handily beating most actively managed funds over the last few years. Since 1994, the Vanguard 500 Index Fund has more than doubled the total return of the average small stock fund, and provided 1.6 times the return of the average value fund. This performance may seem unbeatable, but it’s only part of the story. </p>\n<!-- /wp:paragraph --></div></div>\n<!-- /wp:media-text -->\n\n<!-- wp:spacer {\"height\":10} -->\n<div style=\"height:10px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:image {\"align\":\"right\",\"id\":5406,\"width\":514,\"height\":530,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"alignright size-large is-resized\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/mutualfundperf.png\" alt=\"\" class=\"wp-image-5406\" width=\"514\" height=\"530\"/><figcaption>\"Mutual Fund Performance\" graph from 1991-93</figcaption></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p>This \"Mutual Fund Performance\" graph from 1991-93 reveals the comparative performance of the Vanguard 500 during the first three years of this bull market… the <strong><em>safest </em></strong>years to be invested. Note that the average “value” fund outperformed by a factor of 1.4… and the average small company fund literally doubled the return of the Vanguard 500 Index fund. </p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>From the perspective of risk management now (and future profits later), it’s never been more critical to know your mutual fund or prospective mutual fund. We firmly believe the big-cap leaders of today will again become the laggards after the next bear market washout. If that is the case, then you don’t want to find your portfolio indexed to under-performance at what may become one of the best buying opportunities of our lifetime.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:spacer {\"height\":38} -->\n<div style=\"height:38px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:separator -->\n<hr class=\"wp-block-separator\"/>\n<!-- /wp:separator -->\n\n<!-- wp:spacer {\"height\":3} -->\n<div style=\"height:3px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:heading {\"level\":4} -->\n<h4><em>InvesTech Research</em> newsletter originally published March 12, 1999</h4>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>This newsletter is also available to<a href=\"https://ns2020-investech.investech.com/wp-content/uploads/2020/08/InvesTech-V99I04-Indexing.pdf\" target=\"_blank\" rel=\"noreferrer noopener\"> read in PDF format.</a>&nbsp;</p>\n<!-- /wp:paragraph -->','The Lemming Principle','Just as relevant today as in the Tech Bubble of the 1990s, this issue (originally published in March 1999) is particularly enlightening in view of today\'s infatuation with passive and index investing. Instead of falling off a cliff, these lemmings fell into the largest bear market since the 1930s!','inherit','closed','closed','','2470-revision-v1','','','2021-06-17 22:38:56','2021-06-17 22:38:56','',2470,'https://ns2020-investech.investech.com/?p=8597',0,'revision','',0);
INSERT INTO `wp_posts` VALUES (8598,3,'2021-06-17 22:41:01','2021-06-17 22:41:01','','V09I05 Unloved Bull','','inherit','closed','closed','','v09i05-unloved-bull','','','2021-06-17 22:41:01','2021-06-17 22:41:01','',0,'https://ns2020-investech.investech.com/wp-content/uploads/2021/06/V09I05-Unloved-Bull.pdf',0,'attachment','application/pdf',0);
INSERT INTO `wp_posts` VALUES (8599,3,'2021-06-17 22:41:59','2021-06-17 22:41:59','<!-- wp:heading -->\n<h2>\"How do I hate thee?  Let me count the ways...\"</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Without a doubt, this is already one of the most hated bull markets in history! Both analysts and the media are finding countless things wrong with the rally, the U.S. economy, and –it seems– the outlook for the entire world:</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p>Global Recession Deepens, Adding to U.S. Woes</p><cite>The Kiplinger Letter, 5/4/09</cite></blockquote>\n<!-- /wp:quote -->\n\n<!-- wp:paragraph -->\n<p>From the swine flu outbreak, to soaring bankruptcies and foreclosures, to weak trading volume and ominous selling by corporate insiders, Wall Street investors have no shortage of worries on their minds. <em>So why does the market continue to move relentlessly higher?</em></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>Inside this issue, we provide the historical answer to that question – which our more seasoned subscribers know already. Just eight weeks ago, our March 13 issue laid out the technical arguments for an important market bottom…</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p>A Buying Opportunity of a Lifetime?</p><p>... it is a historically indisputable fact that <em>we are heading toward a buying opportunity of a lifetime.</em></p><cite>InvesTech Research, 3/13/09</cite></blockquote>\n<!-- /wp:quote -->\n\n<!-- wp:paragraph -->\n<p>…and thus far, the low that week (at DJIA 6547) has proven to be the bear market low.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3><br><strong>The ultimate question: What now?</strong></h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Are we in a new bull market or is it a bear market rally? If it is a new bull market, will it be a cyclical bull that is destined to a short life span or fail to reach old highs? And is it too late to buy, with the market already rebounding over 25%? All of these worries simply add to headlines now weighing on investors’ shoulders.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p><br>So let’s tackle some of these major concerns…</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading -->\n<h2>Climbing a Wall of Worry</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Every seasoned investor knows that bull markets climb a proverbial “wall of worry” during their early months of existence. Yet each and every time, it doesn’t get any easier. There is always an emotional tug-of-war between gloomy media headlines, and the slow methodical improvement in the technical outlook…</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"id\":5380,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<figure class=\"wp-block-image size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/V09I05pg2-1024x752.png\" alt=\"DJIA with worrisome media headlines or a wall of worry\" class=\"wp-image-5380\"/></figure>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p><strong>But with all the blocks in place for a potential “best buy” opportunity in stocks [see table below], we need to pay close attention to the technical outlook <em>– which is dramatically changing!</em></strong></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"id\":5381,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<figure class=\"wp-block-image size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/V09I05pg2table.png\" alt=\"Bearish conditions that precede the &quot;best buy&quot; opportunities in stocks\" class=\"wp-image-5381\"/></figure>\n<!-- /wp:image -->\n\n<!-- wp:heading -->\n<h2>NLC: Now Bullish</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p><strong>The most dramatic technical change since our last issue has been a strong and steady increase in the bullish “SELLING VACUUM” [*1] from our  Negative Leadership Composite.</strong> Designed to measure the absence of downside or bear market leadership, this kind of +50 reading is  synonymous with past bull market launching pads (see dashed arrows). Note there have been only 2 false signals (greater than +20) from our NLC Selling Vacuum in the past 42 years – and both occurred at significantly lower levels. </p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>We also want to point out that the lingering “DISTRIBUTION” [*2 –lower half] is not a problem from a technical viewpoint. Internal calculations show that bear market Distribution ended on the March 9 low, and has not been “added to” since then. On climactic V-shaped bottoms, it is not unusual to see a lag in this component. For example, at the end of the 1973-74 bear market, there was a 14-week residual lag between the market bottom and when Distribution left its -100 reading. In 1987, there was an 11- week lag. Currently, we’re only 8 weeks past the March 9 bottom.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"id\":5420,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<figure class=\"wp-block-image size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/nlcV09I05-1024x736.png\" alt=\"InvesTech\'s negative leadership composite selling vacuum reaching +50 while the distribution component hit -100.\" class=\"wp-image-5420\"/></figure>\n<!-- /wp:image -->\n\n<!-- wp:heading -->\n<h2>BREADTH: Positive Divergence</h2>\n<!-- /wp:heading -->\n\n<!-- wp:image {\"align\":\"right\",\"id\":5421,\"width\":375,\"height\":402,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"alignright size-large is-resized\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/advdecv09i05.png\" alt=\"Advance-decline breaking to a new high\" class=\"wp-image-5421\" width=\"375\" height=\"402\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p><br>Throughout the lengthy 1929-32 bear market, as well as the 1973-74 bear market, there was never a “positive divergence” in market breadth. In other words, the advance-decline line <em>[cumulative sum of daily advancing issues minus declining issues] </em>led the bear market path every step of the way down. </p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>So to see a positive divergence today is yet another confirmation this bear market may be over. The A-D Line has broken well above its January rally high, thus leading the S&amp;P 500 upward since the March bottom. Some will argue this breadth gauge is less reliable since more ETFs and closed-end bond funds are traded on the NYSE. Perhaps. But we’ll simply let history speak for itself and give this technical tool our benefit of doubt until proven wrong.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading -->\n<h2>COPPOCK GUIDE: Is a Buy Signal Imminent?</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p><strong><em>If recent market gains hold, then a “Buy Signal” appears imminent in the Coppock Guide this month.</em></strong> </p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>The Coppock Guide was developed over 50 years ago by Edwin S. Coppock. Its historical value lies in signaling or confirming the best, low-risk buying opportunities in history <em>– and it is one of the few technical tools that would have kept anxious investors from stepping  prematurely into the middle of the record 1929-32 debacle or the 1973-74 bear market. </em></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>This index is actually the 10-month weighted moving total of a 14-month rate of change plus an 11-month rate of change of a market index. In mathematical terms, it’s really just a momentum oscillator. Because of  this, it reverses direction when the long-term momentum or velocity in the market peaks. After dropping to ‘0’ or below, a mere 1-point upturn in this index can usually be treated as an excellent buying opportunity. </p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p><em>Some of the best (most important) buying opportunities have appeared when the Coppock Guide bottomed at a negative extreme below -20, including 1921, 1932, 1970, 1974 and 2003.</em> And often, the more negative the Coppock Guide is when it turns upward, the more impressive the profits ahead. <em>Under this guideline, only two false signals in 88 years have been recorded – once in 1941 and again in November 2001. </em></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>Today, the Coppock Guide is at its most oversold level since the bear markets of the 1930s – over 70 years ago. As a monthly indicator, we won’t know for certain whether a formal buy signal has been triggered until the end of the month. However, forward testing<em> –based on current data– </em>reveals the Coppock will turn upward from below ‘0’ if the market stabilizes near present levels or continues rising.  <em>Remember – this is a <strong>projection</strong>, not necessarily a certainty. <strong>So stay tuned…</strong></em></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"id\":5427,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<figure class=\"wp-block-image size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/coppockV09I05-1024x784.png\" alt=\"Coppock guide over the S&amp;P 500 Index just starting to turn upward\" class=\"wp-image-5427\"/></figure>\n<!-- /wp:image -->\n\n<!-- wp:heading -->\n<h2>TWO MORE important shifts underway…</h2>\n<!-- /wp:heading -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Consumer Confidence:</h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p> After hitting a record 42-year low in February, Consumer Confidence just registered its largest monthly rebound in almost four years <strong>[ 1]</strong>. While no guarantee of an economic recovery ahead, this is clearly a move in the right direction. More importantly, the majority of that confidence rebound came in the “future expectations” component of this gauge – representing consumers’ outlook six months ahead. And our tracking of the “future minus present” surveys now shows a clear uptrend <strong>[2]</strong> … strikingly similar to the path that has typically led out of past recessions.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"id\":8523,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<figure class=\"wp-block-image size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/06/cons-conf-09-1024x443.png\" alt=\"Consumer Confidence registers largest monthly rebound in almost four years.\" class=\"wp-image-8523\"/></figure>\n<!-- /wp:image -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>RSI (Relative Strength Index):</h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Here is what we said in our March 13 issue…</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:quote -->\n<blockquote class=\"wp-block-quote\"><p>One of the technical gauges of oversold (or overbought) extremes in the stock market is the Relative Strength Index (RSI), developed by Welles Wilder. A long-term (18-month) version of this RSI has proven a valuable tool in helping to identify potential market bottoms –or the best buying opportunities for investors. </p><p>Basically, the Relative Strength Index compares the cumulative <strong>upward </strong>price changes over a defined period relative to the cumulative <strong>downward </strong>price changes. Here, once again, extremes in oversold conditions on Wall Street inevitably create the best buying opportunities. <strong>And the most oversold conditions can sometimes create a buying opportunity of a lifetime – at market levels that are never seen again!</strong></p><cite>InvesTech Market Analyst – March 13, 2009</cite></blockquote>\n<!-- /wp:quote -->\n\n<!-- wp:paragraph -->\n<p>Since then, this Relative Strength Index has turned decisively upward in response to the latest rally. <em>Notice that no upturn of this magnitude from this level has proven to be a false signal in the past 109 years!</em> It’s just one more cumulative piece of evidence that the stock market low eight weeks ago may have been an important bottom.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"id\":5429,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<figure class=\"wp-block-image size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/rsiv09i05-1024x627.png\" alt=\"Relative Strength Index turns decisively upward\" class=\"wp-image-5429\"/></figure>\n<!-- /wp:image -->\n\n<!-- wp:heading -->\n<h2>PERSONAL PERSPECTIVE</h2>\n<!-- /wp:heading -->\n\n<!-- wp:heading {\"textAlign\":\"center\"} -->\n<h2 class=\"has-text-align-center\">Housing – Light at the end of the tunnel</h2>\n<!-- /wp:heading -->\n\n<!-- wp:image {\"align\":\"right\",\"id\":5432,\"width\":402,\"height\":377,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"alignright size-large is-resized\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/bubblev09i05.png\" alt=\"InvesTech\'s housing bubble bellwether index overlaid on the internet index.  They appear to be mirror images.\" class=\"wp-image-5432\" width=\"402\" height=\"377\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p>Don’t count us among the raging bulls. If anything, we might be called a<em> “cautious bull with some residual concerns about systemic mortgage risk.” </em>But there, too, the outlook seems to be improving… </p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>First, our Housing Bubble Bellwether Index –which forewarned us in 2005 of the housing debacle ahead– is coming off a double-bottom, in which the March 9 low was <strong>not significantly lower</strong> than the low late last year. Even to this day, the parallel path of these housing-related stocks to the bursting of the 1990s Internet Bubble has been amazing!</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>In addition, much of the excess price inflation in housing appears to have been resolved. Nationally, the median family home price has fallen an unprecedented -29% since mid-2005, as shown in this graphic:</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"id\":5433,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<figure class=\"wp-block-image size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/pricingv09i05.png\" alt=\"Housing prices versus inflation showing median family homes dropping almost as low as the consumer price index\" class=\"wp-image-5433\"/></figure>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p>That does not mean that home prices won’t continue lower or overshoot the long-term inflation trend before hitting bottom in 2010. However, it suggests to us that the majority of damage is over. [And we reserve judgment on those areas of the country that peaked late, like Whitefish, Montana.]</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>It is also encouraging to see an upturn in the NAHB (National Association of Home Builders) surveys on both Builder Confidence and the traffic of prospective buyers. With inventories now down to pre-bubble levels, we believe this upturn will have more staying ability than the temporary rebound in 2006.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"align\":\"center\",\"id\":5435,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/nahbv09i05.png\" alt=\"NAHB Builder Confidence Survey, reading of 14\" class=\"wp-image-5435\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:heading {\"textAlign\":\"center\"} -->\n<h2 class=\"has-text-align-center\">Battling the Bears</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Frankly, we can come up with all sorts of reasons to remain a bit cautious about the market. Yet our objectivity compels us to gradually move our allocation in the direction of the evidence – and right now that is to the bullish side. Here’s what is <strong>not influencing our decisions,</strong> and why…</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Volume is too light for this to be a new bull market!</h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>This is an argument that we’ve heard more than once, and has some historical validity. Volume on this rally, and particularly on big “up” days has been disappointingly average. But one of the reasons for this is that most bear market bottoms are accompanied by a dramatic shift in Fed policy, accompanied by interest rate cuts. This time around, the Fed has no interest rate cards left to play. So regardless of when this bear market bottom occurs (or if it has already occurred), we expect volume to lag.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Sentiment never shifts bullish this fast – except on bear market rallies.</h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>We’re heard this statement from several noted analysts, however, we don’t see any factual basis for it. In fact, we continue to see a lot of skepticism and doubt (see “Wall of Worry” headlines on page 2). And currently at 8 weeks after the March bottom, the AAII survey shows only 36% of individual investors are bullish – compared to 49% bullish at the same time after the last bear market’s double-bottom in March 2003.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p><br>Meanwhile, the Investors Intelligence survey shows only 40% of advisory services have turned bullish. That compares to 48% bullish at 8 weeks after the March 2003 low, 37% bullish at 8 weeks after the 1982 bottom, and 53% bullish at 8 weeks after the December 1974 bottom. Bottom line: there  seems to be more doubt than bullishness today.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Insiders are already selling – so it must be a bear market rally.</h3>\n<!-- /wp:heading -->\n\n<!-- wp:columns -->\n<div class=\"wp-block-columns\"><!-- wp:column -->\n<div class=\"wp-block-column\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p>Insider Selling Hits Highest Levels Since Crisis Began</p><cite>Reuters - 4/27/09</cite></blockquote>\n<!-- /wp:quote --></div>\n<!-- /wp:column -->\n\n<!-- wp:column -->\n<div class=\"wp-block-column\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p>As stocks rebound, corporate insiders ramp up selling</p><cite>Los Angeles - 4/27/09</cite></blockquote>\n<!-- /wp:quote --></div>\n<!-- /wp:column -->\n\n<!-- wp:column -->\n<div class=\"wp-block-column\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p>Insider Selling Jumps to Highest Level Since 2007</p><cite>Bloomberg - 4/24/09</cite></blockquote>\n<!-- /wp:quote -->\n\n<!-- wp:paragraph -->\n<p></p>\n<!-- /wp:paragraph --></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:paragraph -->\n<p>To us, this is the <strong>worst argument </strong>to make, and history clearly supports us! As a group, corporate insiders usually make the worst investors. They often want to buy their stock when the market is falling (before a recession is recognized): i.e., 1973-74, and 1999-2000 at the dot-com peak. And even worse – their heaviest selling in history has occurred after early bull market run-ups in 1982 [1], 1985 [2], and 2003 [3]. <em>So if insiders are heavy sellers today, it’s not on our worry list.</em></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"align\":\"center\",\"id\":5441,\"width\":718,\"height\":617,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large is-resized\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/insider-trading.png\" alt=\"Chart of Insider Trading sales versus buys over the DJIA\" class=\"wp-image-5441\" width=\"718\" height=\"617\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>This is only a cyclical bull within a long-term secular bear.</h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Secular? Cyclical? Forget the semantics. And let’s just focus on the technical facts!</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:spacer {\"height\":24} -->\n<div style=\"height:24px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:image {\"align\":\"center\",\"id\":6180,\"width\":381,\"height\":44,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large is-resized\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/03/JBS.png\" alt=\"\" class=\"wp-image-6180\" width=\"381\" height=\"44\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:spacer {\"height\":39} -->\n<div style=\"height:39px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:separator -->\n<hr class=\"wp-block-separator\"/>\n<!-- /wp:separator -->\n\n<!-- wp:heading {\"level\":4} -->\n<h4><em>InvesTech Research</em> newsletter published May 8, 2009.</h4>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>  This newsletter is also available to<a href=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/06/V09I05-Unloved-Bull.pdf\" target=\"_blank\" rel=\"noreferrer noopener\"> read in PDF format. </a></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p></p>\n<!-- /wp:paragraph -->','The Unloved Bull','Archived Issue from May 8, 2009 - Are we in a new bull market or is it a bear market rally? If it is a new bull market, will it be a cyclical bull that is destined to a short life span or fail to reach old highs? And is it too late to buy, with the market already rebounding over 25%. In this issue, we provide the historical answers to these questions... more.','inherit','closed','closed','','2478-revision-v1','','','2021-06-17 22:41:59','2021-06-17 22:41:59','',2478,'https://ns2020-investech.investech.com/?p=8599',0,'revision','',0);
INSERT INTO `wp_posts` VALUES (8601,3,'2021-06-17 22:42:27','2021-06-17 22:42:27','<!-- wp:heading -->\n<h2>\"How do I hate thee?  Let me count the ways...\"</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Without a doubt, this is already one of the most hated bull markets in history! Both analysts and the media are finding countless things wrong with the rally, the U.S. economy, and –it seems– the outlook for the entire world:</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p>Global Recession Deepens, Adding to U.S. Woes</p><cite>The Kiplinger Letter, 5/4/09</cite></blockquote>\n<!-- /wp:quote -->\n\n<!-- wp:paragraph -->\n<p>From the swine flu outbreak, to soaring bankruptcies and foreclosures, to weak trading volume and ominous selling by corporate insiders, Wall Street investors have no shortage of worries on their minds. <em>So why does the market continue to move relentlessly higher?</em></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>Inside this issue, we provide the historical answer to that question – which our more seasoned subscribers know already. Just eight weeks ago, our March 13 issue laid out the technical arguments for an important market bottom…</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p>A Buying Opportunity of a Lifetime?</p><p>... it is a historically indisputable fact that <em>we are heading toward a buying opportunity of a lifetime.</em></p><cite>InvesTech Research, 3/13/09</cite></blockquote>\n<!-- /wp:quote -->\n\n<!-- wp:paragraph -->\n<p>…and thus far, the low that week (at DJIA 6547) has proven to be the bear market low.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3><br><strong>The ultimate question: What now?</strong></h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Are we in a new bull market or is it a bear market rally? If it is a new bull market, will it be a cyclical bull that is destined to a short life span or fail to reach old highs? And is it too late to buy, with the market already rebounding over 25%? All of these worries simply add to headlines now weighing on investors’ shoulders.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p><br>So let’s tackle some of these major concerns…</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading -->\n<h2>Climbing a Wall of Worry</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Every seasoned investor knows that bull markets climb a proverbial “wall of worry” during their early months of existence. Yet each and every time, it doesn’t get any easier. There is always an emotional tug-of-war between gloomy media headlines, and the slow methodical improvement in the technical outlook…</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"id\":5380,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<figure class=\"wp-block-image size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/V09I05pg2-1024x752.png\" alt=\"DJIA with worrisome media headlines or a wall of worry\" class=\"wp-image-5380\"/></figure>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p><strong>But with all the blocks in place for a potential “best buy” opportunity in stocks [see table below], we need to pay close attention to the technical outlook <em>– which is dramatically changing!</em></strong></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"id\":5381,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<figure class=\"wp-block-image size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/V09I05pg2table.png\" alt=\"Bearish conditions that precede the &quot;best buy&quot; opportunities in stocks\" class=\"wp-image-5381\"/></figure>\n<!-- /wp:image -->\n\n<!-- wp:heading -->\n<h2>NLC: Now Bullish</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p><strong>The most dramatic technical change since our last issue has been a strong and steady increase in the bullish “SELLING VACUUM” [*1] from our  Negative Leadership Composite.</strong> Designed to measure the absence of downside or bear market leadership, this kind of +50 reading is  synonymous with past bull market launching pads (see dashed arrows). Note there have been only 2 false signals (greater than +20) from our NLC Selling Vacuum in the past 42 years – and both occurred at significantly lower levels. </p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>We also want to point out that the lingering “DISTRIBUTION” [*2 –lower half] is not a problem from a technical viewpoint. Internal calculations show that bear market Distribution ended on the March 9 low, and has not been “added to” since then. On climactic V-shaped bottoms, it is not unusual to see a lag in this component. For example, at the end of the 1973-74 bear market, there was a 14-week residual lag between the market bottom and when Distribution left its -100 reading. In 1987, there was an 11- week lag. Currently, we’re only 8 weeks past the March 9 bottom.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"id\":5420,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<figure class=\"wp-block-image size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/nlcV09I05-1024x736.png\" alt=\"InvesTech\'s negative leadership composite selling vacuum reaching +50 while the distribution component hit -100.\" class=\"wp-image-5420\"/></figure>\n<!-- /wp:image -->\n\n<!-- wp:heading -->\n<h2>BREADTH: Positive Divergence</h2>\n<!-- /wp:heading -->\n\n<!-- wp:image {\"align\":\"right\",\"id\":5421,\"width\":375,\"height\":402,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"alignright size-large is-resized\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/advdecv09i05.png\" alt=\"Advance-decline breaking to a new high\" class=\"wp-image-5421\" width=\"375\" height=\"402\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p><br>Throughout the lengthy 1929-32 bear market, as well as the 1973-74 bear market, there was never a “positive divergence” in market breadth. In other words, the advance-decline line <em>[cumulative sum of daily advancing issues minus declining issues] </em>led the bear market path every step of the way down. </p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>So to see a positive divergence today is yet another confirmation this bear market may be over. The A-D Line has broken well above its January rally high, thus leading the S&amp;P 500 upward since the March bottom. Some will argue this breadth gauge is less reliable since more ETFs and closed-end bond funds are traded on the NYSE. Perhaps. But we’ll simply let history speak for itself and give this technical tool our benefit of doubt until proven wrong.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading -->\n<h2>COPPOCK GUIDE: Is a Buy Signal Imminent?</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p><strong><em>If recent market gains hold, then a “Buy Signal” appears imminent in the Coppock Guide this month.</em></strong> </p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>The Coppock Guide was developed over 50 years ago by Edwin S. Coppock. Its historical value lies in signaling or confirming the best, low-risk buying opportunities in history <em>– and it is one of the few technical tools that would have kept anxious investors from stepping  prematurely into the middle of the record 1929-32 debacle or the 1973-74 bear market. </em></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>This index is actually the 10-month weighted moving total of a 14-month rate of change plus an 11-month rate of change of a market index. In mathematical terms, it’s really just a momentum oscillator. Because of  this, it reverses direction when the long-term momentum or velocity in the market peaks. After dropping to ‘0’ or below, a mere 1-point upturn in this index can usually be treated as an excellent buying opportunity. </p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p><em>Some of the best (most important) buying opportunities have appeared when the Coppock Guide bottomed at a negative extreme below -20, including 1921, 1932, 1970, 1974 and 2003.</em> And often, the more negative the Coppock Guide is when it turns upward, the more impressive the profits ahead. <em>Under this guideline, only two false signals in 88 years have been recorded – once in 1941 and again in November 2001. </em></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>Today, the Coppock Guide is at its most oversold level since the bear markets of the 1930s – over 70 years ago. As a monthly indicator, we won’t know for certain whether a formal buy signal has been triggered until the end of the month. However, forward testing<em> –based on current data– </em>reveals the Coppock will turn upward from below ‘0’ if the market stabilizes near present levels or continues rising.  <em>Remember – this is a <strong>projection</strong>, not necessarily a certainty. <strong>So stay tuned…</strong></em></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"id\":5427,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<figure class=\"wp-block-image size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/coppockV09I05-1024x784.png\" alt=\"Coppock guide over the S&amp;P 500 Index just starting to turn upward\" class=\"wp-image-5427\"/></figure>\n<!-- /wp:image -->\n\n<!-- wp:heading -->\n<h2>TWO MORE important shifts underway…</h2>\n<!-- /wp:heading -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Consumer Confidence:</h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p> After hitting a record 42-year low in February, Consumer Confidence just registered its largest monthly rebound in almost four years <strong>[ 1]</strong>. While no guarantee of an economic recovery ahead, this is clearly a move in the right direction. More importantly, the majority of that confidence rebound came in the “future expectations” component of this gauge – representing consumers’ outlook six months ahead. And our tracking of the “future minus present” surveys now shows a clear uptrend <strong>[2]</strong> … strikingly similar to the path that has typically led out of past recessions.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"id\":8523,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<figure class=\"wp-block-image size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/06/cons-conf-09-1024x443.png\" alt=\"Consumer Confidence registers largest monthly rebound in almost four years.\" class=\"wp-image-8523\"/></figure>\n<!-- /wp:image -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>RSI (Relative Strength Index):</h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Here is what we said in our March 13 issue…</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:quote -->\n<blockquote class=\"wp-block-quote\"><p>One of the technical gauges of oversold (or overbought) extremes in the stock market is the Relative Strength Index (RSI), developed by Welles Wilder. A long-term (18-month) version of this RSI has proven a valuable tool in helping to identify potential market bottoms –or the best buying opportunities for investors. </p><p>Basically, the Relative Strength Index compares the cumulative <strong>upward </strong>price changes over a defined period relative to the cumulative <strong>downward </strong>price changes. Here, once again, extremes in oversold conditions on Wall Street inevitably create the best buying opportunities. <strong>And the most oversold conditions can sometimes create a buying opportunity of a lifetime – at market levels that are never seen again!</strong></p><cite>InvesTech Market Analyst – March 13, 2009</cite></blockquote>\n<!-- /wp:quote -->\n\n<!-- wp:paragraph -->\n<p>Since then, this Relative Strength Index has turned decisively upward in response to the latest rally. <em>Notice that no upturn of this magnitude from this level has proven to be a false signal in the past 109 years!</em> It’s just one more cumulative piece of evidence that the stock market low eight weeks ago may have been an important bottom.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"id\":5429,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<figure class=\"wp-block-image size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/rsiv09i05-1024x627.png\" alt=\"Relative Strength Index turns decisively upward\" class=\"wp-image-5429\"/></figure>\n<!-- /wp:image -->\n\n<!-- wp:heading -->\n<h2>PERSONAL PERSPECTIVE</h2>\n<!-- /wp:heading -->\n\n<!-- wp:heading {\"textAlign\":\"center\"} -->\n<h2 class=\"has-text-align-center\">Housing – Light at the end of the tunnel</h2>\n<!-- /wp:heading -->\n\n<!-- wp:image {\"align\":\"right\",\"id\":5432,\"width\":402,\"height\":377,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"alignright size-large is-resized\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/bubblev09i05.png\" alt=\"InvesTech\'s housing bubble bellwether index overlaid on the internet index.  They appear to be mirror images.\" class=\"wp-image-5432\" width=\"402\" height=\"377\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p>Don’t count us among the raging bulls. If anything, we might be called a<em> “cautious bull with some residual concerns about systemic mortgage risk.” </em>But there, too, the outlook seems to be improving… </p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>First, our Housing Bubble Bellwether Index –which forewarned us in 2005 of the housing debacle ahead– is coming off a double-bottom, in which the March 9 low was <strong>not significantly lower</strong> than the low late last year. Even to this day, the parallel path of these housing-related stocks to the bursting of the 1990s Internet Bubble has been amazing!</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>In addition, much of the excess price inflation in housing appears to have been resolved. Nationally, the median family home price has fallen an unprecedented -29% since mid-2005, as shown in this graphic:</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"id\":5433,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<figure class=\"wp-block-image size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/pricingv09i05.png\" alt=\"Housing prices versus inflation showing median family homes dropping almost as low as the consumer price index\" class=\"wp-image-5433\"/></figure>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p>That does not mean that home prices won’t continue lower or overshoot the long-term inflation trend before hitting bottom in 2010. However, it suggests to us that the majority of damage is over. [And we reserve judgment on those areas of the country that peaked late, like Whitefish, Montana.]</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>It is also encouraging to see an upturn in the NAHB (National Association of Home Builders) surveys on both Builder Confidence and the traffic of prospective buyers. With inventories now down to pre-bubble levels, we believe this upturn will have more staying ability than the temporary rebound in 2006.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"align\":\"center\",\"id\":5435,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/nahbv09i05.png\" alt=\"NAHB Builder Confidence Survey, reading of 14\" class=\"wp-image-5435\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:heading {\"textAlign\":\"center\"} -->\n<h2 class=\"has-text-align-center\">Battling the Bears</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Frankly, we can come up with all sorts of reasons to remain a bit cautious about the market. Yet our objectivity compels us to gradually move our allocation in the direction of the evidence – and right now that is to the bullish side. Here’s what is <strong>not influencing our decisions,</strong> and why…</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Volume is too light for this to be a new bull market!</h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>This is an argument that we’ve heard more than once, and has some historical validity. Volume on this rally, and particularly on big “up” days has been disappointingly average. But one of the reasons for this is that most bear market bottoms are accompanied by a dramatic shift in Fed policy, accompanied by interest rate cuts. This time around, the Fed has no interest rate cards left to play. So regardless of when this bear market bottom occurs (or if it has already occurred), we expect volume to lag.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Sentiment never shifts bullish this fast – except on bear market rallies.</h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>We’re heard this statement from several noted analysts, however, we don’t see any factual basis for it. In fact, we continue to see a lot of skepticism and doubt (see “Wall of Worry” headlines on page 2). And currently at 8 weeks after the March bottom, the AAII survey shows only 36% of individual investors are bullish – compared to 49% bullish at the same time after the last bear market’s double-bottom in March 2003.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p><br>Meanwhile, the Investors Intelligence survey shows only 40% of advisory services have turned bullish. That compares to 48% bullish at 8 weeks after the March 2003 low, 37% bullish at 8 weeks after the 1982 bottom, and 53% bullish at 8 weeks after the December 1974 bottom. Bottom line: there  seems to be more doubt than bullishness today.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Insiders are already selling – so it must be a bear market rally.</h3>\n<!-- /wp:heading -->\n\n<!-- wp:columns -->\n<div class=\"wp-block-columns\"><!-- wp:column -->\n<div class=\"wp-block-column\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p>Insider Selling Hits Highest Levels Since Crisis Began</p><cite>Reuters - 4/27/09</cite></blockquote>\n<!-- /wp:quote --></div>\n<!-- /wp:column -->\n\n<!-- wp:column -->\n<div class=\"wp-block-column\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p>As stocks rebound, corporate insiders ramp up selling</p><cite>Los Angeles - 4/27/09</cite></blockquote>\n<!-- /wp:quote --></div>\n<!-- /wp:column -->\n\n<!-- wp:column -->\n<div class=\"wp-block-column\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p>Insider Selling Jumps to Highest Level Since 2007</p><cite>Bloomberg - 4/24/09</cite></blockquote>\n<!-- /wp:quote -->\n\n<!-- wp:paragraph -->\n<p></p>\n<!-- /wp:paragraph --></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:paragraph -->\n<p>To us, this is the <strong>worst argument </strong>to make, and history clearly supports us! As a group, corporate insiders usually make the worst investors. They often want to buy their stock when the market is falling (before a recession is recognized): i.e., 1973-74, and 1999-2000 at the dot-com peak. And even worse – their heaviest selling in history has occurred after early bull market run-ups in 1982 <strong>[1]</strong>, 1985 <strong>[2]</strong>, and 2003 <strong>[3]</strong>. <em>So if insiders are heavy sellers today, it’s not on our worry list.</em></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"align\":\"center\",\"id\":5441,\"width\":718,\"height\":617,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large is-resized\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/insider-trading.png\" alt=\"Chart of Insider Trading sales versus buys over the DJIA\" class=\"wp-image-5441\" width=\"718\" height=\"617\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>This is only a cyclical bull within a long-term secular bear.</h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Secular? Cyclical? Forget the semantics. And let’s just focus on the technical facts!</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:spacer {\"height\":24} -->\n<div style=\"height:24px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:image {\"align\":\"center\",\"id\":6180,\"width\":381,\"height\":44,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large is-resized\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/03/JBS.png\" alt=\"\" class=\"wp-image-6180\" width=\"381\" height=\"44\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:spacer {\"height\":39} -->\n<div style=\"height:39px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:separator -->\n<hr class=\"wp-block-separator\"/>\n<!-- /wp:separator -->\n\n<!-- wp:heading {\"level\":4} -->\n<h4><em>InvesTech Research</em> newsletter published May 8, 2009.</h4>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>  This newsletter is also available to<a href=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/06/V09I05-Unloved-Bull.pdf\" target=\"_blank\" rel=\"noreferrer noopener\"> read in PDF format. </a></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p></p>\n<!-- /wp:paragraph -->','The Unloved Bull','Archived Issue from May 8, 2009 - Are we in a new bull market or is it a bear market rally? If it is a new bull market, will it be a cyclical bull that is destined to a short life span or fail to reach old highs? And is it too late to buy, with the market already rebounding over 25%. In this issue, we provide the historical answers to these questions... more.','inherit','closed','closed','','2478-revision-v1','','','2021-06-17 22:42:27','2021-06-17 22:42:27','',2478,'https://ns2020-investech.investech.com/?p=8601',0,'revision','',0);
INSERT INTO `wp_posts` VALUES (8603,3,'2021-06-17 22:44:20','2021-06-17 22:44:20','<!-- wp:heading -->\n<h2>\"How do I hate thee?  Let me count the ways...\"</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Without a doubt, this is already one of the most hated bull markets in history! Both analysts and the media are finding countless things wrong with the rally, the U.S. economy, and –it seems– the outlook for the entire world:</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p>Global Recession Deepens, Adding to U.S. Woes</p><cite>The Kiplinger Letter, 5/4/09</cite></blockquote>\n<!-- /wp:quote -->\n\n<!-- wp:paragraph -->\n<p>From the swine flu outbreak, to soaring bankruptcies and foreclosures, to weak trading volume and ominous selling by corporate insiders, Wall Street investors have no shortage of worries on their minds. <em>So why does the market continue to move relentlessly higher?</em></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>Inside this issue, we provide the historical answer to that question – which our more seasoned subscribers know already. Just eight weeks ago, our March 13 issue laid out the technical arguments for an important market bottom…</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p>A Buying Opportunity of a Lifetime?</p><p>... it is a historically indisputable fact that <em>we are heading toward a buying opportunity of a lifetime.</em></p><cite>InvesTech Research, 3/13/09</cite></blockquote>\n<!-- /wp:quote -->\n\n<!-- wp:paragraph -->\n<p>…and thus far, the low that week (at DJIA 6547) has proven to be the bear market low.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3><br><strong>The ultimate question: What now?</strong></h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Are we in a new bull market or is it a bear market rally? If it is a new bull market, will it be a cyclical bull that is destined to a short life span or fail to reach old highs? And is it too late to buy, with the market already rebounding over 25%? All of these worries simply add to headlines now weighing on investors’ shoulders.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p><br>So let’s tackle some of these major concerns…</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading -->\n<h2>Climbing a Wall of Worry</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Every seasoned investor knows that bull markets climb a proverbial “wall of worry” during their early months of existence. Yet each and every time, it doesn’t get any easier. There is always an emotional tug-of-war between gloomy media headlines, and the slow methodical improvement in the technical outlook…</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"id\":5380,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<figure class=\"wp-block-image size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/V09I05pg2-1024x752.png\" alt=\"DJIA with worrisome media headlines or a wall of worry\" class=\"wp-image-5380\"/></figure>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p><strong>But with all the blocks in place for a potential “best buy” opportunity in stocks [see table below], we need to pay close attention to the technical outlook <em>– which is dramatically changing!</em></strong></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"id\":5381,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<figure class=\"wp-block-image size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/V09I05pg2table.png\" alt=\"Bearish conditions that precede the &quot;best buy&quot; opportunities in stocks\" class=\"wp-image-5381\"/></figure>\n<!-- /wp:image -->\n\n<!-- wp:heading -->\n<h2>NLC: Now Bullish</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p><strong>The most dramatic technical change since our last issue has been a strong and steady increase in the bullish “SELLING VACUUM” [*1] from our  Negative Leadership Composite.</strong> Designed to measure the absence of downside or bear market leadership, this kind of +50 reading is  synonymous with past bull market launching pads (see dashed arrows). Note there have been only 2 false signals (greater than +20) from our NLC Selling Vacuum in the past 42 years – and both occurred at significantly lower levels. </p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>We also want to point out that the lingering “DISTRIBUTION” [*2 –lower half] is not a problem from a technical viewpoint. Internal calculations show that bear market Distribution ended on the March 9 low, and has not been “added to” since then. On climactic V-shaped bottoms, it is not unusual to see a lag in this component. For example, at the end of the 1973-74 bear market, there was a 14-week residual lag between the market bottom and when Distribution left its -100 reading. In 1987, there was an 11- week lag. Currently, we’re only 8 weeks past the March 9 bottom.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"id\":5420,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<figure class=\"wp-block-image size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/nlcV09I05-1024x736.png\" alt=\"InvesTech\'s negative leadership composite selling vacuum reaching +50 while the distribution component hit -100.\" class=\"wp-image-5420\"/></figure>\n<!-- /wp:image -->\n\n<!-- wp:heading -->\n<h2>BREADTH: Positive Divergence</h2>\n<!-- /wp:heading -->\n\n<!-- wp:image {\"align\":\"right\",\"id\":5421,\"width\":375,\"height\":402,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"alignright size-large is-resized\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/advdecv09i05.png\" alt=\"Advance-decline breaking to a new high\" class=\"wp-image-5421\" width=\"375\" height=\"402\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p><br>Throughout the lengthy 1929-32 bear market, as well as the 1973-74 bear market, there was never a “positive divergence” in market breadth. In other words, the advance-decline line <em>[cumulative sum of daily advancing issues minus declining issues] </em>led the bear market path every step of the way down. </p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>So to see a positive divergence today is yet another confirmation this bear market may be over. The A-D Line has broken well above its January rally high, thus leading the S&amp;P 500 upward since the March bottom. Some will argue this breadth gauge is less reliable since more ETFs and closed-end bond funds are traded on the NYSE. Perhaps. But we’ll simply let history speak for itself and give this technical tool our benefit of doubt until proven wrong.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading -->\n<h2>COPPOCK GUIDE: Is a Buy Signal Imminent?</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p><strong><em>If recent market gains hold, then a “Buy Signal” appears imminent in the Coppock Guide this month.</em></strong> </p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>The Coppock Guide was developed over 50 years ago by Edwin S. Coppock. Its historical value lies in signaling or confirming the best, low-risk buying opportunities in history <em>– and it is one of the few technical tools that would have kept anxious investors from stepping  prematurely into the middle of the record 1929-32 debacle or the 1973-74 bear market. </em></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>This index is actually the 10-month weighted moving total of a 14-month rate of change plus an 11-month rate of change of a market index. In mathematical terms, it’s really just a momentum oscillator. Because of  this, it reverses direction when the long-term momentum or velocity in the market peaks. After dropping to ‘0’ or below, a mere 1-point upturn in this index can usually be treated as an excellent buying opportunity. </p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p><em>Some of the best (most important) buying opportunities have appeared when the Coppock Guide bottomed at a negative extreme below -20, including 1921, 1932, 1970, 1974 and 2003.</em> And often, the more negative the Coppock Guide is when it turns upward, the more impressive the profits ahead. <em>Under this guideline, only two false signals in 88 years have been recorded – once in 1941 and again in November 2001. </em></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>Today, the Coppock Guide is at its most oversold level since the bear markets of the 1930s – over 70 years ago. As a monthly indicator, we won’t know for certain whether a formal buy signal has been triggered until the end of the month. However, forward testing<em> –based on current data– </em>reveals the Coppock will turn upward from below ‘0’ if the market stabilizes near present levels or continues rising.  <em>Remember – this is a <strong>projection</strong>, not necessarily a certainty. <strong>So stay tuned…</strong></em></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"id\":5427,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<figure class=\"wp-block-image size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/coppockV09I05-1024x784.png\" alt=\"Coppock guide over the S&amp;P 500 Index just starting to turn upward\" class=\"wp-image-5427\"/></figure>\n<!-- /wp:image -->\n\n<!-- wp:heading -->\n<h2>TWO MORE important shifts underway…</h2>\n<!-- /wp:heading -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Consumer Confidence:</h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p> After hitting a record 42-year low in February, Consumer Confidence just registered its largest monthly rebound in almost four years <strong>[ 1]</strong>. While no guarantee of an economic recovery ahead, this is clearly a move in the right direction. More importantly, the majority of that confidence rebound came in the “future expectations” component of this gauge – representing consumers’ outlook six months ahead. And our tracking of the “future minus present” surveys now shows a clear uptrend <strong>[2]</strong> … strikingly similar to the path that has typically led out of past recessions.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"id\":8523,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<figure class=\"wp-block-image size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/06/cons-conf-09-1024x443.png\" alt=\"Consumer Confidence registers largest monthly rebound in almost four years.\" class=\"wp-image-8523\"/></figure>\n<!-- /wp:image -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>RSI (Relative Strength Index):</h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Here is what we said in our March 13 issue…</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:quote -->\n<blockquote class=\"wp-block-quote\"><p>One of the technical gauges of oversold (or overbought) extremes in the stock market is the Relative Strength Index (RSI), developed by Welles Wilder. A long-term (18-month) version of this RSI has proven a valuable tool in helping to identify potential market bottoms –or the best buying opportunities for investors. </p><p>Basically, the Relative Strength Index compares the cumulative <strong>upward </strong>price changes over a defined period relative to the cumulative <strong>downward </strong>price changes. Here, once again, extremes in oversold conditions on Wall Street inevitably create the best buying opportunities. <strong>And the most oversold conditions can sometimes create a buying opportunity of a lifetime – at market levels that are never seen again!</strong></p><cite>InvesTech Market Analyst – March 13, 2009</cite></blockquote>\n<!-- /wp:quote -->\n\n<!-- wp:paragraph -->\n<p>Since then, this Relative Strength Index has turned decisively upward in response to the latest rally. <em>Notice that no upturn of this magnitude from this level has proven to be a false signal in the past 109 years!</em> It’s just one more cumulative piece of evidence that the stock market low eight weeks ago may have been an important bottom.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"id\":5429,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<figure class=\"wp-block-image size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/rsiv09i05-1024x627.png\" alt=\"Relative Strength Index turns decisively upward\" class=\"wp-image-5429\"/></figure>\n<!-- /wp:image -->\n\n<!-- wp:heading -->\n<h2>PERSONAL PERSPECTIVE</h2>\n<!-- /wp:heading -->\n\n<!-- wp:heading {\"textAlign\":\"center\"} -->\n<h2 class=\"has-text-align-center\">Housing – Light at the end of the tunnel</h2>\n<!-- /wp:heading -->\n\n<!-- wp:image {\"align\":\"right\",\"id\":5432,\"width\":402,\"height\":377,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"alignright size-large is-resized\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/bubblev09i05.png\" alt=\"InvesTech\'s housing bubble bellwether index overlaid on the internet index.  They appear to be mirror images.\" class=\"wp-image-5432\" width=\"402\" height=\"377\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p>Don’t count us among the raging bulls. If anything, we might be called a<em> “cautious bull with some residual concerns about systemic mortgage risk.” </em>But there, too, the outlook seems to be improving… </p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>First, our Housing Bubble Bellwether Index –which forewarned us in 2005 of the housing debacle ahead– is coming off a double-bottom, in which the March 9 low was <strong>not significantly lower</strong> than the low late last year. Even to this day, the parallel path of these housing-related stocks to the bursting of the 1990s Internet Bubble has been amazing!</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>In addition, much of the excess price inflation in housing appears to have been resolved. Nationally, the median family home price has fallen an unprecedented -29% since mid-2005, as shown in this graphic:</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"id\":5433,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<figure class=\"wp-block-image size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/pricingv09i05.png\" alt=\"Housing prices versus inflation showing median family homes dropping almost as low as the consumer price index\" class=\"wp-image-5433\"/></figure>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p>That does not mean that home prices won’t continue lower or overshoot the long-term inflation trend before hitting bottom in 2010. However, it suggests to us that the majority of damage is over. [And we reserve judgment on those areas of the country that peaked late, like Whitefish, Montana.]</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>It is also encouraging to see an upturn in the NAHB (National Association of Home Builders) surveys on both Builder Confidence and the traffic of prospective buyers. With inventories now down to pre-bubble levels, we believe this upturn will have more staying ability than the temporary rebound in 2006.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"align\":\"center\",\"id\":5435,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/nahbv09i05.png\" alt=\"NAHB Builder Confidence Survey, reading of 14\" class=\"wp-image-5435\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:heading {\"textAlign\":\"center\"} -->\n<h2 class=\"has-text-align-center\">Battling the Bears</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Frankly, we can come up with all sorts of reasons to remain a bit cautious about the market. Yet our objectivity compels us to gradually move our allocation in the direction of the evidence – and right now that is to the bullish side. Here’s what is <strong>not influencing our decisions,</strong> and why…</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Volume is too light for this to be a new bull market!</h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>This is an argument that we’ve heard more than once, and has some historical validity. Volume on this rally, and particularly on big “up” days has been disappointingly average. But one of the reasons for this is that most bear market bottoms are accompanied by a dramatic shift in Fed policy, accompanied by interest rate cuts. This time around, the Fed has no interest rate cards left to play. So regardless of when this bear market bottom occurs (or if it has already occurred), we expect volume to lag.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Sentiment never shifts bullish this fast – except on bear market rallies.</h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>We’re heard this statement from several noted analysts, however, we don’t see any factual basis for it. In fact, we continue to see a lot of skepticism and doubt (see “Wall of Worry” headlines on page 2). And currently at 8 weeks after the March bottom, the AAII survey shows only 36% of individual investors are bullish – compared to 49% bullish at the same time after the last bear market’s double-bottom in March 2003.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p><br>Meanwhile, the Investors Intelligence survey shows only 40% of advisory services have turned bullish. That compares to 48% bullish at 8 weeks after the March 2003 low, 37% bullish at 8 weeks after the 1982 bottom, and 53% bullish at 8 weeks after the December 1974 bottom. Bottom line: there  seems to be more doubt than bullishness today.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Insiders are already selling – so it must be a bear market rally.</h3>\n<!-- /wp:heading -->\n\n<!-- wp:columns -->\n<div class=\"wp-block-columns\"><!-- wp:column -->\n<div class=\"wp-block-column\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p>Insider Selling Hits Highest Levels Since Crisis Began</p><cite>Reuters - 4/27/09</cite></blockquote>\n<!-- /wp:quote --></div>\n<!-- /wp:column -->\n\n<!-- wp:column -->\n<div class=\"wp-block-column\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p>As stocks rebound, corporate insiders ramp up selling</p><cite>Los Angeles - 4/27/09</cite></blockquote>\n<!-- /wp:quote --></div>\n<!-- /wp:column -->\n\n<!-- wp:column -->\n<div class=\"wp-block-column\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p>Insider Selling Jumps to Highest Level Since 2007</p><cite>Bloomberg - 4/24/09</cite></blockquote>\n<!-- /wp:quote -->\n\n<!-- wp:paragraph -->\n<p></p>\n<!-- /wp:paragraph --></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:paragraph -->\n<p>To us, this is the <strong>worst argument </strong>to make, and history clearly supports us! As a group, corporate insiders usually make the worst investors. They often want to buy their stock when the market is falling (before a recession is recognized): i.e., 1973-74, and 1999-2000 at the dot-com peak. And even worse – their heaviest selling in history has occurred after early bull market run-ups in 1982 <strong>[1]</strong>, 1985 <strong>[2]</strong>, and 2003 <strong>[3]</strong>. <em>So if insiders are heavy sellers today, it’s not on our worry list.</em></p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"align\":\"center\",\"id\":5441,\"width\":718,\"height\":617,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large is-resized\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/02/insider-trading.png\" alt=\"Chart of Insider Trading sales versus buys over the DJIA\" class=\"wp-image-5441\" width=\"718\" height=\"617\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>This is only a cyclical bull within a long-term secular bear.</h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Secular? Cyclical? Forget the semantics. And let’s just focus on the technical facts!</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:spacer {\"height\":24} -->\n<div style=\"height:24px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:image {\"align\":\"center\",\"id\":6180,\"width\":381,\"height\":44,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large is-resized\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/03/JBS.png\" alt=\"\" class=\"wp-image-6180\" width=\"381\" height=\"44\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:spacer {\"height\":39} -->\n<div style=\"height:39px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:uagb/inline-notice {\"block_id\":\"cce4e5ba\",\"noticeContent\":\"\\u003cp\\u003ePast performance may not be indicative of future results. Different types of investments involve varying degrees of risk. Therefore, it should not be assumed that future performance of any specific investment or investment strategy (including the investments and/or investment strategies recommended by InvesTech Research) will be profitable, equal any historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  \\u003ca href=\\u0022https://ns2020-investech.investech.com/terms-of-use/\\u0022 target=\\u0022_blank\\u0022 rel=\\u0022noreferrer noopener\\u0022\\u003eRead full Disclosures here\\u003c/a\\u003e\\u003ca href=\\u0022http://Past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk.  Therefore, it should not be assumed that future performance of any specific investment or investment strategy (including the investments and/or investment strategies recommended by InvesTech Research) will be profitable, equal any historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.\\u0022 target=\\u0022_blank\\u0022 rel=\\u0022noreferrer noopener\\u0022\\u003e.\\u003c/a\\u003e\\u003c/p\\u003e\"} -->\n<div class=\"wp-block-uagb-inline-notice uagb-inline_notice__outer-wrap uagb-inline_notice__align-left uagb-block-cce4e5ba\"><h4 class=\"uagb-notice-title\">Important Disclosure Information</h4><div class=\"uagb-notice-text\"><p>Past performance may not be indicative of future results. Different types of investments involve varying degrees of risk. Therefore, it should not be assumed that future performance of any specific investment or investment strategy (including the investments and/or investment strategies recommended by InvesTech Research) will be profitable, equal any historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  <a href=\"https://ns2020-investech.investech.com/terms-of-use/\" target=\"_blank\" rel=\"noreferrer noopener\">Read full Disclosures here</a><a href=\"http://Past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk.  Therefore, it should not be assumed that future performance of any specific investment or investment strategy (including the investments and/or investment strategies recommended by InvesTech Research) will be profitable, equal any historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.\" target=\"_blank\" rel=\"noreferrer noopener\">.</a></p></div></div>\n<!-- /wp:uagb/inline-notice -->\n\n<!-- wp:separator -->\n<hr class=\"wp-block-separator\"/>\n<!-- /wp:separator -->\n\n<!-- wp:heading {\"level\":4} -->\n<h4><em>InvesTech Research</em> newsletter published May 8, 2009.</h4>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>  This newsletter is also available to<a href=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/06/V09I05-Unloved-Bull.pdf\" target=\"_blank\" rel=\"noreferrer noopener\"> read in PDF format. </a></p>\n<!-- /wp:paragraph -->','The Unloved Bull','Archived Issue from May 8, 2009 - Are we in a new bull market or is it a bear market rally? If it is a new bull market, will it be a cyclical bull that is destined to a short life span or fail to reach old highs? And is it too late to buy, with the market already rebounding over 25%. In this issue, we provide the historical answers to these questions... more.','inherit','closed','closed','','2478-revision-v1','','','2021-06-17 22:44:20','2021-06-17 22:44:20','',2478,'https://ns2020-investech.investech.com/?p=8603',0,'revision','',0);
INSERT INTO `wp_posts` VALUES (8605,3,'2021-06-17 22:44:46','2021-06-17 22:44:46','<!-- wp:media-text {\"mediaPosition\":\"right\",\"mediaId\":8270,\"mediaLink\":\"https://ns2020-investech.investech.com/rollercoaster-qac9q3pwhwg-unsplash/\",\"mediaType\":\"image\",\"mediaWidth\":38} -->\n<div class=\"wp-block-media-text alignwide has-media-on-the-right is-stacked-on-mobile\" style=\"grid-template-columns:auto 38%\"><figure class=\"wp-block-media-text__media\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/06/rollercoaster-qac9Q3pWHWg-unsplash-1024x768.jpg\" alt=\"\" class=\"wp-image-8270 size-full\"/></figure><div class=\"wp-block-media-text__content\"><!-- wp:heading -->\n<h2>Tempted by high-flying ETFs in this aging bull market? </h2>\n<!-- /wp:heading -->\n\n<!-- wp:heading -->\n<h2>Just remember… Excitement is highest as the roller coaster goes over the top!</h2>\n<!-- /wp:heading --></div></div>\n<!-- /wp:media-text -->\n\n<!-- wp:paragraph -->\n<p>In today’s technologically advanced world, featuring self-driving cars, pilotless airplanes, and smart homes, a “hands-off” trend is also gaining popularity among the investing public. As indicated by the headlines below, passive index investing has become all the rage, and Exchange Traded Funds (ETFs) are the tool of choice:</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:columns -->\n<div class=\"wp-block-columns\"><!-- wp:column {\"width\":\"66.66%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:66.66%\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p><strong>ETFs could see $1 trillion in inflows over the coming year</strong></p><cite>MarketWatch, 1/31/17</cite></blockquote>\n<!-- /wp:quote --></div>\n<!-- /wp:column -->\n\n<!-- wp:column {\"width\":\"33.33%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:33.33%\"></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:columns -->\n<div class=\"wp-block-columns\"><!-- wp:column {\"width\":\"33.33%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:33.33%\"></div>\n<!-- /wp:column -->\n\n<!-- wp:column {\"width\":\"66.66%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:66.66%\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p><strong>Small investors’ move to ‘passive’ stock funds becomes a stampede</strong> </p><cite>LA Times, 4/9/17</cite></blockquote>\n<!-- /wp:quote --></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:columns -->\n<div class=\"wp-block-columns\"><!-- wp:column {\"width\":\"66.66%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:66.66%\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p><strong>Global ETF assets reach $4tn</strong> </p><p><em>The global exchange traded fund industry smashed past $4tn in assets last month…</em> </p><cite>Financial Times, 5/10/17</cite></blockquote>\n<!-- /wp:quote --></div>\n<!-- /wp:column -->\n\n<!-- wp:column {\"width\":\"33.33%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:33.33%\"></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:columns {\"verticalAlignment\":\"center\"} -->\n<div class=\"wp-block-columns are-vertically-aligned-center\"><!-- wp:column {\"verticalAlignment\":\"center\",\"width\":\"33.33%\"} -->\n<div class=\"wp-block-column is-vertically-aligned-center\" style=\"flex-basis:33.33%\"><!-- wp:paragraph {\"placeholder\":\"Content…\"} -->\n<p>And our personal favorite...</p>\n<!-- /wp:paragraph --></div>\n<!-- /wp:column -->\n\n<!-- wp:column {\"verticalAlignment\":\"center\",\"width\":\"66.66%\"} -->\n<div class=\"wp-block-column is-vertically-aligned-center\" style=\"flex-basis:66.66%\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p><strong>Wheee! A Quadruple-Leveraged S&amp;P 500 ETF is Here</strong></p><cite>Barron\'s, 5/3/17</cite></blockquote>\n<!-- /wp:quote --></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:columns -->\n<div class=\"wp-block-columns\"><!-- wp:column -->\n<div class=\"wp-block-column\"><!-- wp:heading {\"level\":3} -->\n<h3>Exchange Traded Fund (ETF)</h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>The first Exchange Traded Fund (ETF) was launched in 1993, and although they were slow to start, ETFs have proliferated over the last decade, both in number (see graph at right) and the variety of index funds available. There’s now an ETF for nearly every strategy, no matter how esoteric, and that has helped fuel the passive investing craze.</p>\n<!-- /wp:paragraph --></div>\n<!-- /wp:column -->\n\n<!-- wp:column -->\n<div class=\"wp-block-column\"><!-- wp:image {\"align\":\"center\",\"id\":4829,\"sizeSlug\":\"full\"} -->\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-full\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2020/12/number-of-etfs.png\" alt=\"Graph showing the number of ETFs (registered in the U.S.), Source: Investment Company Institute\" class=\"wp-image-4829\"/><figcaption>Number of ETFs (registered in the U.S.), Source: Investment Company Institute</figcaption></figure></div>\n<!-- /wp:image --></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:paragraph -->\n<p>Over the past 24 years, one can see the shift in interest from actively managed mutual funds toward passive investing. As shown in the graph below, net cash flows into actively managed funds were still four times larger than passive funds from 1993 through 2000. From 2001 through 2008, a change becomes evident as net cash flows for active funds turned negative while passive funds continued to grow. The disparity between the active and passive net cash flows during the current bull market (2009-2016) is remarkable, and it shows why there’s been a parabolic increase in the number of ETFs!</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"align\":\"center\",\"id\":4831,\"width\":713,\"height\":397} -->\n<div class=\"wp-block-image\"><figure class=\"aligncenter is-resized\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2020/12/Active-vs-Passive-Stock-Funds-Inflows.png\" alt=\"Graph showing net cash flows into actively managed funds between 1993 and 2016.\" class=\"wp-image-4831\" width=\"713\" height=\"397\"/><figcaption>Active vs. Passive Domestic Stock Funds; Source: Investment Company Institute</figcaption></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3><strong>So, why has passive investing become all the rage in recent years?</strong></h3>\n<!-- /wp:heading -->\n\n<!-- wp:quote {\"align\":\"center\",\"className\":\"is-style-default\"} -->\n<blockquote class=\"wp-block-quote has-text-align-center is-style-default\"><p>Excitement is Highest as the Roller Coaster Goes Over the Top.</p><cite>– Anonymous</cite></blockquote>\n<!-- /wp:quote -->\n\n<!-- wp:paragraph -->\n<p>Many investors have been burned –not once, but twice– by the Tech Bubble of the 1990s and the Housing Bubble in 2007. Also, they are frustrated with the challenges of managing investments… a task that in this uncertain bull market has frequently seemed counterproductive.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>The most popular index funds are touted as low-cost and broadly diversified, with a portfolio full of blue chip stocks. Moreover, ETFs offer “instant liquidity” with intraday trading compared to mutual funds that only settle at the end of each trading day. To the average investor, passive funds with minimal fees, implied safety, and lots of liquidity may appear to be the Holy Grail. As we’ll see, however, there is more to the story…</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:media-text {\"mediaPosition\":\"right\",\"mediaId\":4839,\"mediaType\":\"image\",\"mediaWidth\":43,\"verticalAlignment\":\"center\"} -->\n<div class=\"wp-block-media-text alignwide has-media-on-the-right is-stacked-on-mobile is-vertically-aligned-center\" style=\"grid-template-columns:auto 43%\"><figure class=\"wp-block-media-text__media\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2020/12/Total-Assets-Domestic-Equity-Index-Funds.png\" alt=\"Graph showing the total assets in Domestic Equity Index Funds, 1990\'s to 2016\" class=\"wp-image-4839 size-full\"/></figure><div class=\"wp-block-media-text__content\"><!-- wp:paragraph -->\n<p>Just as the number of ETFs has grown, the past few years have witnessed an explosion in assets tied to passive investing that has extended to both mutual funds and ETFs (as shown in graph at right). A large part of the growth has been in ETFs, which are poised to overtake index mutual funds as the preferred indexing vehicle. Both types of products have doubled in assets just since 2012.</p>\n<!-- /wp:paragraph --></div></div>\n<!-- /wp:media-text -->\n\n<!-- wp:paragraph -->\n<p>It is important to recognize that passive investing is not a fresh new idea; in fact, the concept was introduced by John Bogle (the founder of Vanguard) in the 1970s. This strategy has shifted in and out of favor, becoming more popular as bull markets age and losing its luster only after the damage has been done by the next bear market. Just like riding a roller coaster, the peak in public enthusiasm often comes as the bull market is cresting the top.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading -->\n<h2>A Trip Back in Time…</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>The rise in the popularity of index funds has been seen before.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:quote {\"align\":\"center\"} -->\n<blockquote class=\"wp-block-quote has-text-align-center\"><p>It’s like deja vu all over again.</p><cite>- Yogi Berra</cite></blockquote>\n<!-- /wp:quote -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>The late 1990s: </h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>As the decade of the 1990s became the longest bull market in Wall Street history, the Tech Bubble wasn’t the only phenomenon catching investors’ attention. In 1998-99, headlines were touting the benefit of index investing as inflows reached record levels:</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:columns -->\n<div class=\"wp-block-columns\"><!-- wp:column -->\n<div class=\"wp-block-column\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p><strong>Saving for Retirement Index Fever</strong></p><cite> Fortune, 11/9/98</cite></blockquote>\n<!-- /wp:quote --></div>\n<!-- /wp:column -->\n\n<!-- wp:column -->\n<div class=\"wp-block-column\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p><strong>Who Needs a Money Manager?</strong></p><cite>Business Week 2/22/99</cite></blockquote>\n<!-- /wp:quote --></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:columns {\"verticalAlignment\":\"center\"} -->\n<div class=\"wp-block-columns are-vertically-aligned-center\"><!-- wp:column {\"verticalAlignment\":\"center\",\"width\":\"\"} -->\n<div class=\"wp-block-column is-vertically-aligned-center\"><!-- wp:paragraph -->\n<p>In <strong>March 1999</strong>, InvesTech Research published the issue shown at right, <a href=\"https://ns2020-investech.investech.com/subscriber-library/lemming-principle/\">comparing the emotional influx of index investors to lemmings</a>. However, instead of falling off a cliff, index investors fell into the largest bear market since the 1930s (the S&amp;P 500 Index lost -49.1%).</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>2006-07:</h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p><strong>Fast-forward to 2006-07:</strong> Index investing was even <em>more</em> popular at the peak of the last bull market (also one of the longer bull markets of the past 80 years):</p>\n<!-- /wp:paragraph --></div>\n<!-- /wp:column -->\n\n<!-- wp:column {\"verticalAlignment\":\"center\",\"width\":\"33.33%\"} -->\n<div class=\"wp-block-column is-vertically-aligned-center\" style=\"flex-basis:33.33%\"><!-- wp:image {\"align\":\"center\",\"id\":4840,\"width\":195,\"height\":201,\"sizeSlug\":\"medium\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-medium is-resized\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2020/12/V99I04-216x300.png\" alt=\"InvesTech Research newsletter, &quot;The Lemming Principle,&quot; March 12, 1999\" class=\"wp-image-4840\" width=\"195\" height=\"201\"/><figcaption>InvesTech Research newsletter, \"The Lemming Principle,\" March 12, 1999</figcaption></figure></div>\n<!-- /wp:image --></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:columns -->\n<div class=\"wp-block-columns\"><!-- wp:column {\"width\":\"66.66%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:66.66%\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p><strong>Index Funds: So Hot Right Now</strong></p><cite>The Motley Fool, 12/11/06</cite></blockquote>\n<!-- /wp:quote --></div>\n<!-- /wp:column -->\n\n<!-- wp:column {\"width\":\"33.33%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:33.33%\"></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:columns -->\n<div class=\"wp-block-columns\"><!-- wp:column {\"width\":\"33.33%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:33.33%\"></div>\n<!-- /wp:column -->\n\n<!-- wp:column {\"width\":\"66.66%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:66.66%\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p><strong>Index funds help you avoid risks of stock selection, market timing</strong></p><cite>Boston Globe, 2/27/07</cite></blockquote>\n<!-- /wp:quote --></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:columns -->\n<div class=\"wp-block-columns\"><!-- wp:column {\"width\":\"66.66%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:66.66%\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p><strong>Owning the S&amp;P 500 is cheap, easy and smart</strong></p><cite>USA Today, 7/20/07</cite></blockquote>\n<!-- /wp:quote --></div>\n<!-- /wp:column -->\n\n<!-- wp:column {\"width\":\"33.33%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:33.33%\"></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:block {\"ref\":5343} /-->\n\n<!-- wp:paragraph -->\n<p>In these previous periods, much like today, most investors perceived index funds – particularly the S&amp;P 500 Index funds – to be more diversified, safer investments.  We’ll discuss why index funds may not be all they’re thought to be…</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading -->\n<h2>The Dark Side of Passive Investing – Live by the Index, Die by the Index</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>As noted, history shows that index investing reaches the highest level of popularity in aging bull markets or near market peaks. The reason for this is that any type of “risk management” during a bull market tends to reduce or moderate a fund manager’s return. Consequently, it is not uncommon for a fully invested S&amp;P 500 Index fund to outperform most actively managed mutual funds and money managers when measured <em><strong>solely </strong></em>over the duration of a bull market.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>There are multiple reasons index or passive investing becomes more popular in an aging bull market. First, it is more comfortable. One doesn’t have the burden of making decisions about which stocks to invest in, or when to sell a stock if it rises or falls precipitously. Indexing also tends to remove the regret from bad decisions, because any loss can be attributed entirely to the market. Lastly, investing in an index fund is the cheapest and easiest way to take advantage of the market’s stellar gains which <em><strong>seem </strong></em>likely to continue. Yet before jumping into the indexing mania today, consider these inherent risks in passive investing…</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:list {\"className\":\"is-style-default\"} -->\n<ul class=\"is-style-default\"><li><strong>By definition, index funds also guarantee that you will suffer 100% of the next bear market’s decline.</strong> Regardless of which index you are matching, the index fund is required to stay fully invested regardless of market risk or volatility.</li></ul>\n<!-- /wp:list -->\n\n<!-- wp:list {\"className\":\"is-style-default\"} -->\n<ul class=\"is-style-default\"><li><strong>Assets flowing into the most popular index funds are funneling investments into the largest and most overvalued stocks in the market, driving them higher. </strong>The S&amp;P 500 is a capitalization weighted index, so money invested into these popular index funds is not evenly distributed in all 500 stocks. Rather, the largest companies by market cap receive a disproportionate amount of the investment. As a result, investors must take the good with the bad and favor the largest companies within the basket of 500 stocks, regardless of valuation and financial strength (or lack thereof).</li></ul>\n<!-- /wp:list -->\n\n<!-- wp:list {\"className\":\"is-style-default\"} -->\n<ul class=\"is-style-default\"><li><strong>Market volatility increases when interest narrows to the index heavyweights. </strong>Only 50 stocks account for nearly 50% of S&amp;P 500 capitalization and one-half of an index fund’s portfolio. Additionally, the top 10 largest stocks comprise over 20% of the Index. As a result, downside risk in the next bear market could increase if selling pressure hits the largest stocks at the same time. The increased focus on index investing of late may very well increase both the size of, and speed at which the next bear market decline occurs.</li></ul>\n<!-- /wp:list -->\n\n<!-- wp:image {\"align\":\"right\",\"id\":8324,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"alignright size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/06/iShares-Core-SP-500-ETF.jpg\" alt=\"\" class=\"wp-image-8324\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:list {\"className\":\"is-style-default\"} -->\n<ul class=\"is-style-default\"><li><strong>Intraday liquidity for ETFs can experience dramatic structural challenges in times of market distress. </strong>For example, during the market dislocation on August 24, 2015 the liquidity of most ETFs all but dried up just as the market opened. A confluence of problems –including circuit breakers, an obscure NYSE rule allowing market makers to delay posting prices, and a lack of futures data for large hedgers– all combined to take the bid out of the ETF space. Even large, well-established ETFs like the $116 billion iShares Core S&amp;P 500 ETF (IVV) saw unprecedented declines. As shown on the graph at right, IVV fell -26% on the open, far more than the -5.3% drop of the underlying S&amp;P 500. As a result of this liquidity hiccup, or “flash crash” as it was called at the time, investors with outstanding market orders and stop-loss orders sold their shares in IVV for far less than their worth.</li></ul>\n<!-- /wp:list -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Bottom Line</h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>The broad diversification and implied liquidity offered by index ETFs gives many investors a false sense of security. When passively investing in an index, devoid of risk management, investors are still subject to varying degrees of valuation and liquidity risk, and they bear the full brunt of cyclical market risk.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading -->\n<h2>Risk Management is Vital to any Strategy – <em>Ignore at your own peril!</em></h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Many actively managed mutual funds and money managers take some steps to mitigate portfolio risk – at times to the detriment of bull market performance. Although passive indexing may appear to be easier and is also perceived to reduce risk, it ends up having the opposite effect during major downturns as it guarantees an investor will experience all of the losses in the corresponding market index. Remember, long-term performance is dependent not only on how much you make in the bull markets, but also how much you give back in the bear markets. Investments that are weighted toward the largest, most overvalued stocks and sectors are exactly the opposite of what might be used in a strategy that manages risk.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>Index investing proponents generally downplay stock market cycles, but bear market survivability is a very real issue for many investors, particularly those in or nearing retirement. The decision to hold the course on an investment strategy usually depends on the severity of bear market losses and how long one’s portfolio remains underwater… in other words, how much time it takes to recover those losses.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>To effectively demonstrate this concept, the <strong>Ulcer Index </strong>was developed in 1987 by Peter Martin to measure the depth and duration of drawdowns from earlier highs in one’s portfolio. It provides a graphic illustration of the level of stress and ulcers (hence the name) that can emerge from suffering deep, prolonged losses in one’s retirement savings.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>Shown below are the comparative Ulcer Index graphs of the InvesTech Model Portfolio versus the Vanguard Total Stock Market Index (VTSMX), which is the largest and most popular fund on the market today.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"align\":\"center\",\"id\":8329,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/06/IT-Portfolio-vs-Vanguard-Ulcer-Index.jpg\" alt=\"\" class=\"wp-image-8329\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p>The starts of the last two bear markets are noted in March 2000 and October 2007, as well as their subsequent market bottoms in October 2002 and March 2009. The green dashed lines illustrate the number of months required after the market bottom for one’s portfolio to recover the losses. Above all, the red shaded areas designate how long, and how deep one’s portfolio was underwater. These are the so-called “ulcer” zones when an investor must wait and wonder how long it will be before his portfolio is whole again.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>As you’ll note, InvesTech’s “risk management” strategy dramatically reduced the stress of the last two generational bear markets by limiting the time spent in the “ulcer” zones. While the InvesTech Model Portfolio didn’t outperform the Vanguard Total Stock Market Index Fund in the bull markets, our ability to manage and reduce risk provided a long-term return which more than doubled that of the Vanguard index fund. More importantly, InvesTech subscribers lost significantly less and recovered much more quickly during bear markets, avoiding the urge to panic out of the market at the wrong time.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>It is this combination of achieving safe returns and managing downside risk that matters most in the long-term performance of one’s portfolio… and in the survivability of bear markets.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:uagb/inline-notice {\"block_id\":\"82e70ba7\",\"noticeContent\":\"\\u003cp\\u003ePast performance may not be indicative of future results. Different types of investments involve varying degrees of risk. Therefore, it should not be assumed that future performance of any specific investment or investment strategy (including the investments and/or investment strategies recommended by InvesTech Research) will be profitable, equal any historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  \\u003ca href=\\u0022https://ns2020-investech.investech.com/terms-of-use/\\u0022 target=\\u0022_blank\\u0022 rel=\\u0022noreferrer noopener\\u0022\\u003eRead full Disclosures here\\u003c/a\\u003e\\u003ca href=\\u0022http://Past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk.  Therefore, it should not be assumed that future performance of any specific investment or investment strategy (including the investments and/or investment strategies recommended by InvesTech Research) will be profitable, equal any historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.\\u0022 target=\\u0022_blank\\u0022 rel=\\u0022noreferrer noopener\\u0022\\u003e.\\u003c/a\\u003e\\u003c/p\\u003e\"} -->\n<div class=\"wp-block-uagb-inline-notice uagb-inline_notice__outer-wrap uagb-inline_notice__align-left uagb-block-82e70ba7\"><h4 class=\"uagb-notice-title\">Important Disclosure Information</h4><div class=\"uagb-notice-text\"><p>Past performance may not be indicative of future results. Different types of investments involve varying degrees of risk. Therefore, it should not be assumed that future performance of any specific investment or investment strategy (including the investments and/or investment strategies recommended by InvesTech Research) will be profitable, equal any historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  <a href=\"https://ns2020-investech.investech.com/terms-of-use/\" target=\"_blank\" rel=\"noreferrer noopener\">Read full Disclosures here</a><a href=\"http://Past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk.  Therefore, it should not be assumed that future performance of any specific investment or investment strategy (including the investments and/or investment strategies recommended by InvesTech Research) will be profitable, equal any historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.\" target=\"_blank\" rel=\"noreferrer noopener\">.</a></p></div></div>\n<!-- /wp:uagb/inline-notice -->\n\n<!-- wp:spacer {\"height\":33} -->\n<div style=\"height:33px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:spacer {\"height\":33} -->\n<div style=\"height:33px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:separator -->\n<hr class=\"wp-block-separator\"/>\n<!-- /wp:separator -->\n\n<!-- wp:spacer {\"height\":33} -->\n<div style=\"height:33px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:heading {\"level\":4} -->\n<h4>Excerpt from <em>InvesTech Research</em> - June 16, 2017</h4>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>This report is also available to <a href=\"https://ns2020-investech.investech.com/wp-content/uploads/2020/08/IndexingFever.pdf\" target=\"_blank\" rel=\"noreferrer noopener\">read in PDF format. </a></p>\n<!-- /wp:paragraph -->','Passive Investing: Inevitable Black Eye','Tempted by high-flying ETFs in this aging bull market? Just remember… Excitement is highest as the roller coaster goes over the top! In today’s technologically advanced world, featuring self-driving cars, pilotless airplanes, and smart homes, a “hands-off” trend is also gaining popularity among the investing public.','inherit','closed','closed','','2468-revision-v1','','','2021-06-17 22:44:46','2021-06-17 22:44:46','',2468,'https://ns2020-investech.investech.com/?p=8605',0,'revision','',0);
INSERT INTO `wp_posts` VALUES (8606,3,'2021-06-17 22:45:21','2021-06-17 22:45:21','<!-- wp:media-text {\"mediaPosition\":\"right\",\"mediaId\":8270,\"mediaLink\":\"https://ns2020-investech.investech.com/rollercoaster-qac9q3pwhwg-unsplash/\",\"mediaType\":\"image\",\"mediaWidth\":38} -->\n<div class=\"wp-block-media-text alignwide has-media-on-the-right is-stacked-on-mobile\" style=\"grid-template-columns:auto 38%\"><figure class=\"wp-block-media-text__media\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/06/rollercoaster-qac9Q3pWHWg-unsplash-1024x768.jpg\" alt=\"\" class=\"wp-image-8270 size-full\"/></figure><div class=\"wp-block-media-text__content\"><!-- wp:heading -->\n<h2>Tempted by high-flying ETFs in this aging bull market? </h2>\n<!-- /wp:heading -->\n\n<!-- wp:heading -->\n<h2>Just remember… Excitement is highest as the roller coaster goes over the top!</h2>\n<!-- /wp:heading --></div></div>\n<!-- /wp:media-text -->\n\n<!-- wp:paragraph -->\n<p>In today’s technologically advanced world, featuring self-driving cars, pilotless airplanes, and smart homes, a “hands-off” trend is also gaining popularity among the investing public. As indicated by the headlines below, passive index investing has become all the rage, and Exchange Traded Funds (ETFs) are the tool of choice:</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:columns -->\n<div class=\"wp-block-columns\"><!-- wp:column {\"width\":\"66.66%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:66.66%\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p><strong>ETFs could see $1 trillion in inflows over the coming year</strong></p><cite>MarketWatch, 1/31/17</cite></blockquote>\n<!-- /wp:quote --></div>\n<!-- /wp:column -->\n\n<!-- wp:column {\"width\":\"33.33%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:33.33%\"></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:columns -->\n<div class=\"wp-block-columns\"><!-- wp:column {\"width\":\"33.33%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:33.33%\"></div>\n<!-- /wp:column -->\n\n<!-- wp:column {\"width\":\"66.66%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:66.66%\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p><strong>Small investors’ move to ‘passive’ stock funds becomes a stampede</strong> </p><cite>LA Times, 4/9/17</cite></blockquote>\n<!-- /wp:quote --></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:columns -->\n<div class=\"wp-block-columns\"><!-- wp:column {\"width\":\"66.66%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:66.66%\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p><strong>Global ETF assets reach $4tn</strong> </p><p><em>The global exchange traded fund industry smashed past $4tn in assets last month…</em> </p><cite>Financial Times, 5/10/17</cite></blockquote>\n<!-- /wp:quote --></div>\n<!-- /wp:column -->\n\n<!-- wp:column {\"width\":\"33.33%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:33.33%\"></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:columns {\"verticalAlignment\":\"center\"} -->\n<div class=\"wp-block-columns are-vertically-aligned-center\"><!-- wp:column {\"verticalAlignment\":\"center\",\"width\":\"33.33%\"} -->\n<div class=\"wp-block-column is-vertically-aligned-center\" style=\"flex-basis:33.33%\"><!-- wp:paragraph {\"placeholder\":\"Content…\"} -->\n<p>And our personal favorite...</p>\n<!-- /wp:paragraph --></div>\n<!-- /wp:column -->\n\n<!-- wp:column {\"verticalAlignment\":\"center\",\"width\":\"66.66%\"} -->\n<div class=\"wp-block-column is-vertically-aligned-center\" style=\"flex-basis:66.66%\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p><strong>Wheee! A Quadruple-Leveraged S&amp;P 500 ETF is Here</strong></p><cite>Barron\'s, 5/3/17</cite></blockquote>\n<!-- /wp:quote --></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:columns -->\n<div class=\"wp-block-columns\"><!-- wp:column -->\n<div class=\"wp-block-column\"><!-- wp:heading {\"level\":3} -->\n<h3>Exchange Traded Fund (ETF)</h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>The first Exchange Traded Fund (ETF) was launched in 1993, and although they were slow to start, ETFs have proliferated over the last decade, both in number (see graph at right) and the variety of index funds available. There’s now an ETF for nearly every strategy, no matter how esoteric, and that has helped fuel the passive investing craze.</p>\n<!-- /wp:paragraph --></div>\n<!-- /wp:column -->\n\n<!-- wp:column -->\n<div class=\"wp-block-column\"><!-- wp:image {\"align\":\"center\",\"id\":4829,\"sizeSlug\":\"full\"} -->\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-full\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2020/12/number-of-etfs.png\" alt=\"Graph showing the number of ETFs (registered in the U.S.), Source: Investment Company Institute\" class=\"wp-image-4829\"/><figcaption>Number of ETFs (registered in the U.S.), Source: Investment Company Institute</figcaption></figure></div>\n<!-- /wp:image --></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:paragraph -->\n<p>Over the past 24 years, one can see the shift in interest from actively managed mutual funds toward passive investing. As shown in the graph below, net cash flows into actively managed funds were still four times larger than passive funds from 1993 through 2000. From 2001 through 2008, a change becomes evident as net cash flows for active funds turned negative while passive funds continued to grow. The disparity between the active and passive net cash flows during the current bull market (2009-2016) is remarkable, and it shows why there’s been a parabolic increase in the number of ETFs!</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"align\":\"center\",\"id\":4831,\"width\":713,\"height\":397} -->\n<div class=\"wp-block-image\"><figure class=\"aligncenter is-resized\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2020/12/Active-vs-Passive-Stock-Funds-Inflows.png\" alt=\"Graph showing net cash flows into actively managed funds between 1993 and 2016.\" class=\"wp-image-4831\" width=\"713\" height=\"397\"/><figcaption>Active vs. Passive Domestic Stock Funds; Source: Investment Company Institute</figcaption></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3><strong>So, why has passive investing become all the rage in recent years?</strong></h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Many investors have been burned –not once, but twice– by the Tech Bubble of the 1990s and the Housing Bubble in 2007. Also, they are frustrated with the challenges of managing investments… a task that in this uncertain bull market has frequently seemed counterproductive.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>The most popular index funds are touted as low-cost and broadly diversified, with a portfolio full of blue chip stocks. Moreover, ETFs offer “instant liquidity” with intraday trading compared to mutual funds that only settle at the end of each trading day. To the average investor, passive funds with minimal fees, implied safety, and lots of liquidity may appear to be the Holy Grail. As we’ll see, however, there is more to the story…</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:quote {\"align\":\"center\",\"className\":\"is-style-default\"} -->\n<blockquote class=\"wp-block-quote has-text-align-center is-style-default\"><p>Excitement is Highest as the Roller Coaster Goes Over the Top.</p><cite>– Anonymous</cite></blockquote>\n<!-- /wp:quote -->\n\n<!-- wp:media-text {\"mediaPosition\":\"right\",\"mediaId\":4839,\"mediaType\":\"image\",\"mediaWidth\":43,\"verticalAlignment\":\"center\"} -->\n<div class=\"wp-block-media-text alignwide has-media-on-the-right is-stacked-on-mobile is-vertically-aligned-center\" style=\"grid-template-columns:auto 43%\"><figure class=\"wp-block-media-text__media\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2020/12/Total-Assets-Domestic-Equity-Index-Funds.png\" alt=\"Graph showing the total assets in Domestic Equity Index Funds, 1990\'s to 2016\" class=\"wp-image-4839 size-full\"/></figure><div class=\"wp-block-media-text__content\"><!-- wp:paragraph -->\n<p>Just as the number of ETFs has grown, the past few years have witnessed an explosion in assets tied to passive investing that has extended to both mutual funds and ETFs (as shown in graph at right). A large part of the growth has been in ETFs, which are poised to overtake index mutual funds as the preferred indexing vehicle. Both types of products have doubled in assets just since 2012.</p>\n<!-- /wp:paragraph --></div></div>\n<!-- /wp:media-text -->\n\n<!-- wp:paragraph -->\n<p>It is important to recognize that passive investing is not a fresh new idea; in fact, the concept was introduced by John Bogle (the founder of Vanguard) in the 1970s. This strategy has shifted in and out of favor, becoming more popular as bull markets age and losing its luster only after the damage has been done by the next bear market. Just like riding a roller coaster, the peak in public enthusiasm often comes as the bull market is cresting the top.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading -->\n<h2>A Trip Back in Time…</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>The rise in the popularity of index funds has been seen before.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:quote {\"align\":\"center\"} -->\n<blockquote class=\"wp-block-quote has-text-align-center\"><p>It’s like deja vu all over again.</p><cite>- Yogi Berra</cite></blockquote>\n<!-- /wp:quote -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>The late 1990s: </h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>As the decade of the 1990s became the longest bull market in Wall Street history, the Tech Bubble wasn’t the only phenomenon catching investors’ attention. In 1998-99, headlines were touting the benefit of index investing as inflows reached record levels:</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:columns -->\n<div class=\"wp-block-columns\"><!-- wp:column -->\n<div class=\"wp-block-column\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p><strong>Saving for Retirement Index Fever</strong></p><cite> Fortune, 11/9/98</cite></blockquote>\n<!-- /wp:quote --></div>\n<!-- /wp:column -->\n\n<!-- wp:column -->\n<div class=\"wp-block-column\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p><strong>Who Needs a Money Manager?</strong></p><cite>Business Week 2/22/99</cite></blockquote>\n<!-- /wp:quote --></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:columns {\"verticalAlignment\":\"center\"} -->\n<div class=\"wp-block-columns are-vertically-aligned-center\"><!-- wp:column {\"verticalAlignment\":\"center\",\"width\":\"\"} -->\n<div class=\"wp-block-column is-vertically-aligned-center\"><!-- wp:paragraph -->\n<p>In <strong>March 1999</strong>, InvesTech Research published the issue shown at right, <a href=\"https://ns2020-investech.investech.com/subscriber-library/lemming-principle/\">comparing the emotional influx of index investors to lemmings</a>. However, instead of falling off a cliff, index investors fell into the largest bear market since the 1930s (the S&amp;P 500 Index lost -49.1%).</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>2006-07:</h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p><strong>Fast-forward to 2006-07:</strong> Index investing was even <em>more</em> popular at the peak of the last bull market (also one of the longer bull markets of the past 80 years):</p>\n<!-- /wp:paragraph --></div>\n<!-- /wp:column -->\n\n<!-- wp:column {\"verticalAlignment\":\"center\",\"width\":\"33.33%\"} -->\n<div class=\"wp-block-column is-vertically-aligned-center\" style=\"flex-basis:33.33%\"><!-- wp:image {\"align\":\"center\",\"id\":4840,\"width\":195,\"height\":201,\"sizeSlug\":\"medium\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-medium is-resized\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2020/12/V99I04-216x300.png\" alt=\"InvesTech Research newsletter, &quot;The Lemming Principle,&quot; March 12, 1999\" class=\"wp-image-4840\" width=\"195\" height=\"201\"/><figcaption>InvesTech Research newsletter, \"The Lemming Principle,\" March 12, 1999</figcaption></figure></div>\n<!-- /wp:image --></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:columns -->\n<div class=\"wp-block-columns\"><!-- wp:column {\"width\":\"66.66%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:66.66%\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p><strong>Index Funds: So Hot Right Now</strong></p><cite>The Motley Fool, 12/11/06</cite></blockquote>\n<!-- /wp:quote --></div>\n<!-- /wp:column -->\n\n<!-- wp:column {\"width\":\"33.33%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:33.33%\"></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:columns -->\n<div class=\"wp-block-columns\"><!-- wp:column {\"width\":\"33.33%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:33.33%\"></div>\n<!-- /wp:column -->\n\n<!-- wp:column {\"width\":\"66.66%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:66.66%\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p><strong>Index funds help you avoid risks of stock selection, market timing</strong></p><cite>Boston Globe, 2/27/07</cite></blockquote>\n<!-- /wp:quote --></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:columns -->\n<div class=\"wp-block-columns\"><!-- wp:column {\"width\":\"66.66%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:66.66%\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p><strong>Owning the S&amp;P 500 is cheap, easy and smart</strong></p><cite>USA Today, 7/20/07</cite></blockquote>\n<!-- /wp:quote --></div>\n<!-- /wp:column -->\n\n<!-- wp:column {\"width\":\"33.33%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:33.33%\"></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:block {\"ref\":5343} /-->\n\n<!-- wp:paragraph -->\n<p>In these previous periods, much like today, most investors perceived index funds – particularly the S&amp;P 500 Index funds – to be more diversified, safer investments.  We’ll discuss why index funds may not be all they’re thought to be…</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading -->\n<h2>The Dark Side of Passive Investing – Live by the Index, Die by the Index</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>As noted, history shows that index investing reaches the highest level of popularity in aging bull markets or near market peaks. The reason for this is that any type of “risk management” during a bull market tends to reduce or moderate a fund manager’s return. Consequently, it is not uncommon for a fully invested S&amp;P 500 Index fund to outperform most actively managed mutual funds and money managers when measured <em><strong>solely </strong></em>over the duration of a bull market.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>There are multiple reasons index or passive investing becomes more popular in an aging bull market. First, it is more comfortable. One doesn’t have the burden of making decisions about which stocks to invest in, or when to sell a stock if it rises or falls precipitously. Indexing also tends to remove the regret from bad decisions, because any loss can be attributed entirely to the market. Lastly, investing in an index fund is the cheapest and easiest way to take advantage of the market’s stellar gains which <em><strong>seem </strong></em>likely to continue. Yet before jumping into the indexing mania today, consider these inherent risks in passive investing…</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:list {\"className\":\"is-style-default\"} -->\n<ul class=\"is-style-default\"><li><strong>By definition, index funds also guarantee that you will suffer 100% of the next bear market’s decline.</strong> Regardless of which index you are matching, the index fund is required to stay fully invested regardless of market risk or volatility.</li></ul>\n<!-- /wp:list -->\n\n<!-- wp:list {\"className\":\"is-style-default\"} -->\n<ul class=\"is-style-default\"><li><strong>Assets flowing into the most popular index funds are funneling investments into the largest and most overvalued stocks in the market, driving them higher. </strong>The S&amp;P 500 is a capitalization weighted index, so money invested into these popular index funds is not evenly distributed in all 500 stocks. Rather, the largest companies by market cap receive a disproportionate amount of the investment. As a result, investors must take the good with the bad and favor the largest companies within the basket of 500 stocks, regardless of valuation and financial strength (or lack thereof).</li></ul>\n<!-- /wp:list -->\n\n<!-- wp:list {\"className\":\"is-style-default\"} -->\n<ul class=\"is-style-default\"><li><strong>Market volatility increases when interest narrows to the index heavyweights. </strong>Only 50 stocks account for nearly 50% of S&amp;P 500 capitalization and one-half of an index fund’s portfolio. Additionally, the top 10 largest stocks comprise over 20% of the Index. As a result, downside risk in the next bear market could increase if selling pressure hits the largest stocks at the same time. The increased focus on index investing of late may very well increase both the size of, and speed at which the next bear market decline occurs.</li></ul>\n<!-- /wp:list -->\n\n<!-- wp:image {\"align\":\"right\",\"id\":8324,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"alignright size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/06/iShares-Core-SP-500-ETF.jpg\" alt=\"\" class=\"wp-image-8324\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:list {\"className\":\"is-style-default\"} -->\n<ul class=\"is-style-default\"><li><strong>Intraday liquidity for ETFs can experience dramatic structural challenges in times of market distress. </strong>For example, during the market dislocation on August 24, 2015 the liquidity of most ETFs all but dried up just as the market opened. A confluence of problems –including circuit breakers, an obscure NYSE rule allowing market makers to delay posting prices, and a lack of futures data for large hedgers– all combined to take the bid out of the ETF space. Even large, well-established ETFs like the $116 billion iShares Core S&amp;P 500 ETF (IVV) saw unprecedented declines. As shown on the graph at right, IVV fell -26% on the open, far more than the -5.3% drop of the underlying S&amp;P 500. As a result of this liquidity hiccup, or “flash crash” as it was called at the time, investors with outstanding market orders and stop-loss orders sold their shares in IVV for far less than their worth.</li></ul>\n<!-- /wp:list -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Bottom Line</h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>The broad diversification and implied liquidity offered by index ETFs gives many investors a false sense of security. When passively investing in an index, devoid of risk management, investors are still subject to varying degrees of valuation and liquidity risk, and they bear the full brunt of cyclical market risk.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading -->\n<h2>Risk Management is Vital to any Strategy – <em>Ignore at your own peril!</em></h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Many actively managed mutual funds and money managers take some steps to mitigate portfolio risk – at times to the detriment of bull market performance. Although passive indexing may appear to be easier and is also perceived to reduce risk, it ends up having the opposite effect during major downturns as it guarantees an investor will experience all of the losses in the corresponding market index. Remember, long-term performance is dependent not only on how much you make in the bull markets, but also how much you give back in the bear markets. Investments that are weighted toward the largest, most overvalued stocks and sectors are exactly the opposite of what might be used in a strategy that manages risk.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>Index investing proponents generally downplay stock market cycles, but bear market survivability is a very real issue for many investors, particularly those in or nearing retirement. The decision to hold the course on an investment strategy usually depends on the severity of bear market losses and how long one’s portfolio remains underwater… in other words, how much time it takes to recover those losses.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>To effectively demonstrate this concept, the <strong>Ulcer Index </strong>was developed in 1987 by Peter Martin to measure the depth and duration of drawdowns from earlier highs in one’s portfolio. It provides a graphic illustration of the level of stress and ulcers (hence the name) that can emerge from suffering deep, prolonged losses in one’s retirement savings.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>Shown below are the comparative Ulcer Index graphs of the InvesTech Model Portfolio versus the Vanguard Total Stock Market Index (VTSMX), which is the largest and most popular fund on the market today.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"align\":\"center\",\"id\":8329,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/06/IT-Portfolio-vs-Vanguard-Ulcer-Index.jpg\" alt=\"\" class=\"wp-image-8329\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p>The starts of the last two bear markets are noted in March 2000 and October 2007, as well as their subsequent market bottoms in October 2002 and March 2009. The green dashed lines illustrate the number of months required after the market bottom for one’s portfolio to recover the losses. Above all, the red shaded areas designate how long, and how deep one’s portfolio was underwater. These are the so-called “ulcer” zones when an investor must wait and wonder how long it will be before his portfolio is whole again.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>As you’ll note, InvesTech’s “risk management” strategy dramatically reduced the stress of the last two generational bear markets by limiting the time spent in the “ulcer” zones. While the InvesTech Model Portfolio didn’t outperform the Vanguard Total Stock Market Index Fund in the bull markets, our ability to manage and reduce risk provided a long-term return which more than doubled that of the Vanguard index fund. More importantly, InvesTech subscribers lost significantly less and recovered much more quickly during bear markets, avoiding the urge to panic out of the market at the wrong time.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>It is this combination of achieving safe returns and managing downside risk that matters most in the long-term performance of one’s portfolio… and in the survivability of bear markets.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:uagb/inline-notice {\"block_id\":\"82e70ba7\",\"noticeContent\":\"\\u003cp\\u003ePast performance may not be indicative of future results. Different types of investments involve varying degrees of risk. Therefore, it should not be assumed that future performance of any specific investment or investment strategy (including the investments and/or investment strategies recommended by InvesTech Research) will be profitable, equal any historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  \\u003ca href=\\u0022https://ns2020-investech.investech.com/terms-of-use/\\u0022 target=\\u0022_blank\\u0022 rel=\\u0022noreferrer noopener\\u0022\\u003eRead full Disclosures here\\u003c/a\\u003e\\u003ca href=\\u0022http://Past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk.  Therefore, it should not be assumed that future performance of any specific investment or investment strategy (including the investments and/or investment strategies recommended by InvesTech Research) will be profitable, equal any historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.\\u0022 target=\\u0022_blank\\u0022 rel=\\u0022noreferrer noopener\\u0022\\u003e.\\u003c/a\\u003e\\u003c/p\\u003e\"} -->\n<div class=\"wp-block-uagb-inline-notice uagb-inline_notice__outer-wrap uagb-inline_notice__align-left uagb-block-82e70ba7\"><h4 class=\"uagb-notice-title\">Important Disclosure Information</h4><div class=\"uagb-notice-text\"><p>Past performance may not be indicative of future results. Different types of investments involve varying degrees of risk. Therefore, it should not be assumed that future performance of any specific investment or investment strategy (including the investments and/or investment strategies recommended by InvesTech Research) will be profitable, equal any historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  <a href=\"https://ns2020-investech.investech.com/terms-of-use/\" target=\"_blank\" rel=\"noreferrer noopener\">Read full Disclosures here</a><a href=\"http://Past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk.  Therefore, it should not be assumed that future performance of any specific investment or investment strategy (including the investments and/or investment strategies recommended by InvesTech Research) will be profitable, equal any historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.\" target=\"_blank\" rel=\"noreferrer noopener\">.</a></p></div></div>\n<!-- /wp:uagb/inline-notice -->\n\n<!-- wp:spacer {\"height\":33} -->\n<div style=\"height:33px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:spacer {\"height\":33} -->\n<div style=\"height:33px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:separator -->\n<hr class=\"wp-block-separator\"/>\n<!-- /wp:separator -->\n\n<!-- wp:spacer {\"height\":33} -->\n<div style=\"height:33px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:heading {\"level\":4} -->\n<h4>Excerpt from <em>InvesTech Research</em> - June 16, 2017</h4>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>This report is also available to <a href=\"https://ns2020-investech.investech.com/wp-content/uploads/2020/08/IndexingFever.pdf\" target=\"_blank\" rel=\"noreferrer noopener\">read in PDF format. </a></p>\n<!-- /wp:paragraph -->','Passive Investing: Inevitable Black Eye','Tempted by high-flying ETFs in this aging bull market? Just remember… Excitement is highest as the roller coaster goes over the top! In today’s technologically advanced world, featuring self-driving cars, pilotless airplanes, and smart homes, a “hands-off” trend is also gaining popularity among the investing public.','inherit','closed','closed','','2468-revision-v1','','','2021-06-17 22:45:21','2021-06-17 22:45:21','',2468,'https://ns2020-investech.investech.com/?p=8606',0,'revision','',0);
INSERT INTO `wp_posts` VALUES (8607,3,'2021-06-17 22:45:59','2021-06-17 22:45:59','<!-- wp:media-text {\"mediaPosition\":\"right\",\"mediaId\":8270,\"mediaLink\":\"https://ns2020-investech.investech.com/rollercoaster-qac9q3pwhwg-unsplash/\",\"mediaType\":\"image\",\"mediaWidth\":38} -->\n<div class=\"wp-block-media-text alignwide has-media-on-the-right is-stacked-on-mobile\" style=\"grid-template-columns:auto 38%\"><figure class=\"wp-block-media-text__media\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/06/rollercoaster-qac9Q3pWHWg-unsplash-1024x768.jpg\" alt=\"\" class=\"wp-image-8270 size-full\"/></figure><div class=\"wp-block-media-text__content\"><!-- wp:heading -->\n<h2>Tempted by high-flying ETFs in this aging bull market? </h2>\n<!-- /wp:heading -->\n\n<!-- wp:heading -->\n<h2>Just remember… Excitement is highest as the roller coaster goes over the top!</h2>\n<!-- /wp:heading --></div></div>\n<!-- /wp:media-text -->\n\n<!-- wp:paragraph -->\n<p>In today’s technologically advanced world, featuring self-driving cars, pilotless airplanes, and smart homes, a “hands-off” trend is also gaining popularity among the investing public. As indicated by the headlines below, passive index investing has become all the rage, and Exchange Traded Funds (ETFs) are the tool of choice:</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:columns -->\n<div class=\"wp-block-columns\"><!-- wp:column {\"width\":\"66.66%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:66.66%\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p><strong>ETFs could see $1 trillion in inflows over the coming year</strong></p><cite>MarketWatch, 1/31/17</cite></blockquote>\n<!-- /wp:quote --></div>\n<!-- /wp:column -->\n\n<!-- wp:column {\"width\":\"33.33%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:33.33%\"></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:columns -->\n<div class=\"wp-block-columns\"><!-- wp:column {\"width\":\"33.33%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:33.33%\"></div>\n<!-- /wp:column -->\n\n<!-- wp:column {\"width\":\"66.66%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:66.66%\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p><strong>Small investors’ move to ‘passive’ stock funds becomes a stampede</strong> </p><cite>LA Times, 4/9/17</cite></blockquote>\n<!-- /wp:quote --></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:columns -->\n<div class=\"wp-block-columns\"><!-- wp:column {\"width\":\"66.66%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:66.66%\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p><strong>Global ETF assets reach $4tn</strong> </p><p><em>The global exchange traded fund industry smashed past $4tn in assets last month…</em> </p><cite>Financial Times, 5/10/17</cite></blockquote>\n<!-- /wp:quote --></div>\n<!-- /wp:column -->\n\n<!-- wp:column {\"width\":\"33.33%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:33.33%\"></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:columns {\"verticalAlignment\":\"center\"} -->\n<div class=\"wp-block-columns are-vertically-aligned-center\"><!-- wp:column {\"verticalAlignment\":\"center\",\"width\":\"33.33%\"} -->\n<div class=\"wp-block-column is-vertically-aligned-center\" style=\"flex-basis:33.33%\"><!-- wp:paragraph {\"placeholder\":\"Content…\"} -->\n<p>And our personal favorite...</p>\n<!-- /wp:paragraph --></div>\n<!-- /wp:column -->\n\n<!-- wp:column {\"verticalAlignment\":\"center\",\"width\":\"66.66%\"} -->\n<div class=\"wp-block-column is-vertically-aligned-center\" style=\"flex-basis:66.66%\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p><strong>Wheee! A Quadruple-Leveraged S&amp;P 500 ETF is Here</strong></p><cite>Barron\'s, 5/3/17</cite></blockquote>\n<!-- /wp:quote --></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:columns -->\n<div class=\"wp-block-columns\"><!-- wp:column -->\n<div class=\"wp-block-column\"><!-- wp:heading {\"level\":3} -->\n<h3>Exchange Traded Fund (ETF)</h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>The first Exchange Traded Fund (ETF) was launched in 1993, and although they were slow to start, ETFs have proliferated over the last decade, both in number (see graph at right) and the variety of index funds available. There’s now an ETF for nearly every strategy, no matter how esoteric, and that has helped fuel the passive investing craze.</p>\n<!-- /wp:paragraph --></div>\n<!-- /wp:column -->\n\n<!-- wp:column -->\n<div class=\"wp-block-column\"><!-- wp:image {\"align\":\"center\",\"id\":4829,\"sizeSlug\":\"full\"} -->\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-full\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2020/12/number-of-etfs.png\" alt=\"Graph showing the number of ETFs (registered in the U.S.), Source: Investment Company Institute\" class=\"wp-image-4829\"/><figcaption>Number of ETFs (registered in the U.S.), Source: Investment Company Institute</figcaption></figure></div>\n<!-- /wp:image --></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:paragraph -->\n<p>Over the past 24 years, one can see the shift in interest from actively managed mutual funds toward passive investing. As shown in the graph below, net cash flows into actively managed funds were still four times larger than passive funds from 1993 through 2000. From 2001 through 2008, a change becomes evident as net cash flows for active funds turned negative while passive funds continued to grow. The disparity between the active and passive net cash flows during the current bull market (2009-2016) is remarkable, and it shows why there’s been a parabolic increase in the number of ETFs!</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"align\":\"center\",\"id\":4831,\"width\":713,\"height\":397} -->\n<div class=\"wp-block-image\"><figure class=\"aligncenter is-resized\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2020/12/Active-vs-Passive-Stock-Funds-Inflows.png\" alt=\"Graph showing net cash flows into actively managed funds between 1993 and 2016.\" class=\"wp-image-4831\" width=\"713\" height=\"397\"/><figcaption>Active vs. Passive Domestic Stock Funds; Source: Investment Company Institute</figcaption></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3><strong>So, why has passive investing become all the rage in recent years?</strong></h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Many investors have been burned –not once, but twice– by the Tech Bubble of the 1990s and the Housing Bubble in 2007. Also, they are frustrated with the challenges of managing investments… a task that in this uncertain bull market has frequently seemed counterproductive.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>The most popular index funds are touted as low-cost and broadly diversified, with a portfolio full of blue chip stocks. Moreover, ETFs offer “instant liquidity” with intraday trading compared to mutual funds that only settle at the end of each trading day. To the average investor, passive funds with minimal fees, implied safety, and lots of liquidity may appear to be the Holy Grail. As we’ll see, however, there is more to the story…</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:quote {\"align\":\"center\",\"className\":\"is-style-default\"} -->\n<blockquote class=\"wp-block-quote has-text-align-center is-style-default\"><p>Excitement is Highest as the Roller Coaster Goes Over the Top.</p><cite>– Anonymous</cite></blockquote>\n<!-- /wp:quote -->\n\n<!-- wp:media-text {\"mediaPosition\":\"right\",\"mediaId\":4839,\"mediaType\":\"image\",\"mediaWidth\":43,\"verticalAlignment\":\"center\"} -->\n<div class=\"wp-block-media-text alignwide has-media-on-the-right is-stacked-on-mobile is-vertically-aligned-center\" style=\"grid-template-columns:auto 43%\"><figure class=\"wp-block-media-text__media\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2020/12/Total-Assets-Domestic-Equity-Index-Funds.png\" alt=\"Graph showing the total assets in Domestic Equity Index Funds, 1990\'s to 2016\" class=\"wp-image-4839 size-full\"/></figure><div class=\"wp-block-media-text__content\"><!-- wp:paragraph -->\n<p>Just as the number of ETFs has grown, the past few years have witnessed an explosion in assets tied to passive investing that has extended to both mutual funds and ETFs (as shown in graph at right). A large part of the growth has been in ETFs, which are poised to overtake index mutual funds as the preferred indexing vehicle. Both types of products have doubled in assets just since 2012.</p>\n<!-- /wp:paragraph --></div></div>\n<!-- /wp:media-text -->\n\n<!-- wp:paragraph -->\n<p>It is important to recognize that passive investing is not a fresh new idea; in fact, the concept was introduced by John Bogle (the founder of Vanguard) in the 1970s. This strategy has shifted in and out of favor, becoming more popular as bull markets age and losing its luster only after the damage has been done by the next bear market. Just like riding a roller coaster, the peak in public enthusiasm often comes as the bull market is cresting the top.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading -->\n<h2>A Trip Back in Time…</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>The rise in the popularity of index funds has been seen before.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:quote {\"align\":\"center\"} -->\n<blockquote class=\"wp-block-quote has-text-align-center\"><p>It’s like deja vu all over again.</p><cite>- Yogi Berra</cite></blockquote>\n<!-- /wp:quote -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>The late 1990s: </h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>As the decade of the 1990s became the longest bull market in Wall Street history, the Tech Bubble wasn’t the only phenomenon catching investors’ attention. In 1998-99, headlines were touting the benefit of index investing as inflows reached record levels:</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:columns -->\n<div class=\"wp-block-columns\"><!-- wp:column -->\n<div class=\"wp-block-column\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p><em>Saving for Retirement</em> <strong>Index Fever</strong></p><cite> Fortune, 11/9/98</cite></blockquote>\n<!-- /wp:quote --></div>\n<!-- /wp:column -->\n\n<!-- wp:column -->\n<div class=\"wp-block-column\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p><strong>Who Needs a Money Manager?</strong></p><cite>Business Week 2/22/99</cite></blockquote>\n<!-- /wp:quote --></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:columns {\"verticalAlignment\":\"center\"} -->\n<div class=\"wp-block-columns are-vertically-aligned-center\"><!-- wp:column {\"verticalAlignment\":\"center\",\"width\":\"\"} -->\n<div class=\"wp-block-column is-vertically-aligned-center\"><!-- wp:paragraph -->\n<p>In <strong>March 1999</strong>, InvesTech Research published the issue shown at right, <a href=\"https://ns2020-investech.investech.com/subscriber-library/lemming-principle/\">comparing the emotional influx of index investors to lemmings</a>. However, instead of falling off a cliff, index investors fell into the largest bear market since the 1930s (the S&amp;P 500 Index lost -49.1%).</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>2006-07:</h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p><strong>Fast-forward to 2006-07:</strong> Index investing was even <em>more</em> popular at the peak of the last bull market (also one of the longer bull markets of the past 80 years):</p>\n<!-- /wp:paragraph --></div>\n<!-- /wp:column -->\n\n<!-- wp:column {\"verticalAlignment\":\"center\",\"width\":\"33.33%\"} -->\n<div class=\"wp-block-column is-vertically-aligned-center\" style=\"flex-basis:33.33%\"><!-- wp:image {\"align\":\"center\",\"id\":4840,\"width\":195,\"height\":201,\"sizeSlug\":\"medium\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-medium is-resized\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2020/12/V99I04-216x300.png\" alt=\"InvesTech Research newsletter, &quot;The Lemming Principle,&quot; March 12, 1999\" class=\"wp-image-4840\" width=\"195\" height=\"201\"/><figcaption>InvesTech Research newsletter, \"The Lemming Principle,\" March 12, 1999</figcaption></figure></div>\n<!-- /wp:image --></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:columns -->\n<div class=\"wp-block-columns\"><!-- wp:column {\"width\":\"66.66%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:66.66%\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p><strong>Index Funds: So Hot Right Now</strong></p><cite>The Motley Fool, 12/11/06</cite></blockquote>\n<!-- /wp:quote --></div>\n<!-- /wp:column -->\n\n<!-- wp:column {\"width\":\"33.33%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:33.33%\"></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:columns -->\n<div class=\"wp-block-columns\"><!-- wp:column {\"width\":\"33.33%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:33.33%\"></div>\n<!-- /wp:column -->\n\n<!-- wp:column {\"width\":\"66.66%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:66.66%\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p><strong>Index funds help you avoid risks of stock selection, market timing</strong></p><cite>Boston Globe, 2/27/07</cite></blockquote>\n<!-- /wp:quote --></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:columns -->\n<div class=\"wp-block-columns\"><!-- wp:column {\"width\":\"66.66%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:66.66%\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p><strong>Owning the S&amp;P 500 is cheap, easy and smart</strong></p><cite>USA Today, 7/20/07</cite></blockquote>\n<!-- /wp:quote --></div>\n<!-- /wp:column -->\n\n<!-- wp:column {\"width\":\"33.33%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:33.33%\"></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:block {\"ref\":5343} /-->\n\n<!-- wp:paragraph -->\n<p>In these previous periods, much like today, most investors perceived index funds – particularly the S&amp;P 500 Index funds – to be more diversified, safer investments.  We’ll discuss why index funds may not be all they’re thought to be…</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading -->\n<h2>The Dark Side of Passive Investing – Live by the Index, Die by the Index</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>As noted, history shows that index investing reaches the highest level of popularity in aging bull markets or near market peaks. The reason for this is that any type of “risk management” during a bull market tends to reduce or moderate a fund manager’s return. Consequently, it is not uncommon for a fully invested S&amp;P 500 Index fund to outperform most actively managed mutual funds and money managers when measured <em><strong>solely </strong></em>over the duration of a bull market.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>There are multiple reasons index or passive investing becomes more popular in an aging bull market. First, it is more comfortable. One doesn’t have the burden of making decisions about which stocks to invest in, or when to sell a stock if it rises or falls precipitously. Indexing also tends to remove the regret from bad decisions, because any loss can be attributed entirely to the market. Lastly, investing in an index fund is the cheapest and easiest way to take advantage of the market’s stellar gains which <em><strong>seem </strong></em>likely to continue. Yet before jumping into the indexing mania today, consider these inherent risks in passive investing…</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:list {\"className\":\"is-style-default\"} -->\n<ul class=\"is-style-default\"><li><strong>By definition, index funds also guarantee that you will suffer 100% of the next bear market’s decline.</strong> Regardless of which index you are matching, the index fund is required to stay fully invested regardless of market risk or volatility.</li></ul>\n<!-- /wp:list -->\n\n<!-- wp:list {\"className\":\"is-style-default\"} -->\n<ul class=\"is-style-default\"><li><strong>Assets flowing into the most popular index funds are funneling investments into the largest and most overvalued stocks in the market, driving them higher. </strong>The S&amp;P 500 is a capitalization weighted index, so money invested into these popular index funds is not evenly distributed in all 500 stocks. Rather, the largest companies by market cap receive a disproportionate amount of the investment. As a result, investors must take the good with the bad and favor the largest companies within the basket of 500 stocks, regardless of valuation and financial strength (or lack thereof).</li></ul>\n<!-- /wp:list -->\n\n<!-- wp:list {\"className\":\"is-style-default\"} -->\n<ul class=\"is-style-default\"><li><strong>Market volatility increases when interest narrows to the index heavyweights. </strong>Only 50 stocks account for nearly 50% of S&amp;P 500 capitalization and one-half of an index fund’s portfolio. Additionally, the top 10 largest stocks comprise over 20% of the Index. As a result, downside risk in the next bear market could increase if selling pressure hits the largest stocks at the same time. The increased focus on index investing of late may very well increase both the size of, and speed at which the next bear market decline occurs.</li></ul>\n<!-- /wp:list -->\n\n<!-- wp:image {\"align\":\"right\",\"id\":8324,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"alignright size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/06/iShares-Core-SP-500-ETF.jpg\" alt=\"\" class=\"wp-image-8324\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:list {\"className\":\"is-style-default\"} -->\n<ul class=\"is-style-default\"><li><strong>Intraday liquidity for ETFs can experience dramatic structural challenges in times of market distress. </strong>For example, during the market dislocation on August 24, 2015 the liquidity of most ETFs all but dried up just as the market opened. A confluence of problems –including circuit breakers, an obscure NYSE rule allowing market makers to delay posting prices, and a lack of futures data for large hedgers– all combined to take the bid out of the ETF space. Even large, well-established ETFs like the $116 billion iShares Core S&amp;P 500 ETF (IVV) saw unprecedented declines. As shown on the graph at right, IVV fell -26% on the open, far more than the -5.3% drop of the underlying S&amp;P 500. As a result of this liquidity hiccup, or “flash crash” as it was called at the time, investors with outstanding market orders and stop-loss orders sold their shares in IVV for far less than their worth.</li></ul>\n<!-- /wp:list -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Bottom Line</h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>The broad diversification and implied liquidity offered by index ETFs gives many investors a false sense of security. When passively investing in an index, devoid of risk management, investors are still subject to varying degrees of valuation and liquidity risk, and they bear the full brunt of cyclical market risk.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading -->\n<h2>Risk Management is Vital to any Strategy – <em>Ignore at your own peril!</em></h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Many actively managed mutual funds and money managers take some steps to mitigate portfolio risk – at times to the detriment of bull market performance. Although passive indexing may appear to be easier and is also perceived to reduce risk, it ends up having the opposite effect during major downturns as it guarantees an investor will experience all of the losses in the corresponding market index. Remember, long-term performance is dependent not only on how much you make in the bull markets, but also how much you give back in the bear markets. Investments that are weighted toward the largest, most overvalued stocks and sectors are exactly the opposite of what might be used in a strategy that manages risk.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>Index investing proponents generally downplay stock market cycles, but bear market survivability is a very real issue for many investors, particularly those in or nearing retirement. The decision to hold the course on an investment strategy usually depends on the severity of bear market losses and how long one’s portfolio remains underwater… in other words, how much time it takes to recover those losses.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>To effectively demonstrate this concept, the <strong>Ulcer Index </strong>was developed in 1987 by Peter Martin to measure the depth and duration of drawdowns from earlier highs in one’s portfolio. It provides a graphic illustration of the level of stress and ulcers (hence the name) that can emerge from suffering deep, prolonged losses in one’s retirement savings.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>Shown below are the comparative Ulcer Index graphs of the InvesTech Model Portfolio versus the Vanguard Total Stock Market Index (VTSMX), which is the largest and most popular fund on the market today.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"align\":\"center\",\"id\":8329,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/06/IT-Portfolio-vs-Vanguard-Ulcer-Index.jpg\" alt=\"\" class=\"wp-image-8329\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p>The starts of the last two bear markets are noted in March 2000 and October 2007, as well as their subsequent market bottoms in October 2002 and March 2009. The green dashed lines illustrate the number of months required after the market bottom for one’s portfolio to recover the losses. Above all, the red shaded areas designate how long, and how deep one’s portfolio was underwater. These are the so-called “ulcer” zones when an investor must wait and wonder how long it will be before his portfolio is whole again.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>As you’ll note, InvesTech’s “risk management” strategy dramatically reduced the stress of the last two generational bear markets by limiting the time spent in the “ulcer” zones. While the InvesTech Model Portfolio didn’t outperform the Vanguard Total Stock Market Index Fund in the bull markets, our ability to manage and reduce risk provided a long-term return which more than doubled that of the Vanguard index fund. More importantly, InvesTech subscribers lost significantly less and recovered much more quickly during bear markets, avoiding the urge to panic out of the market at the wrong time.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>It is this combination of achieving safe returns and managing downside risk that matters most in the long-term performance of one’s portfolio… and in the survivability of bear markets.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:uagb/inline-notice {\"block_id\":\"82e70ba7\",\"noticeContent\":\"\\u003cp\\u003ePast performance may not be indicative of future results. Different types of investments involve varying degrees of risk. Therefore, it should not be assumed that future performance of any specific investment or investment strategy (including the investments and/or investment strategies recommended by InvesTech Research) will be profitable, equal any historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  \\u003ca href=\\u0022https://ns2020-investech.investech.com/terms-of-use/\\u0022 target=\\u0022_blank\\u0022 rel=\\u0022noreferrer noopener\\u0022\\u003eRead full Disclosures here\\u003c/a\\u003e\\u003ca href=\\u0022http://Past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk.  Therefore, it should not be assumed that future performance of any specific investment or investment strategy (including the investments and/or investment strategies recommended by InvesTech Research) will be profitable, equal any historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.\\u0022 target=\\u0022_blank\\u0022 rel=\\u0022noreferrer noopener\\u0022\\u003e.\\u003c/a\\u003e\\u003c/p\\u003e\"} -->\n<div class=\"wp-block-uagb-inline-notice uagb-inline_notice__outer-wrap uagb-inline_notice__align-left uagb-block-82e70ba7\"><h4 class=\"uagb-notice-title\">Important Disclosure Information</h4><div class=\"uagb-notice-text\"><p>Past performance may not be indicative of future results. Different types of investments involve varying degrees of risk. Therefore, it should not be assumed that future performance of any specific investment or investment strategy (including the investments and/or investment strategies recommended by InvesTech Research) will be profitable, equal any historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  <a href=\"https://ns2020-investech.investech.com/terms-of-use/\" target=\"_blank\" rel=\"noreferrer noopener\">Read full Disclosures here</a><a href=\"http://Past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk.  Therefore, it should not be assumed that future performance of any specific investment or investment strategy (including the investments and/or investment strategies recommended by InvesTech Research) will be profitable, equal any historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.\" target=\"_blank\" rel=\"noreferrer noopener\">.</a></p></div></div>\n<!-- /wp:uagb/inline-notice -->\n\n<!-- wp:spacer {\"height\":33} -->\n<div style=\"height:33px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:spacer {\"height\":33} -->\n<div style=\"height:33px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:separator -->\n<hr class=\"wp-block-separator\"/>\n<!-- /wp:separator -->\n\n<!-- wp:spacer {\"height\":33} -->\n<div style=\"height:33px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:heading {\"level\":4} -->\n<h4>Excerpt from <em>InvesTech Research</em> - June 16, 2017</h4>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>This report is also available to <a href=\"https://ns2020-investech.investech.com/wp-content/uploads/2020/08/IndexingFever.pdf\" target=\"_blank\" rel=\"noreferrer noopener\">read in PDF format. </a></p>\n<!-- /wp:paragraph -->','Passive Investing: Inevitable Black Eye','Tempted by high-flying ETFs in this aging bull market? Just remember… Excitement is highest as the roller coaster goes over the top! In today’s technologically advanced world, featuring self-driving cars, pilotless airplanes, and smart homes, a “hands-off” trend is also gaining popularity among the investing public.','inherit','closed','closed','','2468-revision-v1','','','2021-06-17 22:45:59','2021-06-17 22:45:59','',2468,'https://ns2020-investech.investech.com/?p=8607',0,'revision','',0);
INSERT INTO `wp_posts` VALUES (8608,3,'2021-06-17 22:46:27','2021-06-17 22:46:27','<!-- wp:media-text {\"mediaPosition\":\"right\",\"mediaId\":8270,\"mediaLink\":\"https://ns2020-investech.investech.com/rollercoaster-qac9q3pwhwg-unsplash/\",\"mediaType\":\"image\",\"mediaWidth\":38} -->\n<div class=\"wp-block-media-text alignwide has-media-on-the-right is-stacked-on-mobile\" style=\"grid-template-columns:auto 38%\"><figure class=\"wp-block-media-text__media\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/06/rollercoaster-qac9Q3pWHWg-unsplash-1024x768.jpg\" alt=\"\" class=\"wp-image-8270 size-full\"/></figure><div class=\"wp-block-media-text__content\"><!-- wp:heading -->\n<h2>Tempted by high-flying ETFs in this aging bull market? </h2>\n<!-- /wp:heading -->\n\n<!-- wp:heading -->\n<h2>Just remember… Excitement is highest as the roller coaster goes over the top!</h2>\n<!-- /wp:heading --></div></div>\n<!-- /wp:media-text -->\n\n<!-- wp:paragraph -->\n<p>In today’s technologically advanced world, featuring self-driving cars, pilotless airplanes, and smart homes, a “hands-off” trend is also gaining popularity among the investing public. As indicated by the headlines below, passive index investing has become all the rage, and Exchange Traded Funds (ETFs) are the tool of choice:</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:columns -->\n<div class=\"wp-block-columns\"><!-- wp:column {\"width\":\"66.66%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:66.66%\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p><strong>ETFs could see $1 trillion in inflows over the coming year</strong></p><cite>MarketWatch, 1/31/17</cite></blockquote>\n<!-- /wp:quote --></div>\n<!-- /wp:column -->\n\n<!-- wp:column {\"width\":\"33.33%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:33.33%\"></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:columns -->\n<div class=\"wp-block-columns\"><!-- wp:column {\"width\":\"33.33%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:33.33%\"></div>\n<!-- /wp:column -->\n\n<!-- wp:column {\"width\":\"66.66%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:66.66%\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p><strong>Small investors’ move to ‘passive’ stock funds becomes a stampede</strong> </p><cite>LA Times, 4/9/17</cite></blockquote>\n<!-- /wp:quote --></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:columns -->\n<div class=\"wp-block-columns\"><!-- wp:column {\"width\":\"66.66%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:66.66%\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p><strong>Global ETF assets reach $4tn</strong> </p><p><em>The global exchange traded fund industry smashed past $4tn in assets last month…</em> </p><cite>Financial Times, 5/10/17</cite></blockquote>\n<!-- /wp:quote --></div>\n<!-- /wp:column -->\n\n<!-- wp:column {\"width\":\"33.33%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:33.33%\"></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:columns {\"verticalAlignment\":\"center\"} -->\n<div class=\"wp-block-columns are-vertically-aligned-center\"><!-- wp:column {\"verticalAlignment\":\"center\",\"width\":\"33.33%\"} -->\n<div class=\"wp-block-column is-vertically-aligned-center\" style=\"flex-basis:33.33%\"><!-- wp:paragraph {\"placeholder\":\"Content…\"} -->\n<p>And our personal favorite...</p>\n<!-- /wp:paragraph --></div>\n<!-- /wp:column -->\n\n<!-- wp:column {\"verticalAlignment\":\"center\",\"width\":\"66.66%\"} -->\n<div class=\"wp-block-column is-vertically-aligned-center\" style=\"flex-basis:66.66%\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p><strong>Wheee! A Quadruple-Leveraged S&amp;P 500 ETF is Here</strong></p><cite>Barron\'s, 5/3/17</cite></blockquote>\n<!-- /wp:quote --></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:columns -->\n<div class=\"wp-block-columns\"><!-- wp:column -->\n<div class=\"wp-block-column\"><!-- wp:heading {\"level\":3} -->\n<h3>Exchange Traded Fund (ETF)</h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>The first Exchange Traded Fund (ETF) was launched in 1993, and although they were slow to start, ETFs have proliferated over the last decade, both in number (see graph at right) and the variety of index funds available. There’s now an ETF for nearly every strategy, no matter how esoteric, and that has helped fuel the passive investing craze.</p>\n<!-- /wp:paragraph --></div>\n<!-- /wp:column -->\n\n<!-- wp:column -->\n<div class=\"wp-block-column\"><!-- wp:image {\"align\":\"center\",\"id\":4829,\"sizeSlug\":\"full\"} -->\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-full\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2020/12/number-of-etfs.png\" alt=\"Graph showing the number of ETFs (registered in the U.S.), Source: Investment Company Institute\" class=\"wp-image-4829\"/><figcaption>Number of ETFs (registered in the U.S.), Source: Investment Company Institute</figcaption></figure></div>\n<!-- /wp:image --></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:paragraph -->\n<p>Over the past 24 years, one can see the shift in interest from actively managed mutual funds toward passive investing. As shown in the graph below, net cash flows into actively managed funds were still four times larger than passive funds from 1993 through 2000. From 2001 through 2008, a change becomes evident as net cash flows for active funds turned negative while passive funds continued to grow. The disparity between the active and passive net cash flows during the current bull market (2009-2016) is remarkable, and it shows why there’s been a parabolic increase in the number of ETFs!</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"align\":\"center\",\"id\":4831,\"width\":713,\"height\":397} -->\n<div class=\"wp-block-image\"><figure class=\"aligncenter is-resized\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2020/12/Active-vs-Passive-Stock-Funds-Inflows.png\" alt=\"Graph showing net cash flows into actively managed funds between 1993 and 2016.\" class=\"wp-image-4831\" width=\"713\" height=\"397\"/><figcaption>Active vs. Passive Domestic Stock Funds; Source: Investment Company Institute</figcaption></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3><strong>So, why has passive investing become all the rage in recent years?</strong></h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Many investors have been burned –not once, but twice– by the Tech Bubble of the 1990s and the Housing Bubble in 2007. Also, they are frustrated with the challenges of managing investments… a task that in this uncertain bull market has frequently seemed counterproductive.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>The most popular index funds are touted as low-cost and broadly diversified, with a portfolio full of blue chip stocks. Moreover, ETFs offer “instant liquidity” with intraday trading compared to mutual funds that only settle at the end of each trading day. To the average investor, passive funds with minimal fees, implied safety, and lots of liquidity may appear to be the Holy Grail. As we’ll see, however, there is more to the story…</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:quote {\"align\":\"center\",\"className\":\"is-style-default\"} -->\n<blockquote class=\"wp-block-quote has-text-align-center is-style-default\"><p>Excitement is Highest as the Roller Coaster Goes Over the Top.</p><cite>– Anonymous</cite></blockquote>\n<!-- /wp:quote -->\n\n<!-- wp:media-text {\"mediaPosition\":\"right\",\"mediaId\":4839,\"mediaType\":\"image\",\"mediaWidth\":43,\"verticalAlignment\":\"center\"} -->\n<div class=\"wp-block-media-text alignwide has-media-on-the-right is-stacked-on-mobile is-vertically-aligned-center\" style=\"grid-template-columns:auto 43%\"><figure class=\"wp-block-media-text__media\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2020/12/Total-Assets-Domestic-Equity-Index-Funds.png\" alt=\"Graph showing the total assets in Domestic Equity Index Funds, 1990\'s to 2016\" class=\"wp-image-4839 size-full\"/></figure><div class=\"wp-block-media-text__content\"><!-- wp:paragraph -->\n<p>Just as the number of ETFs has grown, the past few years have witnessed an explosion in assets tied to passive investing that has extended to both mutual funds and ETFs (as shown in graph at right). A large part of the growth has been in ETFs, which are poised to overtake index mutual funds as the preferred indexing vehicle. Both types of products have doubled in assets just since 2012.</p>\n<!-- /wp:paragraph --></div></div>\n<!-- /wp:media-text -->\n\n<!-- wp:paragraph -->\n<p>It is important to recognize that passive investing is not a fresh new idea; in fact, the concept was introduced by John Bogle (the founder of Vanguard) in the 1970s. This strategy has shifted in and out of favor, becoming more popular as bull markets age and losing its luster only after the damage has been done by the next bear market. Just like riding a roller coaster, the peak in public enthusiasm often comes as the bull market is cresting the top.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading -->\n<h2>A Trip Back in Time…</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>The rise in the popularity of index funds has been seen before.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:quote {\"align\":\"center\"} -->\n<blockquote class=\"wp-block-quote has-text-align-center\"><p>It’s like deja vu all over again.</p><cite>- Yogi Berra</cite></blockquote>\n<!-- /wp:quote -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>The late 1990s: </h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>As the decade of the 1990s became the longest bull market in Wall Street history, the Tech Bubble wasn’t the only phenomenon catching investors’ attention. In 1998-99, headlines were touting the benefit of index investing as inflows reached record levels:</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:columns -->\n<div class=\"wp-block-columns\"><!-- wp:column -->\n<div class=\"wp-block-column\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p><em>Saving for Retirement</em> <strong>Index Fever</strong></p><cite> Fortune, 11/9/98</cite></blockquote>\n<!-- /wp:quote --></div>\n<!-- /wp:column -->\n\n<!-- wp:column -->\n<div class=\"wp-block-column\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p><strong>Who Needs a Money Manager?</strong></p><cite>Business Week 2/22/99</cite></blockquote>\n<!-- /wp:quote --></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:columns {\"verticalAlignment\":\"center\"} -->\n<div class=\"wp-block-columns are-vertically-aligned-center\"><!-- wp:column {\"verticalAlignment\":\"center\",\"width\":\"\"} -->\n<div class=\"wp-block-column is-vertically-aligned-center\"><!-- wp:paragraph -->\n<p>In March 1999, InvesTech Research published the issue shown at right, <a href=\"https://ns2020-investech.investech.com/subscriber-library/lemming-principle/\">comparing the emotional influx of index investors to lemmings</a>. However, instead of falling off a cliff, index investors fell into the largest bear market since the 1930s (the S&amp;P 500 Index lost -49.1%).</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>2006-07:</h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p><strong>Fast-forward to 2006-07:</strong> Index investing was even <em>more</em> popular at the peak of the last bull market (also one of the longer bull markets of the past 80 years):</p>\n<!-- /wp:paragraph --></div>\n<!-- /wp:column -->\n\n<!-- wp:column {\"verticalAlignment\":\"center\",\"width\":\"33.33%\"} -->\n<div class=\"wp-block-column is-vertically-aligned-center\" style=\"flex-basis:33.33%\"><!-- wp:image {\"align\":\"center\",\"id\":4840,\"width\":195,\"height\":201,\"sizeSlug\":\"medium\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-medium is-resized\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2020/12/V99I04-216x300.png\" alt=\"InvesTech Research newsletter, &quot;The Lemming Principle,&quot; March 12, 1999\" class=\"wp-image-4840\" width=\"195\" height=\"201\"/><figcaption>InvesTech Research newsletter, \"The Lemming Principle,\" March 12, 1999</figcaption></figure></div>\n<!-- /wp:image --></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:columns -->\n<div class=\"wp-block-columns\"><!-- wp:column {\"width\":\"66.66%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:66.66%\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p><strong>Index Funds: So Hot Right Now</strong></p><cite>The Motley Fool, 12/11/06</cite></blockquote>\n<!-- /wp:quote --></div>\n<!-- /wp:column -->\n\n<!-- wp:column {\"width\":\"33.33%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:33.33%\"></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:columns -->\n<div class=\"wp-block-columns\"><!-- wp:column {\"width\":\"33.33%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:33.33%\"></div>\n<!-- /wp:column -->\n\n<!-- wp:column {\"width\":\"66.66%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:66.66%\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p><strong>Index funds help you avoid risks of stock selection, market timing</strong></p><cite>Boston Globe, 2/27/07</cite></blockquote>\n<!-- /wp:quote --></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:columns -->\n<div class=\"wp-block-columns\"><!-- wp:column {\"width\":\"66.66%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:66.66%\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p><strong>Owning the S&amp;P 500 is cheap, easy and smart</strong></p><cite>USA Today, 7/20/07</cite></blockquote>\n<!-- /wp:quote --></div>\n<!-- /wp:column -->\n\n<!-- wp:column {\"width\":\"33.33%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:33.33%\"></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:block {\"ref\":5343} /-->\n\n<!-- wp:paragraph -->\n<p>In these previous periods, much like today, most investors perceived index funds – particularly the S&amp;P 500 Index funds – to be more diversified, safer investments.  We’ll discuss why index funds may not be all they’re thought to be…</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading -->\n<h2>The Dark Side of Passive Investing – Live by the Index, Die by the Index</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>As noted, history shows that index investing reaches the highest level of popularity in aging bull markets or near market peaks. The reason for this is that any type of “risk management” during a bull market tends to reduce or moderate a fund manager’s return. Consequently, it is not uncommon for a fully invested S&amp;P 500 Index fund to outperform most actively managed mutual funds and money managers when measured <em><strong>solely </strong></em>over the duration of a bull market.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>There are multiple reasons index or passive investing becomes more popular in an aging bull market. First, it is more comfortable. One doesn’t have the burden of making decisions about which stocks to invest in, or when to sell a stock if it rises or falls precipitously. Indexing also tends to remove the regret from bad decisions, because any loss can be attributed entirely to the market. Lastly, investing in an index fund is the cheapest and easiest way to take advantage of the market’s stellar gains which <em><strong>seem </strong></em>likely to continue. Yet before jumping into the indexing mania today, consider these inherent risks in passive investing…</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:list {\"className\":\"is-style-default\"} -->\n<ul class=\"is-style-default\"><li><strong>By definition, index funds also guarantee that you will suffer 100% of the next bear market’s decline.</strong> Regardless of which index you are matching, the index fund is required to stay fully invested regardless of market risk or volatility.</li></ul>\n<!-- /wp:list -->\n\n<!-- wp:list {\"className\":\"is-style-default\"} -->\n<ul class=\"is-style-default\"><li><strong>Assets flowing into the most popular index funds are funneling investments into the largest and most overvalued stocks in the market, driving them higher. </strong>The S&amp;P 500 is a capitalization weighted index, so money invested into these popular index funds is not evenly distributed in all 500 stocks. Rather, the largest companies by market cap receive a disproportionate amount of the investment. As a result, investors must take the good with the bad and favor the largest companies within the basket of 500 stocks, regardless of valuation and financial strength (or lack thereof).</li></ul>\n<!-- /wp:list -->\n\n<!-- wp:list {\"className\":\"is-style-default\"} -->\n<ul class=\"is-style-default\"><li><strong>Market volatility increases when interest narrows to the index heavyweights. </strong>Only 50 stocks account for nearly 50% of S&amp;P 500 capitalization and one-half of an index fund’s portfolio. Additionally, the top 10 largest stocks comprise over 20% of the Index. As a result, downside risk in the next bear market could increase if selling pressure hits the largest stocks at the same time. The increased focus on index investing of late may very well increase both the size of, and speed at which the next bear market decline occurs.</li></ul>\n<!-- /wp:list -->\n\n<!-- wp:image {\"align\":\"right\",\"id\":8324,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"alignright size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/06/iShares-Core-SP-500-ETF.jpg\" alt=\"\" class=\"wp-image-8324\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:list {\"className\":\"is-style-default\"} -->\n<ul class=\"is-style-default\"><li><strong>Intraday liquidity for ETFs can experience dramatic structural challenges in times of market distress. </strong>For example, during the market dislocation on August 24, 2015 the liquidity of most ETFs all but dried up just as the market opened. A confluence of problems –including circuit breakers, an obscure NYSE rule allowing market makers to delay posting prices, and a lack of futures data for large hedgers– all combined to take the bid out of the ETF space. Even large, well-established ETFs like the $116 billion iShares Core S&amp;P 500 ETF (IVV) saw unprecedented declines. As shown on the graph at right, IVV fell -26% on the open, far more than the -5.3% drop of the underlying S&amp;P 500. As a result of this liquidity hiccup, or “flash crash” as it was called at the time, investors with outstanding market orders and stop-loss orders sold their shares in IVV for far less than their worth.</li></ul>\n<!-- /wp:list -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Bottom Line</h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>The broad diversification and implied liquidity offered by index ETFs gives many investors a false sense of security. When passively investing in an index, devoid of risk management, investors are still subject to varying degrees of valuation and liquidity risk, and they bear the full brunt of cyclical market risk.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading -->\n<h2>Risk Management is Vital to any Strategy – <em>Ignore at your own peril!</em></h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Many actively managed mutual funds and money managers take some steps to mitigate portfolio risk – at times to the detriment of bull market performance. Although passive indexing may appear to be easier and is also perceived to reduce risk, it ends up having the opposite effect during major downturns as it guarantees an investor will experience all of the losses in the corresponding market index. Remember, long-term performance is dependent not only on how much you make in the bull markets, but also how much you give back in the bear markets. Investments that are weighted toward the largest, most overvalued stocks and sectors are exactly the opposite of what might be used in a strategy that manages risk.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>Index investing proponents generally downplay stock market cycles, but bear market survivability is a very real issue for many investors, particularly those in or nearing retirement. The decision to hold the course on an investment strategy usually depends on the severity of bear market losses and how long one’s portfolio remains underwater… in other words, how much time it takes to recover those losses.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>To effectively demonstrate this concept, the <strong>Ulcer Index </strong>was developed in 1987 by Peter Martin to measure the depth and duration of drawdowns from earlier highs in one’s portfolio. It provides a graphic illustration of the level of stress and ulcers (hence the name) that can emerge from suffering deep, prolonged losses in one’s retirement savings.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>Shown below are the comparative Ulcer Index graphs of the InvesTech Model Portfolio versus the Vanguard Total Stock Market Index (VTSMX), which is the largest and most popular fund on the market today.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"align\":\"center\",\"id\":8329,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/06/IT-Portfolio-vs-Vanguard-Ulcer-Index.jpg\" alt=\"\" class=\"wp-image-8329\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p>The starts of the last two bear markets are noted in March 2000 and October 2007, as well as their subsequent market bottoms in October 2002 and March 2009. The green dashed lines illustrate the number of months required after the market bottom for one’s portfolio to recover the losses. Above all, the red shaded areas designate how long, and how deep one’s portfolio was underwater. These are the so-called “ulcer” zones when an investor must wait and wonder how long it will be before his portfolio is whole again.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>As you’ll note, InvesTech’s “risk management” strategy dramatically reduced the stress of the last two generational bear markets by limiting the time spent in the “ulcer” zones. While the InvesTech Model Portfolio didn’t outperform the Vanguard Total Stock Market Index Fund in the bull markets, our ability to manage and reduce risk provided a long-term return which more than doubled that of the Vanguard index fund. More importantly, InvesTech subscribers lost significantly less and recovered much more quickly during bear markets, avoiding the urge to panic out of the market at the wrong time.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>It is this combination of achieving safe returns and managing downside risk that matters most in the long-term performance of one’s portfolio… and in the survivability of bear markets.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:uagb/inline-notice {\"block_id\":\"82e70ba7\",\"noticeContent\":\"\\u003cp\\u003ePast performance may not be indicative of future results. Different types of investments involve varying degrees of risk. Therefore, it should not be assumed that future performance of any specific investment or investment strategy (including the investments and/or investment strategies recommended by InvesTech Research) will be profitable, equal any historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  \\u003ca href=\\u0022https://ns2020-investech.investech.com/terms-of-use/\\u0022 target=\\u0022_blank\\u0022 rel=\\u0022noreferrer noopener\\u0022\\u003eRead full Disclosures here\\u003c/a\\u003e\\u003ca href=\\u0022http://Past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk.  Therefore, it should not be assumed that future performance of any specific investment or investment strategy (including the investments and/or investment strategies recommended by InvesTech Research) will be profitable, equal any historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.\\u0022 target=\\u0022_blank\\u0022 rel=\\u0022noreferrer noopener\\u0022\\u003e.\\u003c/a\\u003e\\u003c/p\\u003e\"} -->\n<div class=\"wp-block-uagb-inline-notice uagb-inline_notice__outer-wrap uagb-inline_notice__align-left uagb-block-82e70ba7\"><h4 class=\"uagb-notice-title\">Important Disclosure Information</h4><div class=\"uagb-notice-text\"><p>Past performance may not be indicative of future results. Different types of investments involve varying degrees of risk. Therefore, it should not be assumed that future performance of any specific investment or investment strategy (including the investments and/or investment strategies recommended by InvesTech Research) will be profitable, equal any historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  <a href=\"https://ns2020-investech.investech.com/terms-of-use/\" target=\"_blank\" rel=\"noreferrer noopener\">Read full Disclosures here</a><a href=\"http://Past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk.  Therefore, it should not be assumed that future performance of any specific investment or investment strategy (including the investments and/or investment strategies recommended by InvesTech Research) will be profitable, equal any historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.\" target=\"_blank\" rel=\"noreferrer noopener\">.</a></p></div></div>\n<!-- /wp:uagb/inline-notice -->\n\n<!-- wp:spacer {\"height\":33} -->\n<div style=\"height:33px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:spacer {\"height\":33} -->\n<div style=\"height:33px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:separator -->\n<hr class=\"wp-block-separator\"/>\n<!-- /wp:separator -->\n\n<!-- wp:spacer {\"height\":33} -->\n<div style=\"height:33px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:heading {\"level\":4} -->\n<h4>Excerpt from <em>InvesTech Research</em> - June 16, 2017</h4>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>This report is also available to <a href=\"https://ns2020-investech.investech.com/wp-content/uploads/2020/08/IndexingFever.pdf\" target=\"_blank\" rel=\"noreferrer noopener\">read in PDF format. </a></p>\n<!-- /wp:paragraph -->','Passive Investing: Inevitable Black Eye','Tempted by high-flying ETFs in this aging bull market? Just remember… Excitement is highest as the roller coaster goes over the top! In today’s technologically advanced world, featuring self-driving cars, pilotless airplanes, and smart homes, a “hands-off” trend is also gaining popularity among the investing public.','inherit','closed','closed','','2468-revision-v1','','','2021-06-17 22:46:27','2021-06-17 22:46:27','',2468,'https://ns2020-investech.investech.com/?p=8608',0,'revision','',0);
INSERT INTO `wp_posts` VALUES (8609,3,'2021-06-17 22:46:56','2021-06-17 22:46:56','<!-- wp:media-text {\"mediaPosition\":\"right\",\"mediaId\":8270,\"mediaLink\":\"https://ns2020-investech.investech.com/rollercoaster-qac9q3pwhwg-unsplash/\",\"mediaType\":\"image\",\"mediaWidth\":38} -->\n<div class=\"wp-block-media-text alignwide has-media-on-the-right is-stacked-on-mobile\" style=\"grid-template-columns:auto 38%\"><figure class=\"wp-block-media-text__media\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/06/rollercoaster-qac9Q3pWHWg-unsplash-1024x768.jpg\" alt=\"\" class=\"wp-image-8270 size-full\"/></figure><div class=\"wp-block-media-text__content\"><!-- wp:heading -->\n<h2>Tempted by high-flying ETFs in this aging bull market? </h2>\n<!-- /wp:heading -->\n\n<!-- wp:heading -->\n<h2>Just remember… Excitement is highest as the roller coaster goes over the top!</h2>\n<!-- /wp:heading --></div></div>\n<!-- /wp:media-text -->\n\n<!-- wp:paragraph -->\n<p>In today’s technologically advanced world, featuring self-driving cars, pilotless airplanes, and smart homes, a “hands-off” trend is also gaining popularity among the investing public. As indicated by the headlines below, passive index investing has become all the rage, and Exchange Traded Funds (ETFs) are the tool of choice:</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:columns -->\n<div class=\"wp-block-columns\"><!-- wp:column {\"width\":\"66.66%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:66.66%\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p><strong>ETFs could see $1 trillion in inflows over the coming year</strong></p><cite>MarketWatch, 1/31/17</cite></blockquote>\n<!-- /wp:quote --></div>\n<!-- /wp:column -->\n\n<!-- wp:column {\"width\":\"33.33%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:33.33%\"></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:columns -->\n<div class=\"wp-block-columns\"><!-- wp:column {\"width\":\"33.33%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:33.33%\"></div>\n<!-- /wp:column -->\n\n<!-- wp:column {\"width\":\"66.66%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:66.66%\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p><strong>Small investors’ move to ‘passive’ stock funds becomes a stampede</strong> </p><cite>LA Times, 4/9/17</cite></blockquote>\n<!-- /wp:quote --></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:columns -->\n<div class=\"wp-block-columns\"><!-- wp:column {\"width\":\"66.66%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:66.66%\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p><strong>Global ETF assets reach $4tn</strong> </p><p><em>The global exchange traded fund industry smashed past $4tn in assets last month…</em> </p><cite>Financial Times, 5/10/17</cite></blockquote>\n<!-- /wp:quote --></div>\n<!-- /wp:column -->\n\n<!-- wp:column {\"width\":\"33.33%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:33.33%\"></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:columns {\"verticalAlignment\":\"center\"} -->\n<div class=\"wp-block-columns are-vertically-aligned-center\"><!-- wp:column {\"verticalAlignment\":\"center\",\"width\":\"33.33%\"} -->\n<div class=\"wp-block-column is-vertically-aligned-center\" style=\"flex-basis:33.33%\"><!-- wp:paragraph {\"placeholder\":\"Content…\"} -->\n<p>And our personal favorite...</p>\n<!-- /wp:paragraph --></div>\n<!-- /wp:column -->\n\n<!-- wp:column {\"verticalAlignment\":\"center\",\"width\":\"66.66%\"} -->\n<div class=\"wp-block-column is-vertically-aligned-center\" style=\"flex-basis:66.66%\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p><strong>Wheee! A Quadruple-Leveraged S&amp;P 500 ETF is Here</strong></p><cite>Barron\'s, 5/3/17</cite></blockquote>\n<!-- /wp:quote --></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:columns -->\n<div class=\"wp-block-columns\"><!-- wp:column -->\n<div class=\"wp-block-column\"><!-- wp:heading {\"level\":3} -->\n<h3>Exchange Traded Fund (ETF)</h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>The first Exchange Traded Fund (ETF) was launched in 1993, and although they were slow to start, ETFs have proliferated over the last decade, both in number (see graph at right) and the variety of index funds available. There’s now an ETF for nearly every strategy, no matter how esoteric, and that has helped fuel the passive investing craze.</p>\n<!-- /wp:paragraph --></div>\n<!-- /wp:column -->\n\n<!-- wp:column -->\n<div class=\"wp-block-column\"><!-- wp:image {\"align\":\"center\",\"id\":4829,\"sizeSlug\":\"full\"} -->\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-full\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2020/12/number-of-etfs.png\" alt=\"Graph showing the number of ETFs (registered in the U.S.), Source: Investment Company Institute\" class=\"wp-image-4829\"/><figcaption>Number of ETFs (registered in the U.S.), Source: Investment Company Institute</figcaption></figure></div>\n<!-- /wp:image --></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:paragraph -->\n<p>Over the past 24 years, one can see the shift in interest from actively managed mutual funds toward passive investing. As shown in the graph below, net cash flows into actively managed funds were still four times larger than passive funds from 1993 through 2000. From 2001 through 2008, a change becomes evident as net cash flows for active funds turned negative while passive funds continued to grow. The disparity between the active and passive net cash flows during the current bull market (2009-2016) is remarkable, and it shows why there’s been a parabolic increase in the number of ETFs!</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"align\":\"center\",\"id\":4831,\"width\":713,\"height\":397} -->\n<div class=\"wp-block-image\"><figure class=\"aligncenter is-resized\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2020/12/Active-vs-Passive-Stock-Funds-Inflows.png\" alt=\"Graph showing net cash flows into actively managed funds between 1993 and 2016.\" class=\"wp-image-4831\" width=\"713\" height=\"397\"/><figcaption>Active vs. Passive Domestic Stock Funds; Source: Investment Company Institute</figcaption></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3><strong>So, why has passive investing become all the rage in recent years?</strong></h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Many investors have been burned –not once, but twice– by the Tech Bubble of the 1990s and the Housing Bubble in 2007. Also, they are frustrated with the challenges of managing investments… a task that in this uncertain bull market has frequently seemed counterproductive.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>The most popular index funds are touted as low-cost and broadly diversified, with a portfolio full of blue chip stocks. Moreover, ETFs offer “instant liquidity” with intraday trading compared to mutual funds that only settle at the end of each trading day. To the average investor, passive funds with minimal fees, implied safety, and lots of liquidity may appear to be the Holy Grail. As we’ll see, however, there is more to the story…</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:quote {\"align\":\"center\",\"className\":\"is-style-default\"} -->\n<blockquote class=\"wp-block-quote has-text-align-center is-style-default\"><p>Excitement is Highest as the Roller Coaster Goes Over the Top.</p><cite>– Anonymous</cite></blockquote>\n<!-- /wp:quote -->\n\n<!-- wp:media-text {\"mediaPosition\":\"right\",\"mediaId\":4839,\"mediaType\":\"image\",\"mediaWidth\":43,\"verticalAlignment\":\"center\"} -->\n<div class=\"wp-block-media-text alignwide has-media-on-the-right is-stacked-on-mobile is-vertically-aligned-center\" style=\"grid-template-columns:auto 43%\"><figure class=\"wp-block-media-text__media\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2020/12/Total-Assets-Domestic-Equity-Index-Funds.png\" alt=\"Graph showing the total assets in Domestic Equity Index Funds, 1990\'s to 2016\" class=\"wp-image-4839 size-full\"/></figure><div class=\"wp-block-media-text__content\"><!-- wp:paragraph -->\n<p>Just as the number of ETFs has grown, the past few years have witnessed an explosion in assets tied to passive investing that has extended to both mutual funds and ETFs (as shown in graph at right). A large part of the growth has been in ETFs, which are poised to overtake index mutual funds as the preferred indexing vehicle. Both types of products have doubled in assets just since 2012.</p>\n<!-- /wp:paragraph --></div></div>\n<!-- /wp:media-text -->\n\n<!-- wp:paragraph -->\n<p>It is important to recognize that passive investing is not a fresh new idea; in fact, the concept was introduced by John Bogle (the founder of Vanguard) in the 1970s. This strategy has shifted in and out of favor, becoming more popular as bull markets age and losing its luster only after the damage has been done by the next bear market. Just like riding a roller coaster, the peak in public enthusiasm often comes as the bull market is cresting the top.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading -->\n<h2>A Trip Back in Time…</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>The rise in the popularity of index funds has been seen before.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:quote {\"align\":\"center\"} -->\n<blockquote class=\"wp-block-quote has-text-align-center\"><p>It’s like deja vu all over again.</p><cite>- Yogi Berra</cite></blockquote>\n<!-- /wp:quote -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>The late 1990s: </h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>As the decade of the 1990s became the longest bull market in Wall Street history, the Tech Bubble wasn’t the only phenomenon catching investors’ attention. In 1998-99, headlines were touting the benefit of index investing as inflows reached record levels:</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:columns -->\n<div class=\"wp-block-columns\"><!-- wp:column -->\n<div class=\"wp-block-column\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p><em>Saving for Retirement</em> <strong>Index Fever</strong></p><cite> Fortune, 11/9/98</cite></blockquote>\n<!-- /wp:quote --></div>\n<!-- /wp:column -->\n\n<!-- wp:column -->\n<div class=\"wp-block-column\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p><strong>Who Needs a Money Manager?</strong></p><cite>Business Week 2/22/99</cite></blockquote>\n<!-- /wp:quote --></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:columns {\"verticalAlignment\":\"center\"} -->\n<div class=\"wp-block-columns are-vertically-aligned-center\"><!-- wp:column {\"verticalAlignment\":\"center\",\"width\":\"\"} -->\n<div class=\"wp-block-column is-vertically-aligned-center\"><!-- wp:paragraph -->\n<p>In March 1999, InvesTech Research published the issue shown at right, <a href=\"https://ns2020-investech.investech.com/subscriber-library/lemming-principle/\">comparing the emotional influx of index investors to lemmings</a>. However, instead of falling off a cliff, index investors fell into the largest bear market since the 1930s (the S&amp;P 500 Index lost -49.1%).</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>2006-07:</h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p><strong>Fast-forward to 2006-07:</strong> Index investing was even <em>more</em> popular at the peak of the last bull market (also one of the longer bull markets of the past 80 years):</p>\n<!-- /wp:paragraph --></div>\n<!-- /wp:column -->\n\n<!-- wp:column {\"verticalAlignment\":\"center\",\"width\":\"33.33%\"} -->\n<div class=\"wp-block-column is-vertically-aligned-center\" style=\"flex-basis:33.33%\"><!-- wp:image {\"align\":\"center\",\"id\":4840,\"width\":195,\"height\":201,\"sizeSlug\":\"medium\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-medium is-resized\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2020/12/V99I04-216x300.png\" alt=\"InvesTech Research newsletter, &quot;The Lemming Principle,&quot; March 12, 1999\" class=\"wp-image-4840\" width=\"195\" height=\"201\"/><figcaption>InvesTech Research newsletter, \"The Lemming Principle,\" March 12, 1999</figcaption></figure></div>\n<!-- /wp:image --></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:columns -->\n<div class=\"wp-block-columns\"><!-- wp:column {\"width\":\"66.66%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:66.66%\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p><strong>Index Funds: So Hot Right Now</strong></p><cite>The Motley Fool, 12/11/06</cite></blockquote>\n<!-- /wp:quote --></div>\n<!-- /wp:column -->\n\n<!-- wp:column {\"width\":\"33.33%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:33.33%\"></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:columns -->\n<div class=\"wp-block-columns\"><!-- wp:column {\"width\":\"33.33%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:33.33%\"></div>\n<!-- /wp:column -->\n\n<!-- wp:column {\"width\":\"66.66%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:66.66%\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p><strong>Index funds help you avoid risks of stock selection, market timing</strong></p><cite>Boston Globe, 2/27/07</cite></blockquote>\n<!-- /wp:quote --></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:columns -->\n<div class=\"wp-block-columns\"><!-- wp:column {\"width\":\"66.66%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:66.66%\"><!-- wp:quote {\"className\":\"is-style-headline-highlight\"} -->\n<blockquote class=\"wp-block-quote is-style-headline-highlight\"><p><strong>Owning the S&amp;P 500 is cheap, easy and smart</strong></p><cite>USA Today, 7/20/07</cite></blockquote>\n<!-- /wp:quote --></div>\n<!-- /wp:column -->\n\n<!-- wp:column {\"width\":\"33.33%\"} -->\n<div class=\"wp-block-column\" style=\"flex-basis:33.33%\"></div>\n<!-- /wp:column --></div>\n<!-- /wp:columns -->\n\n<!-- wp:block {\"ref\":5343} /-->\n\n<!-- wp:paragraph -->\n<p>In these previous periods, much like today, most investors perceived index funds – particularly the S&amp;P 500 Index funds – to be more diversified, safer investments.  We’ll discuss why index funds may not be all they’re thought to be…</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading -->\n<h2>The Dark Side of Passive Investing – Live by the Index, Die by the Index</h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>As noted, history shows that index investing reaches the highest level of popularity in aging bull markets or near market peaks. The reason for this is that any type of “risk management” during a bull market tends to reduce or moderate a fund manager’s return. Consequently, it is not uncommon for a fully invested S&amp;P 500 Index fund to outperform most actively managed mutual funds and money managers when measured <em><strong>solely </strong></em>over the duration of a bull market.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>There are multiple reasons index or passive investing becomes more popular in an aging bull market. First, it is more comfortable. One doesn’t have the burden of making decisions about which stocks to invest in, or when to sell a stock if it rises or falls precipitously. Indexing also tends to remove the regret from bad decisions, because any loss can be attributed entirely to the market. Lastly, investing in an index fund is the cheapest and easiest way to take advantage of the market’s stellar gains which <em><strong>seem </strong></em>likely to continue. Yet before jumping into the indexing mania today, consider these inherent risks in passive investing…</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:list {\"className\":\"is-style-default\"} -->\n<ul class=\"is-style-default\"><li><strong>By definition, index funds also guarantee that you will suffer 100% of the next bear market’s decline.</strong> Regardless of which index you are matching, the index fund is required to stay fully invested regardless of market risk or volatility.</li></ul>\n<!-- /wp:list -->\n\n<!-- wp:list {\"className\":\"is-style-default\"} -->\n<ul class=\"is-style-default\"><li><strong>Assets flowing into the most popular index funds are funneling investments into the largest and most overvalued stocks in the market, driving them higher. </strong>The S&amp;P 500 is a capitalization weighted index, so money invested into these popular index funds is not evenly distributed in all 500 stocks. Rather, the largest companies by market cap receive a disproportionate amount of the investment. As a result, investors must take the good with the bad and favor the largest companies within the basket of 500 stocks, regardless of valuation and financial strength (or lack thereof).</li></ul>\n<!-- /wp:list -->\n\n<!-- wp:list {\"className\":\"is-style-default\"} -->\n<ul class=\"is-style-default\"><li><strong>Market volatility increases when interest narrows to the index heavyweights. </strong>Only 50 stocks account for nearly 50% of S&amp;P 500 capitalization and one-half of an index fund’s portfolio. Additionally, the top 10 largest stocks comprise over 20% of the Index. As a result, downside risk in the next bear market could increase if selling pressure hits the largest stocks at the same time. The increased focus on index investing of late may very well increase both the size of, and speed at which the next bear market decline occurs.</li></ul>\n<!-- /wp:list -->\n\n<!-- wp:image {\"align\":\"right\",\"id\":8324,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"alignright size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/06/iShares-Core-SP-500-ETF.jpg\" alt=\"\" class=\"wp-image-8324\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:list {\"className\":\"is-style-default\"} -->\n<ul class=\"is-style-default\"><li><strong>Intraday liquidity for ETFs can experience dramatic structural challenges in times of market distress. </strong>For example, during the market dislocation on August 24, 2015 the liquidity of most ETFs all but dried up just as the market opened. A confluence of problems –including circuit breakers, an obscure NYSE rule allowing market makers to delay posting prices, and a lack of futures data for large hedgers– all combined to take the bid out of the ETF space. Even large, well-established ETFs like the $116 billion iShares Core S&amp;P 500 ETF (IVV) saw unprecedented declines. As shown on the graph at right, IVV fell -26% on the open, far more than the -5.3% drop of the underlying S&amp;P 500. As a result of this liquidity hiccup, or “flash crash” as it was called at the time, investors with outstanding market orders and stop-loss orders sold their shares in IVV for far less than their worth.</li></ul>\n<!-- /wp:list -->\n\n<!-- wp:heading {\"level\":3} -->\n<h3>Bottom Line</h3>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>The broad diversification and implied liquidity offered by index ETFs gives many investors a false sense of security. When passively investing in an index, devoid of risk management, investors are still subject to varying degrees of valuation and liquidity risk, and they bear the full brunt of cyclical market risk.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:heading -->\n<h2>Risk Management is Vital to any Strategy – <em>Ignore at your own peril!</em></h2>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>Many actively managed mutual funds and money managers take some steps to mitigate portfolio risk – at times to the detriment of bull market performance. Although passive indexing may appear to be easier and is also perceived to reduce risk, it ends up having the opposite effect during major downturns as it guarantees an investor will experience <strong><em>all </em></strong>of the losses in the corresponding market index. Remember, long-term performance is dependent not only on how much you make in the bull markets, but also how much you give back in the bear markets. Investments that are weighted toward the largest, most overvalued stocks and sectors are exactly the opposite of what might be used in a strategy that manages risk.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>Index investing proponents generally downplay stock market cycles, but bear market survivability is a very real issue for many investors, particularly those in or nearing retirement. The decision to hold the course on an investment strategy usually depends on the severity of bear market losses and how long one’s portfolio remains underwater… in other words, how much time it takes to recover those losses.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>To effectively demonstrate this concept, the <strong>Ulcer Index </strong>was developed in 1987 by Peter Martin to measure the depth and duration of drawdowns from earlier highs in one’s portfolio. It provides a graphic illustration of the level of stress and ulcers (hence the name) that can emerge from suffering deep, prolonged losses in one’s retirement savings.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>Shown below are the comparative Ulcer Index graphs of the InvesTech Model Portfolio versus the Vanguard Total Stock Market Index (VTSMX), which is the largest and most popular fund on the market today.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:image {\"align\":\"center\",\"id\":8329,\"sizeSlug\":\"large\",\"linkDestination\":\"none\"} -->\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large\"><img src=\"https://ns2020-investech.investech.com/wp-content/uploads/2021/06/IT-Portfolio-vs-Vanguard-Ulcer-Index.jpg\" alt=\"\" class=\"wp-image-8329\"/></figure></div>\n<!-- /wp:image -->\n\n<!-- wp:paragraph -->\n<p>The starts of the last two bear markets are noted in March 2000 and October 2007, as well as their subsequent market bottoms in October 2002 and March 2009. The green dashed lines illustrate the number of months required after the market bottom for one’s portfolio to recover the losses. Above all, the red shaded areas designate how long, and how deep one’s portfolio was underwater. These are the so-called “ulcer” zones when an investor must wait and wonder how long it will be before his portfolio is whole again.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>As you’ll note, InvesTech’s “risk management” strategy dramatically reduced the stress of the last two generational bear markets by limiting the time spent in the “ulcer” zones. While the InvesTech Model Portfolio didn’t outperform the Vanguard Total Stock Market Index Fund in the bull markets, our ability to manage and reduce risk provided a long-term return which more than doubled that of the Vanguard index fund. More importantly, InvesTech subscribers lost significantly less and recovered much more quickly during bear markets, avoiding the urge to panic out of the market at the wrong time.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:paragraph -->\n<p>It is this combination of achieving safe returns and managing downside risk that matters most in the long-term performance of one’s portfolio… and in the survivability of bear markets.</p>\n<!-- /wp:paragraph -->\n\n<!-- wp:uagb/inline-notice {\"block_id\":\"82e70ba7\",\"noticeContent\":\"\\u003cp\\u003ePast performance may not be indicative of future results. Different types of investments involve varying degrees of risk. Therefore, it should not be assumed that future performance of any specific investment or investment strategy (including the investments and/or investment strategies recommended by InvesTech Research) will be profitable, equal any historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  \\u003ca href=\\u0022https://ns2020-investech.investech.com/terms-of-use/\\u0022 target=\\u0022_blank\\u0022 rel=\\u0022noreferrer noopener\\u0022\\u003eRead full Disclosures here\\u003c/a\\u003e\\u003ca href=\\u0022http://Past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk.  Therefore, it should not be assumed that future performance of any specific investment or investment strategy (including the investments and/or investment strategies recommended by InvesTech Research) will be profitable, equal any historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.\\u0022 target=\\u0022_blank\\u0022 rel=\\u0022noreferrer noopener\\u0022\\u003e.\\u003c/a\\u003e\\u003c/p\\u003e\"} -->\n<div class=\"wp-block-uagb-inline-notice uagb-inline_notice__outer-wrap uagb-inline_notice__align-left uagb-block-82e70ba7\"><h4 class=\"uagb-notice-title\">Important Disclosure Information</h4><div class=\"uagb-notice-text\"><p>Past performance may not be indicative of future results. Different types of investments involve varying degrees of risk. Therefore, it should not be assumed that future performance of any specific investment or investment strategy (including the investments and/or investment strategies recommended by InvesTech Research) will be profitable, equal any historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  <a href=\"https://ns2020-investech.investech.com/terms-of-use/\" target=\"_blank\" rel=\"noreferrer noopener\">Read full Disclosures here</a><a href=\"http://Past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk.  Therefore, it should not be assumed that future performance of any specific investment or investment strategy (including the investments and/or investment strategies recommended by InvesTech Research) will be profitable, equal any historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.\" target=\"_blank\" rel=\"noreferrer noopener\">.</a></p></div></div>\n<!-- /wp:uagb/inline-notice -->\n\n<!-- wp:spacer {\"height\":33} -->\n<div style=\"height:33px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:spacer {\"height\":33} -->\n<div style=\"height:33px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:separator -->\n<hr class=\"wp-block-separator\"/>\n<!-- /wp:separator -->\n\n<!-- wp:spacer {\"height\":33} -->\n<div style=\"height:33px\" aria-hidden=\"true\" class=\"wp-block-spacer\"></div>\n<!-- /wp:spacer -->\n\n<!-- wp:heading {\"level\":4} -->\n<h4>Excerpt from <em>InvesTech Research</em> - June 16, 2017</h4>\n<!-- /wp:heading -->\n\n<!-- wp:paragraph -->\n<p>This report is also available to <a href=\"https://ns2020-investech.investech.com/wp-content/uploads/2020/08/IndexingFever.pdf\" target=\"_blank\" rel=\"noreferrer noopener\">read in PDF format. </a></p>\n<!-- /wp:paragraph -->','Passive Investing: Inevitable Black Eye','Tempted by high-flying ETFs in this aging bull market? Just remember… Excitement is highest as the roller coaster goes over the top! In today’s technologically advanced world, featuring self-driving cars, pilotless airplanes, and smart homes, a “hands-off” trend is also gaining popularity among the investing public.','inherit','closed','closed','','2468-revision-v1','','','2021-06-17 22:46:56','2021-06-17 22:46:56','',2468,'https://ns2020-investech.investech.com/?p=8609',0,'revision','',0);
