[available in PDF to the right]
October 15, 2013
“No man’s life, liberty, or property are safe while the legislature is in session.” – Mark Twain
An interesting study was done measuring something called the “Congressional Effect”. Two portfolios were compared from 1897 to 2000. They each started with exactly $1.00. One portfolio stayed invested in the Dow Jones average only when Congress was in session. The other stayed invested only when Congress was NOT in session. The NOT In-Session portfolio grew to $216.10 while the In-Session portfolio grew to only $2.00. If you want to read further, follow this link.
With the problems in Washington, I receive a lot of phone calls about what to expect from the markets. 2013 has been a rewarding year but there are reasons to be concerned, even as we enjoy the run up. The stock market”s rise correlates almost perfectly to the Federal Reserve pumping money into the economy. It may not run much deeper than that. This is in the range of $1 trillion per year, an astounding circumstance. Any hint of interruption results in the markets threatening to reverse direction or even crater. This is unsettling because the Fed simply cannot continue to pump indefinitely. At a certain point the debt overwhelms.
So does this mean the music is about to stop? Before deciding it’s time to head for the exits, remember that the markets continue to surprise. If the markets like the outcome on the debt ceiling negations, it could be game on again for the rest of the year. I’ve found that my personal track record for predicting what’s around the corner is not very good. So if the future looks worrisome then what does one do? My belief is that the best course of action is to position your account appropriately for risk without regard for near term events. Risk can occur at any time and it’s best to adopt a personal “all weather” portfolio.
We’re funding the accounts with some combination of stock funds, bond funds and “alternative” funds depending on your risk posture. These are intended to act as diversifiers meaning one may rise when another one falls. As discussed in our last newsletter, the bond market crashed this year due to the run-up in interest rates in May-June. Our bond funds are down a very small amount year to date, but given the lukewarm economy and the new Fed leadership, I believe interest rates are likely to be stable at these levels. One of our funds was featured in the Wall St Journal last week. You may read about it here.
The alternative funds exist to provide a way to make money if the markets tank. Nothing is assured but the ATACX fund is up over 11% YTD while the AMFQX is up 5.5% YTD. Please remember that these funds are just not going to be able to outperform the stock market, or any good stock mutual fund, when it’s in a steep climb. In summary, our strategy continues to be to diversify among what I judge to be top 20th percentile funds, so that when the markets eventually slow down or tank, our funds may be able to make money and/or lose less. Our stock funds have done exceedingly well.
If you would like to discuss your risk/reward orientation or any changes that may be appropriate, please contact me at the below.
Darrell J. Kay Kay Investments Inc.
5000 Seneca Point Road
Canandaigua NY 14424
(585) 396-1312 phone
(585) 486-1312 fax
This newsletter contains general information that is not suitable for everyone. The information contained herein should not be construed as personalized investment advice. Past performance is no guarantee of future results. There is no guarantee that the views and opinions expressed in this newsletter will come to pass. Investing in the stock market involves gains and losses and may not be suitable for all investors. Information presented herein is subject to change without notice and should not be considered as a solicitation to buy or sell any security. Use of the S&P 500 (and other Indexes) is for comparative purposes only. The volatility of the Kay Investments Inc. portfolios may be materially different from the volatility of the S&P 500 (or other) Index due to varying degrees of diversification and/or other factors. Kay Investments Inc. is an SEC registered investment adviser with its principal place of business in the State of New York. Kay Investments Inc. and its representatives are in compliance with the current registration and notice filing requirements imposed upon registered investment advisers by those states in which it maintains clients. Kay Investments Inc. may only transact business in those states in which it is notice filed, or qualifies for an exemption or exclusion from notice filing requirements. This newsletter is limited to the dissemination of general information pertaining to its investment advisory services. Any subsequent, direct communication by Kay Investments Inc. with a prospective client shall be conducted by a representative who is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides. For information pertaining to the registration status of Kay Investments Inc, please contact us or refer to the Investment Adviser Public Disclosure web site www.adviserinfo.sec.gov. For additional information about Kay Investments Inc, including fees and services, please contact us for a copy of our disclosure statement as set forth on Form ADV. This is also available on the home page of the Kay Investments Inc. website, www.kayinvestments.com. Please read the disclosure statement carefully before you invest or send money.