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Investor's Corner NewsletterBy Will W. Woodard, III, CFP® Abraham Maslow Happy Labor Day 2003! The Bypass is starting to mellow out a little, the ocean has warmed back up after a couple of brutally chilly (try 58 degrees!) weeks, and Outer Banks locals are starting to smile more. The investment world has been dominated by continued weakness in the bond market and a stock market that is trading in a narrow band near the top of its recent range. Data released over the last few months shows signs of slow but steady improvement in the US economy. Add to the mix the historic market action in September and October the past few years (which has been lousy for investors who own stocks) and you have an extremely dynamic situation-one we'll investigate in some detail as we move through this month's essay. In this issue of Investor's Corner:
1. Commentary/charts: Labor Day Showdown on Wall Street -One of the true joys of working in the field of investments is access to the writings and commentary of quite a few REALLY smart people. John Maudlin is one writer that I make a point of reading every week. He is a bit of a "doom and gloom" voice at times, but his brain really hums along. His website is http://www.2000wave.com/index.asp and you can sign up for the newsletter, which is free. The below excerpt is from John's Saturday, August 23, 2003 issue. It speaks to the wide variation of opinions among investors and economists as to current prospects for the US economy: "How can I talk about a mere Muddle Through Economy when manufacturing is rising, the Phillie Fed Index skyrockets, housing and new home construction is on fire, economists are predicting a healthy 3.5%+ GDP next quarter, unemployment claims dropped, the stimulus from tax cuts and mortgage refinancing is just now kicking in, business confidence indicators are rising, The Index of Leading Economic Indicators has risen for the 4th straight month, the dollar is rising and the stock market is predicting a healthy future, etc., etc.? Bulls to the Left of Me, Bears to the Right Of Me, And below, another excerpt from John's 8/23/03 newsletter regarding market action in recent Augusts and subsequent time frames, under the heading AUGUST MARKET TURNS "While most people view the last 2 weeks of August as vacation weeks, over the last 16 yrs important turns have taken place then:
I would add that there is significant short interest in the market. "Short interest" is money that has been put to work by investors looking for a market, sector, or index to drop. Market pros are spending a lot of time at present watching and wondering what would happen in the market if stock buyers took September and October off. No one wants to buy at the top if they can help it, or if they suspect that sellers will be the only participants in the market over a period of time! As such, I am urging my clients to tread gingerly in the market the next couple of months.
In particular, we are watching the 9500 level on the Dow. This is an area of strong resistance, or selling pressure. A move above 9500 on high share volume would give the bulls something to cheer about for a few weeks, and may force further capitulation by the shorts. You see, in order to complete a short transaction, the investor has to buy shares on the open market to replace those he has previously sold. This creates the condition known as a "short squeeze" and is music to the bulls' ears! Were I to put new client money to work in the equity market at this point, I would tend to be more focused on value stocks than growth stocks. In general, growth has outperformed value during the rally and IMHO is more vulnerable to a significant price decline. Now, PLEASE don't jump to the conclusion that what I said above is that the stock market is ready to fall. I did not say that! I am just cautioning clients to tread lightly with new money going into the market until we get a clearer market direction. The 15% tax rate on dividends and long-term capital gains is powerful medicine. Stable stocks that pay a solid dividend (2.5-5%) may be appropriate for investors with a mid-to long term(5-10 years or more) outlook. To summarize, the return of volume to the market and resulting test of resistance will tell us a lot more about how the next couple of months will look. Stay tuned! 2. Reader mail:Dear Will, I enjoy receiving your newsletter, it but have to admit that I just don't care about all the economic mumbo-jumbo. I am a recent retiree and have better things to do than keep up with it all. Am I being negligent somehow? Signed, Jeanne--PS: give Leo my best! Dear Jeanne, Thanks for your note. Congratulations on your retirement, and sincere wishes for you to enjoy a relaxing, fulfilling "next phase" of your life! I empathize with your comments and want you to know that you are certainly not alone-many folks have little or no interest in the "nuts and bolts" of their investment assets. These folks just want to know that they're on the right track towards achieving their goals. Folks such as yourself may want to consider establishing a relationship with an investment professional who can interpret your goals and align your investment selections with those goals. Consider someone who works on a fee-only basis, (shameless plug: such as myself) so you will avoid any sales-driven recommendations. And consider having a couple of informal meetings with your prospective advisor before you decide to do business-the meetings will allow both you and your advisor to feel each other out and determine if you are a good fit for each other. You can also hire an objective advisor in a broader planning role if you would like to review more than just the investment facet of your financial situation. Here are links to some resources that may prove helpful: (Note: I am a member of both NAPFA and the FPA) Here are links to a wonderful and thoughtfully written feature on financial planners and advisors that ran in Smart Money magazine earlier this year, with headings such as
The link to the article's cover page is http://www.smartmoney.com/fp/index.cfm?story=feb03-totherescue Here is a link to NAPFA, the National Association of Personal Financial Advisors, a fee-only planner's organization. http://www.napfa.org/ Here is a link to the website of the Financial Planning Association's Hampton Roads chapter. http://www.fpahamptonroads.com/about.htm To summarize, Jeanne, establishing a relationship with an advisor who you enjoy working with will allow you to spend more time doing the things that bring you happiness and less time worrying about your finances. As for Leo, he just started 2nd grade and is doing great! Hope this helps! Send your questions to will@darecapital.com and I will do my best to answer them in upcoming newsletters. 3. Milestones: I found out last week that I passed the Certified Financial Plannerâ licensing exam and should become a CERTIFIED FINANCIAL PLANNER in the next couple of weeks. Hooray! Many thanks to clients and friends for all your encouragement, kind words, and support during the CFPâ certification process. 4. Short takes on the 2003 Tax Cut - A. Most dividend-paying stocks just became more tax-advantaged. Bond income will continue to be taxed at ordinary income rates and thus became less tax-advantaged B. If long term capital gains are taxed at 15%, there will be an incentive to remove high growth-potential equities from tax-advantaged retirement accounts such as traditional IRA's and 401-K accounts, where withdrawals are still subject to being taxed as ordinary income. Equities in taxable accounts held longer than one year would only be taxed at 15%. Interesting…. C. Small business owners (such as myself) should take a long hard look at the provision where up to $100,000 of capital expenditures for new equipment can be expensed "right off the top"….worth some follow-up! Well, that's enough for this time. Feel free to call or write with questions or comments, or to inquire about my firm's services as they relate to your individual situation. And please be safe on the road! Good investing, Will Woodard is president of Dare Capital Management & Advisory, a Registered Investment Advisor and fee-only financial planning firm based in Kill Devil Hills. Dare Capital is committed to providing independent, objective, and professional financial advice. Mr. Woodard, his firm, or his clients may own the investments mentioned herein. Contact Will at (252) 480-0156 or e-mail Will@darecapital.com The fine print: This newsletter can be reprinted or forwarded--however, it is requested that reprints of any material in this newsletter include credit to Dare Capital Management and Advisory (252)480-0156 and an email link to will@darecapital.com. Thanks for spreading the word! All of the foregoing is commentary for informational purposes only. All statements and expressions are the opinion of Will W. Woodard, III and Dare Capital Management and Advisory, and are not meant to be a solicitation or recommendation to buy, sell, or hold securities. Mr. Woodard, his firm, or his clients may own the investments discussed in this newsletter. Past performance is no guarantee of future returns. The information presented herein and the company's web site has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. Estimates, assumptions and other forward-looking information are subject to the limits of forecasting. Actual future results may vary for many reasons. Copyright 2003 Dare Capital Management and Advisory-all rights reserved. |
