FORECASTS & TRENDS E-LETTER
by Gary D. Halbert
December 17, 2019

IN THIS ISSUE:

1. Why Investors Are Unloading Stocks at a Record Pace

2. Our Favorite Stock Picker You’ve Probably Never Heard Of

3. Billionaires’ Wealth Declined Last Year – The Question is Why?

4. Global Shortage of SAND – Remember, You Read It Here First

Overview

US individual investors are fleeing stocks and stock funds at the fastest pace on record this year based on data from Lipper, which has been tracking such data since 1992. Investors have shifted hundreds of billions of dollars into bonds and money-market funds all year long. The question is, why?

Most stock market analysts are baffled at why this is happening, especially with the S&P 500 Index up over 25% this year, its best showing in years. And the gains this year have been fairly consistent with no gut-wrenching downturns.

The last such serious downturn occurred in the 4Q of last year when the S&P 500 lost 20%, and that no doubt spooked many investors – not to mention the constant media drumbeat that we were headed for a recession earlier this year – which I repeatedly debunked in these pages.

Yet the S&P 500 recovered from that 4Q drawdown in impressive fashion and soared to a new record high in the 1Q, but large redemptions have continued since then. Again, the question is, why? I have some thoughts on this subject as we go along today.

Why Investors Are Unloading Stocks at Record Pace

Individual investors have yanked over $135 billion from stocks, stock mutual funds and equity ETFs so far this year, the largest withdrawals on record, according to Lipper. Investors have shifted into bonds and money-market funds in droves. This despite the fact that US stocks are having one their strongest years ever, with the S&P 500 Index up over 25% so far this year.

As noted above, the question is why? I’m pretty sure I have the answer. Take a look at this chart:

As we can see in the chart, the S&P 500 Index had its most severe losing period (drawdown) in the last several years in the 4Q of last year when it lost 20%. This no doubt spooked many investors to decide to throw in the towel, and many apparently made it their New Year’s resolution to bail out of the stock market.

For years studies have unfortunately shown that most individual investors have a dismal record when it comes to deciding when to buy and sell stocks. The studies consistently show that most individual investors have a strong tendency to buy when the market is high and sell when the market is low.

I have written about these studies for years, and they are in fact one of the main reasons I started Halbert Wealth Management 25 years ago to help investors avoid these problems. More on that later on.

For whatever reasons, investors have been dumping stocks and equity funds with a vengeance this year. And that’s despite the fact that the market recovered all of the 4Q drawdown and went on to new record highs in the first three months of 2019 and more since then. Yet the selling continued. Many investors apparently decided: Forget the cheese, just let me out of the trap!

Many individual investors also believe, so it seems, that this year’s steep runup in stocks is just the last hurrah before a new bear market unfolds. However, in data going back to 1928, out of 21 similarly steep ascents, only three gave way to a 10% correction or more at any point in the year that followed.

Based on “contrary opinion” theory, the recent mega-selling by investors suggests that US stock markets still have plenty of upside, even though this is the longest bull market in history. Looked at another way, before you hit the top in a market cycle, there’s almost always a buying frenzy and positive fund flows are the norm – not negative like we’ve seen this year. Put yet another way, this may be the most unloved bull market we’ve seen in decades.

Our Favorite Stock Picker You’ve Probably Never Heard Of

As regular readers know, I have been pushing so-called Alternative Investments pretty hard this year. Most alternative investments are not “buy-and-hold” strategies, and some don’t involve stocks at all.

But we also recognize that alternative investments aren’t for everyone. That’s why we include some traditional strategies in our stable of recommended money managers. Our favorite money manager among this group is a firm located right here in Austin not far from our offices.

This particular money manager is known as a “value” investor in that they search for stocks they consider to be under-valued and very likely to rebound. Their performance record is very impressive, and they are beating the pants off the S&P 500 Index this year. I have the bulk of my buy-and-hold money with this firm. You can see their impressive track record and other details HERE. I think you’ll be glad you did.

If you are not satisfied with your stock investments’ performance, especially if you have not matched or beaten the market this year, I highly recommend you check this manager out HERE. As always, this investment strategy is not suitable for everyone, there is the risk of loss and past performance is not necessarily indicative of future results.

And one last point on this subject before we move on. I have made this point often over the years, but it always bears repeating: I have my own money invested with every money manager we recommend. I would never recommend you invest with a money manager I don’t have money with. This should be important to you, because it’s not the case with all Investment Advisors.

Billionaires’ Wealth Declined Last Year – The Question is Why?

The world's richest people became a little less well off last year, according to a new report by UBS and PWC (Price Waterhouse Coopers), as geopolitical turmoil and volatile equity markets reduced the wealth of billionaires for the first time in several years.

Billionaires' wealth fell by 4.3% globally to $8.5 trillion last year, the UBS/PWC report found, with the sharpest decline in Greater China, including Hong Kong, and the Asia-Pacific region more broadly. But the losses among Hong Kong’s billionaires was a fraction of that in China.

The net worth of China's richest dropped the most, -12.8% in dollar terms last year, on the back of tumbling Chinese stock markets, a weaker currency and a slowdown in growth, the report found. This knocked dozens off the billionaires list in that country. By comparison, private wealth in free-market Hong Kong fell just 4% in 2018 to $319.8 billion.

Yet I should point out that despite the drop in net worth, China still produces a new billionaire every couple of days, according to the latest UBS/PWC report.

Worldwide, the number of billionaires fell everywhere except in the Americas, where tech entrepreneurs continued to buoy the ranks of the United States' wealthiest. The report noted that there were a record 749 billionaires in the US at the end of 2018.

With those statistics in mind, the question is, why did global billionaires’ wealth decline in 2018? US stocks as measured by the S&P 500 declined less than 3% last year, although plenty of global markets declined more significantly.

I believe the main reason billionaires’ net worth declined everywhere but the US is the fact that many of the world’s richest have heavy holdings of closely-held stock, which in many cases declined significantly more than 3% last year (think Mark Zuckerberg/Facebook, for example). Hard data to support my point is hard to come by, but a lot of billionaires got hit last year.

It is reasonable to believe the net worth of the world’s billionaires has rebounded in 2019. With the 25% gain in US equities and lesser gains in other markets around the world, plus gains in certain bond markets and real estate, I think it’s safe to assume the world’s billionaires saw their net worths rebound so far in 2019 – not that they needed it, but nonetheless it occurred.

The Global Shortage of SAND – Remember, You Read It Here First

As long-time readers know, I like to write about what interests me most, and this final topic certainly qualifies, even though it doesn’t pertain to the markets or the economy – at least not yet. But the most interesting topic I’ve read in recent weeks is the fact that the world is running out of sand to make concrete – yes SAND.

I won’t go into detail, but there is a growing world shortage of sand. And with that, sand excavators are growing desperate to find more sources of the stuff. Unfortunately, they are destroying beaches and other sources of sand around the world.

I’m not an environmentalist whacko, but I do care about the environment. I bring this to your attention because I doubt you’ve heard a word about it, and it is a serious concern. Rather than writing about it in detail, I direct your attention to the last link in SPECIAL ARTICLES below. I trust you’ll find it as interesting as I did.

I’ll keep you posted in the future as I learn more on this.  

Best regards,

Gary D. Halbert

SPECIAL ARTICLES

Individual Investors Are Fleeing the Stock Market

World’s Billionaires Lost $388 Billion Last Year

The World is Running Out of Sand

Gary's Between the Lines Blog: New Trump Tariffs on December 15 - Will He, Or Won't He?

 

 

Forecasts & Trends E-Letter is published by Halbert Wealth Management, Inc., a Registered Investment Adviser under the Investment Advisers Act of 1940. Information contained herein is taken from sources believed to be reliable but cannot be guaranteed as to its accuracy. Opinions and recommendations herein generally reflect the judgement of the named author and may change at any time without written notice. Market opinions contained herein are intended as general observations and are not intended as specific advice. Readers are urged to check with their financial counselors before making any decisions. This does not constitute an offer of sale of any securities. Halbert Wealth Management, Inc., and its affiliated companies, its officers, directors and/or employees may or may not have their own money in markets or programs mentioned herein. Past results are not necessarily indicative of future results. All investments have a risk of loss. Be sure to read all offering materials and disclosures before making a decision to invest. Reprinting for family or friends is allowed with proper credit. However, republishing (written or electronically) in its entirety or through the use of extensive quotes is prohibited without prior written consent.