Mountain Money Monitor

Happy Anniversary Bull Market

The current bull market in U.S. equities celebrated its eighth birthday this month. This marks the second longest bull market on record. The longest is still the Go‐Go Nineties Market from 1990 to 2000. That party ended with a big hangover. With this bull market getting long in the tooth, it still remains to be seen when the party will end this time and how we’ll feel when it is over!
We can start by looking at what kind of party it has been so far. The S&P 500 is up almost 250% since March 2009. Sounds pretty good. If you were brilliant / incredibly lucky, you could have invested in the market on March 9, 2009 (which was the absolute bottom) and you would be much better off today. The problem is that market timing is a high risk strategy which usually only benefits your broker and, if you are really good, the IRS. Most of us stayed invested through the ugliness of 2008 and came out on the other side in good shape.
Let’s look at a quick example of how the last nine years could have treated a long term investor.
Assume you invested $100 in the S&P 500 on January 1, 2008. At the end of 2008 your portfolio would be worth roughly $63.40. That’s hurts but relative to the hit the value of your home might have taken, it might not look that bad. As we said, the stock market started going back up in March of 2009. At the end of 2009 your portfolio was worth roughly $80. It took roughly 3.5 years to recover from 2008. So where are we today? That $100 investment was worth roughly $184 at the end of last year. All in all, it’s been a good time period for equity investors.
Here’s the math behind the example above. Investment performance math is something that I am always reminding my clients about when discussing risk. If you invest $1.00 and you lose 25% in a year, you have $0.75 left. To get back to even (i.e. $1.00), most people think that the market would need to gain 25%. But that’s not the case. A 25% return on your new lower base of $0.75 would only get you to $0.94. To grow your portfolio back to where you started, the market has to go up 33%!
Looking at history is one thing but we need to figure out the future, not the past! Of course if I knew the future, I wouldn’t need to work. I could just invest my own money and hire people to shovel snow and tune my skis. But the future is not known. And guessing is just another term for market timing! So all we can do is apply math and a little logic to position our investments for the future. Here’s what we know: On average since 1929, the market has 4 up years followed by at least one down year. Since 1980 the average has been a little longer but facts are facts. Recently, we haven’t had a down year in EIGHT years! Could the current bull market keep going and tie the record of nine years? Sure. But the probability of that is not high and, as we all know, the longer the party, the worse the hangover! The 1990‐2000 bull market was followed by 3 years of down markets with a total 36 month loss of 43%!
This leaves us in a state of cautious optimism! Are we leveraging everything we own to buy stocks? NO! Are we staying the course dictated by our long‐term investment goals? Yes! Do we stay up at night worrying about the market? That’s what our clients pay us to do. The point is that the stock market goes down as well as up. Forgetting this simple fact makes investors susceptible to what Alan Greenspan calls “irrational exuberance” in a bull market and panic selling when the market turns. Being mentally and financially prepared for the next down market can help you sleep better at night and avoid rash decisions that can lead to disastrous financial outcomes!

The Magical World of Tax Deferred Compounding Interest

Each year I teach a basic money-saving and investing course for the seniors at Incline High School. I really enjoy interacting with our future. However, each and every year I am amazed by the absolute lack of financial knowledge most of these 18-year olds possess! This is particularly troubling because financial trouble in the form of credit card debt is just waiting to pounce on these young men and women. But this article is not about debt. Most debt is evil and everyone knows it, but the great majority of Americans have too much of it. Rather, this article is about the power of compounding interest and its effect on your future.

I start off every class by asking the seniors how many of them have held a real job. As you would assume, most of them have had a job. Then I ask them how many of them contributed to an IRA account since they generated taxable income from their job. I believe that out of all of those working 18-year olds who I have taught this class to, I have seen TWO hands go up. Most of them look at me like I’m crazy because they are dreaming of the day they can legally buy beer, not the day they retire.

That is when I introduce the concept of interest and the magical world of compounding interest. In a nutshell, when it comes to building wealth, time is your most powerful ally. Thanks to some data crunched by PricewaterhouseCoopers, I am able to show them the power of time and the magic of compounding interest. I give the students two scenarios: The first is a person who diligently saves $1,300 per year for 42 years. The second person fails to save for the first 21 years and then tries to make up for it by investing twice as much ($2,600) per year for 21 years. At first glance one would assume that the make-up strategy would work. But it doesn’t! And for those students that are actually still listening to me rather than cruising on SnapChat, the results are impressive. Both people in the example saved $54,600 and they receive 5% annually on their savings. But their ending balances are vastly different. Person #1 who had saved $1,300 per year for 42 years had an ending balance of $427,158. Person #2 who partied for the first 21 years and then tried to make it up by saving $2,600 per year for 21 years only had a balance of $141,588. In this example the power of time plus the magic of compounding interest garnered Person #1 an extra $285,570.

Hopefully, a figure as large as $285,000 rekindles my students’ attention. It is at this point that I go back to my first question; how many of them who had earned taxable income had contributed to an IRA account. This is the real focus of the discussion. If you earned taxable income by working, open an IRA. And for the great majority of these young adults they qualify for a Roth IRA.

Getting started early is the greatest gift you can give yourself or your children or grandchildren. Personally, my son, who is only 16 and has no real say in the matter, has had a Roth IRA for two years now. I made sure that he contributed as much as he could even if I had to help him cover some of his expenses due to his Roth IRA contributions. The pay-off is too big to ignore. That small amount contributed today will be a welcomed surprise for my son in 2060 when he is considering retirement.

Financial Observations from 6,225 feet

Stock market investors can learn a great deal from skiers and riders. A ski season can be thought of as a mini investment cycle. For example, the drought over the previous three winters was like a bear market on Wall Street. Our community was in the doldrums. Tourist dollars were down and the ski shops couldn’t give away their inventories. The same happens on Wall Street when stock prices are down. The steak houses of Manhattan are empty at lunch and homes in The Hamptons go on the market. This year is the polar opposite. The current ski season we are all enjoying is like a bull market!

So what can a snowboarder teach an experienced investor? Plenty!

For the past three years, the high pressure that sat on top of Northern California and the associated drought was miserable for our local ski community and the entire state of California. But just because those winters were plagued with blue skies and icy runs, we skiers didn’t give up. We didn’t throw all our gear on Craig’s List and take up badminton. We kept our boards tuned, our legs in shape, and our attitudes positive. And why? Because we knew that there will always be great powder days during even the driest of winters and we were NOT going to miss them when they arrived!

The same held true last month. After a great beginning to the 2015-16 season, February was dry. As I recall, this one dry month in the middle of a big winter scenario is very similar to the legendary winter of 2010-11. When the high pressure wielded its ugly head last month, we didn’t toss our skis in the attic and pull out our golf clubs. We kept the faith and March is rewarding us for it.

So what does all this mean for investors? Investors as a whole are an emotional bunch. When things are good, they are all in. When things go bad, their instinct is to sell everything and hide under their beds. Investors need to take a lesson from the skier and rider community. Looking at a 10 year chart of the S & P 500 Index, the winter of 2008-09 was a major drought for stock performance. The low point was February 2009. Say you invested $100 in the S&P 500 on April 1, 2006 and sold everything on February 1, 2009, you would have lost of 40% of your money. Said another way, your $100 would now be $60. However, if you held tight and looked forward toward that next big winter storm, your paper losses would have completely reversed by February of 2011. And if you kept the faith until now, you would have made over 50% on your money! Your $100 would be worth around $150 today. So what can the wise young snowboarder teach the experienced stock market investor? When the high pressure builds, don’t sell everything and run. Stay positive. Keep invested. Remember your long term goals and always be ready for that next magical powder day!SVT:NLGreen

Robert B. Green Jr. CFA is a financial advisor with Cojo Bay Advisors in Incline Village and a long-time Squaw Valley skier. In his new column on the Squaw Valley Times website ( he will be offering insight and advice on the current state of the market. He may be reached at