Maintenance vs. Fix-it-When-It's-Broke

August 28, 2018

“Good investors gather information, put that information into current and historical context, then make sound decisions.”

There is an age-old controversy over the best way to keep that ‘mechanical something’ running the longest and the most efficiently. The discussion is aided and abetted by a colorful variety of maxims that defend the various points of view. They range from, “If it ain’t broke, don’t fix it,” to “You can pay me now, or pay me later.” It just so happens that my Dad was a fan of both of these sayings. The determining factor is that he was also a strong believer in the importance of regular maintenance. His work experience had a lot to do with it. Dad was a bomber pilot in WWII, and one of the sayings from those days was that it was a lot easier to service an airplane on the ground than fix it in the air.

Automobile maintenance is pretty straight-forward. You have the simple, regular checks like keeping the windshield clean, gas in the tank, and air in the tires. You have the fix-it-now stuff like replacing the dead battery or fixing the flat. You have the systematic mechanical operations like fluid and filter changes. And finally, occasionally, you get to replace important parts like brakes and belts and tires. This is just the normal stuff. These days warranties protect you if the big stuff breaks early on. When it happens later you get to decide whether its better to repair or trade as-is. Even then, maintenance is cheaper than car payments.

Portfolio maintenance operates in a similar fashion. You have the simple, regular checks like reviewing statements for your correct name and address, then of course checking the ‘bottom line’ for your account value. Corrections are easy, and questions about account values are always welcome, because they demonstrate that you are ‘kicking the tires.’ We like that! Trade confirmations indicate that fix-it activities are taking place. Those activities may involve a repair, or just regular operational maintenance. Once again, questions are very welcome! Occasionally, shifts in financial markets dictate that we make changes in your asset allocations. Or, a shift in your investment objectives may dictate some changes. Our primary objective is to make incremental adjustments as indicated, and keep the portfolio functioning efficiently.

As with automobiles, some investors may have the knowledge and the tools to do the job themselves. But most investors don’t, won’t, or shouldn’t. Modern portfolio management techniques are not unlike the modern-day automobile engines. To understand what is happening, or should be happening and isn’t, you need to hook up to a computer and evaluate the signals, before you reach for a wrench and start pulling parts. There is nothing worse than discovering after the fact that a simple adjustment would have eliminated an expensive replacement.

The biggest situations and the broadest changes are with new or existing clients who bring us portfolios that are ‘broke.’ This can result from a number of circumstances. Most common are portfolios such as retirement plans that were set up many years ago for growth. Now the client is retiring and needs additional income. Or an inherited portfolio may be primarily invested in cash, or invested in a few stocks or bonds. In these cases we start by listening to our clients, then carefully building or rebuilding portfolios that are in line with their current needs and future objectives.

Registered investment advisers are the mechanics that keep your portfolio running efficiently. We do much more than wait for something to go wrong. We monitor portfolio progress moving part by moving part. We communicate clearly about adjustments that may be indicated. We recognize the value of regular, reasonable maintenance checks. We do not ‘sell’ you a new portfolio then sit back and wait for it to break, so we can ‘sell’ you another. We value the relationship far more than we value the product.

© 2018 Edward D. Foy

Sources: Bloomberg, Marketwatch, StockCharts

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Mixed Signals

July 30, 2018

“Good investors gather information, put that information into current and historical context, then make sound decisions.”

Isn’t it great when you are getting a strong, clear signal? Immediately most of us think about our cell phones. Then maybe we consider our WiFi and Bluetooth connections. Others will jump to their cable and satellite signals, while the old-timers will remember radio and yes, their rooftop, attic or rabbit ear TV antennas. In every case, it’s great when you are receiving the information that you want and need, loud and clear. In the above-referenced examples the lack of a strong, clear signal may result in interference, pixilation, or static noise. But what about when you are getting strong, clear, mixed signals?

There are plenty of examples of mixed signals in human nature. We say good-bye, but we don’t leave. They tell you they are really sorry while fighting back a smile. He tells you he is trustworthy but can’t look you in the eye. She says you are her best friend, but talks about you behind your back. These mixed signals are about mixed emotions, or mixed motivations. It gets even more complicated when you include intentional misinformation and flat-out deception. Unfortunately, that’s human nature, and even then, there is still no substitute for pure, clear communication.

The best examples of mixed signals that are founded in science probably involve our weather. While outside enjoying a warm, sunny afternoon you notice the wind picking up, then shifting from the opposite direction. Or you feel a sudden chill. The change may involve the activity patterns of birds or other wildlife. Or the colors of the leaves. Some of the mixed signals may be minutes in the making, while others may be months. The operative factor is that there is a change, however subtle or dramatic. And you won’t notice it unless you are paying attention, the sooner the better.

Financial markets represent the best and the worst when it comes to mixed signals. This is partially, and some would contend substantially, because of the human nature element. There is an entire science called behavioral finance, devoted to the way people react and respond when it comes to money. In many cases those behaviors are neither logical nor functionally effective. But the element of human nature creates opportunity, and opportunity makes the financial world go around! Fortunately, there are relatively efficient mathematical methodologies that have helped financial markets evolve into complex, sophisticated playing fields.

Those who pay attention to financial markets learn to recognize the subtle shifts that indicate change is in the wind. Initially, these changes become evident by the appearance of mixed signals. These signals can be very clear, but still require interpretation by experienced experts. A major change in direction of a security is often preceded by shifts of specific indicators, called divergences. A single divergence is not enough evidence to trigger a circuit-breaker response. Rather, it is the confluence of these divergences that can provide an experienced investor with the opportunity of making a more timely response.

Strong, clear signals are wonderful when it comes to financial markets, but they are rare. The human element fogs the windshield. The methodologies are numerous, and some over-respond. The keys to success seem to rely on how well you anticipate changes, in addition to the activation plan. We have developed processes that assist us in identifying specific mixed signals. When the major changes occur, we are less likely to be surprised and to freeze with inaction rather than taking action. We believe that an advantage resides in our early recognition of mixed signals, the accurate interpretations, and disciplined, timely responses.

© 2018 Edward D. Foy

Sources: Bloomberg, Marketwatch, StockCharts

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When You're Too Old For Rollercoasters

June 28, 2018

“Good investors gather information, put that information into current and historical context, then make sound decisions.”

Rollercoasters mean different things to different people, especially people of different ages. When you are young, rollercoasters represent thrills and challenges, but most of all, fun! The higher, louder, faster the better! Hands up in the first car! Hold on tight in the last car! The longer the line, the better the ride! But over time, we change our tempo, our need for certain types of thrills, and our interest in standing in long lines can start to wain. Rollercoasters may still be okay, but not ones that invert or require a signed waiver before crawling under the lockdown bars. And that’s alright, too.

There are a multitude of other rollercoasters that may confront us as we grow older. Relationships, kids, new jobs, and health issues all can represent varying thrills and challenges, and not always the fun kind. Our energy levels and our levels of engagement can change dramatically at different times of our lives. Personally, one of my lifelong dreams was to become a pilot. I started realizing that dream, at the age of 46, with my first flight lessons. Twenty years later, I found that my interest in piloting my Bonanza for several hours to a long-distance destination, while navigating ever-changing weather conditions, and repeating the process to get home, had dissipated. Today, I am very happy flying on Southwest Airlines.

There are dozens of other relevant analogies, from things we used to do, to things that we do every day but in a different way. Old timers can easily recite a number of things they used to do but wouldn’t think of trying today. They may include everything from bad habits to playing contact sports. Things we do every day but in a different way may include the way we drive, what and when we eat, even how we listen to our favorite music.

The point is that change is as natural as life itself. The sooner we learn that lesson, the more flexible and resilient we become. And accordingly, the happier we learn to be. Unfortunately, the failure to adapt to change can have a very opposite effect.

This also carries over to how we manage our finances. In the beginning, almost all of us are basically hand-to-mouth. We learn to earn, then to save, then to invest. Some people learn this at an early age, and some struggle their whole lives. The amount of money that we earn, our ability to save while financing houses and cars and kids, and our confidence on how to invest are all subject to dramatic change in the course of our lives. How we learn can be thrilling, or exasperating. The old-fashioned method, Trial And Error, can be very expensive. The modern way, Google It, can be very misleading.

Some people believe that all investing is like stepping onto a rollercoaster, but without the fun. They think that you are surrendering all control and are at the mercy of people who do not have your best interests at heart. The more you Google It, the more confusing and helpless you may feel. The reality is that investing doesn’t have to be a stock market carnival ride. Nor does it have to be an OK Corral Shootout. There are sensible ways to approach and learn to understand how things work.

While investing can be a Do-It-Yourself activity, most investors prefer to have a personal relationship with someone who is knowledgeable and experienced. They want to feel comfortable. They want to feel informed. And while riding rollercoasters used to be fun, when it comes to their money, they would much prefer riding the Up escalator. And that’s just alright, too.

© 2018 Edward D. Foy

Sources: Bloomberg, Marketwatch, StockCharts

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The Difference A Craftsman Makes

May 22, 2018

“Good investors gather information, put that information into current and historical context, then make sound decisions.”

When choosing someone to work on your home, the top of the list usually includes the craftsmen. This is because craftsmen are generally more experienced and are personally accountable for their work. While craftsmen are usually associated with carpentry and woodworking trades, they also work in other trades. Finding a craftsman can be difficult because they are busy and coveted for their work by those who know their work. The same holds true for those ‘craftsmen’ working outside the traditional trades.

Craftsmen can also be found in the fields of healthcare, education, and finance, as well as many other trades. They, too, are generally more experienced and are personally accountable for their work. Like the carpenter craftsmen, they work within the legal, professional, and common sense constraints of their respective trade. But they also bring the personal element to the front of the relationship. They are not just promoting the company line, or the corporate message. They listen. They weigh all of the options, openly, in front of their clients. And they make adjustments as needed for the benefit of the people who choose them. It’s the difference that you only get when you are working with a craftsman.

Now, every job does not require a craftsman, and not everyone wants to be a craftsman. Some jobs require repetitive precision, and some skills demand exacting attention to prescribed standards. We live in a very unpredictable world with more rules than options, and more consequences than choices. Structure can determine safety and survivability. Consider when you are driving in heavy traffic. There is not a lot of room for individuality. For everyone to be safe, everyone needs to be predictable, and follow the rules of the road.

The best counterpoint resides in the arts. Music, painting, sculpture, literature, theatre and dance can thrive and delight when they break new ground. Yet any master teacher of these arts knows that first one has to study and understand the basic rules, the primary structure and composition of the art, before exploring their boundaries. And therein lies the territory that invites the craftsman.

Craftsmanship in the fields of healthcare, education, and finance are currently running the risk of drowning in rules set by politicians. This happens when people who do not understand a profession seek to regulate it, in a more obscure quest to control those people affected by that profession. Standardizing healthcare, education, and finance begins with lowering standards to common denominators, then building consequences to protect those standards. Invariably, the very people that are supposedly being protected come to suffer from the lack of individuality and creativity that rest within the hearts and hands of the craftsmen, all the while becoming more easy to control. That might bother you. It bothers me.

One of the most distinguishing aspects of a craftsman is not what tools they use, but how they use them. Carpentry tools and the artists’ brushes and paints have been the same for centuries. The difference is in their application. The rules of law are founded in principles established thousands of years ago. Modern medicine is constantly uncovering technologies and medicines, but the basic Hippocratic Oath is timeless. Computer trading and algorithms have accelerated financial deliberations from weeks to nanoseconds, yet communication and suitability standards still determine one’s level of success and comfort while investing. The good news is that throughout history, craftsmen have learned to survive politicians and political agendas. It is much easier to address the needs of an individual, than an entire population. Craftsmen recognize this. And we continue to work towards the best interests of those who have entrusted their goods and their treasure with us.

© Edward D. Foy

Sources: Bloomberg, Marketwatch, StockCharts

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The Top Five Questions

September 26, 2018

“Good investors gather information, put that information into current and historical context, then make sound decisions.”

When I Googled ‘The Top Five Questions’ I got 1.81 billion results in 0.63 seconds. Seriously. I could go on about that relative absurdity for quite a while, but won’t. The short take is that the first five pages are about job interviews. Unemployment is historically low and the job market is tight. Makes sense. Then it starts to deviate into what to ask various doctors, Uber drivers, and God. In that order. We live in interesting times. The top five questions that I have been getting lately are far more direct.

Why are stock markets going up? Stock markets are going up because corporate earnings are going up because productivity is going up. The real kicker for the stock market was the decrease in corporate tax rates, from 35% to 21%. Since the tax rate cuts, which took effect this year, wages have increased, and unemployment has declined. It’s a win/win because two thirds of the U.S. economy is represented by consumer spending. This also put U.S. corporations in a very competitive global position. Before the reduction they had one of the highest corporate tax rates in the world.

Why have stock markets been rising so slowly? We are in one of the longest lasting Bull Markets in history. It follows one of the worst Bear Markets and economic recessions in history. The recovery has been taking so long because of steps taken by the Federal Reserve and the Federal Government after that Bear Market. The Federal Reserve decided to hold short term interest rates near zero, then entered into ‘Quantitative Easing’ measures designed to assist the banking sector. Meanwhile, the Federal Government ballooned in size with the aid of record Executive orders and bureaucratic expansion. This became a burden on the economy, because the federal government does not contribute to productivity. The result was a slow recovery and a slow stock market.

When is this Bull Market going to end? The quick answer is that we have never had a Bear Market without an accompanying economic recession. An economic recession is defined by two consecutive calendar quarters of negative GDP, gross domestic product. We haven’t even had one such quarter. If fact, the first two quarters of 2018 showed continuing expansion and growth. This type of growth doesn’t turn on a dime. In fact, leading economists project it to continue well into 2019, perhaps even into 2020. So we keep an eye on the horizon, but the reality is that trouble does appear to be quite a ways off.

How about those trade wars? The news media loves drama, specifically drama which aims at the White House, thus coining ‘trade wars.’ Almost all of the major trading nations in the world impose trade tariffs, including the U.S. The current administration is seeking to equalize tariffs. Why? Because some of our trade partners are ‘big boys’ now and don’t need that advantage any longer. Here are the average tariff rates for the U.S. and its ten largest trading partners: S. Korea, 13.9%; Brazil, 13.5%; India, 13.4%; China, 9.9%; Vietnam, 9.6%; Mexico, 7.0%; Malaysia, 5.8%; EU, 5.2%; Canada, 4.1%; Japan, 4.0%; U.S., 3.5%. The bullseye is on China, which has grown to be the world’s second largest economy. So far, everyone but Canada wants to negotiate.

What about the potential impact of the mid-term elections? Once again, this is a plaything of the news media, which will inject far more drama than substance into the process, and the results. Currently Congress is in virtual gridlock because the Democrats have no majority and the Republicans don’t know what to do with their majority. The result is a recurrence of Congressional inaction and a flood of Executive actions. The drama has also been extended to the Judicial Branch, which has become a surrogate decisive body in light of the relative ineffectiveness of the Legislative body. Financial markets happen to favor gridlock, because the rules remain the same, right, wrong, or indifferent. The impact of the mid-terms should be minimal.

© Edward D. Foy

Sources: Bloomberg, Marketwatch, StockCharts

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SELECTOR® Money Management

2018 Second Quarter Review

The Second Quarter Was Very Constructive For Domestic Equities

After an opening quarter that included the first 10% correction in almost two years, the 2nd quarter of 2018 saw domestic equities effectively stabilize. That being said, they sure took their own sweet time. April closed out with more questions than answers. During the month of May the short-term downtrend that started in February was finally broken. In June we saw another positive push, but it almost melted away in the final week. The Dow Jones Industrial Average (DJIA) rose +1.26% in the 2nd quarter, to finish the first half of 2018 still down -0.73%. The S&P 500 Index gained +3.43% in the 2nd quarter and is now up +2.62% YTD.

There Were Significant Variances In Sector Performance In The Second Quarter

Leadership was quickly restored in the Internet sector, with a sparkling +14.33% quarterly gain in the Dow Jones Internet Composite Index. This is also the leading index YTD, up +25.66%. An equally significant performance for the quarter was seen in the energy sector, with the S&P Composite 1500 Energy Sector Index gaining +14.32%. This sector is now up +7.43% YTD. Small Cap stocks also had a very good quarter, with the S&P 600 Small Cap Index gaining +8.77%, to stand at +9.39% YTD. On the flip side, the S&P Composite 1500 Financial Sector Index and the S&P Composite 1500 Industrials Sector Index fell -2.79% and -2.47%, respectively, in the 2nd quarter and stand at -3.38% and -4.00% YTD.

The 2nd Quarter Proved To Be Particularly Challenging For International Equities

Tariff talk has been on the table for a couple of years, and there were few surprises in the quarter. However, the new-found strength in the US Dollar took its toll, especially during the month of May, and especially in the Emerging Markets sector. The Russell Latin America Index, which had been a singular source of strength in the 1st quarter, fell -17.57% in the 2nd quarter. The Russell Emerging Markets Index fell -7.83% in the quarter and is now down -6.76% YTD. The Russell Europe Index declined by a more modest -1.19% in the quarter to stand at -2.65% YTD. The US Dollar broke a 15-month downtrend in May. That reality, coupled with rapidly approaching tariff deadlines provided a significant headwind for international equities. And both factors could reverse just as quickly.

Bond Markets Now Appear To Be Firmly Range-Bound

The US Aggregate Bond Index declined -0.16% in the 2nd quarter, and is down -1.62% for the first six months. These numbers are not awe-inspiring, but the short-term downtrend that started in January was broken in June. High yield bonds continue to have an advantage over high quality bonds. As one might expect, the rise in the US Dollar has pressured international bond markets significantly. The Bloomberg Barclays Global Aggregate Bond Index fell -2.79% in the 2nd quarter and is down -1.46% for the first half of the year. Interest rates continue to creep higher, and there has been a general dearth of bad news, which slowly gnaws on bond market returns.

Financial Market Returns Appear To Be More Related to Technical than Fundamental Factors

Equity markets were in desperate need of a correction, and they finally got a nice one in February. They have spent the next four months digesting it. The short-term downtrends are now broken, intermediate-term trading ranges are in place, and the long-term trends remain positive. This is not a bad scenario. The primary questions are when and where they will break out of the trading range. Interestingly, corporate earnings reports over the first half of the year have been excellent. This puts equity markets in the unfamiliar ground of lagging behind the fundamentals, rather than leading them. Once again, this is not a bad scenario. Bond markets are also in a trading range, but mired in slightly negative numbers. This is in spite of gradually rising interest rates, and good corporate news. This is not altogether a bad scenario for bonds and bond investors because there is always bad news around the corner, and their yields remain higher than real inflation. Patience can win this battle as well.

© Edward D. Foy

Sources: Bloomberg, Standard and Poor's, StockCharts

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Cindy L. Foy

Director of Operations

As the Director of Operations, Cindy is actively involved in practically every aspect of the business. She is the primary contact for Foy Financial Services, Inc.'s back office service provider and the information technology trouble-shooter. She is actively involved in executing portfolio allocations and reallocations, marketing for the company, and all day to day operations of the office.

As the proud daughter of Ed, Cindy takes her job of serving clients and the family business very seriously. After working part-time at Foy Financial while studying Finance at the University of Nebraska, she became a full-time member of the team in 2001.

In addition to her work at Foy Financial, Cindy loves her two sons and two dogs. She strives to not only practice healthy and fulfilling lifestyles, but to share that opportunity with others as well.

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Edward D. Foy

President & Chief Investment Officer

My job is to help you accurately assess your current financial picture, integrate that picture with your financial destination(s), and assist you in executing a plan that comfortably gets the job done. Whether you are just starting to invest, or well into your retirement, there is always room for good advice. My passion is to assist you in achieving your greatest successes, while taking the paths that are as clear and as smooth as possible.

After starting in the financial services industry as a stockbroker in 1980, I established my own firm in 1987. With experience in good and bad stock markets, high and low interest rates, business recessions and expansions, political solidarity and conflict, and international peace and turmoil, I can help you maintain perspective, interpret events, and manage expectations. We will form a partnership that is educational as well as entertaining for both of us.

Aside from the business, my world is centered around family. We are extremely fortunate to have all three of our daughters and all eleven of our grandchildren living in Lincoln. Our calendar is filled with their activities, and almost every holiday is celebrated with a family gathering, usually at our home. In short, life is good.

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Andrew J. Kramer

Director of Research & Chief Compliance Officer

After growing up in small Nebraska towns like Alliance, Big Springs and Blue Springs, I graduated from of the University of Nebraska-Lincoln and began my career at Foy Financial in 1996. In the twenty plus years I’ve been in the financial services industry, I’ve attained numerous licenses for both investments as well as insurance. Over the years I’ve played many roles at Foy Financial including Director of Research, Chief Compliance Officer and as a Financial Advisor. I love learning about the uniqueness of people and showing them the different ways to manage the problems they face. People have plenty in their lives to stress about. Talking with someone about their financial situation shouldn’t be one of them.

My wife Becky and I have been married since 1993 and have six children (2 girls and 4 boys). As the oldest have started to leave, our family has been quick to take in more pets. I enjoy the many adventures that come with parenting such as sports, music and scouting. I enjoy spending time outdoors, cycling, cooking, reading and exploring new places with my family.

“My goal is to help folks make the best possible choices with their finances and to make attaining their financial goals as stress-free as possible.”

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