Whatever Else You Believe, Always Believe in Seasonality

March 20, 2018

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

It’s the first day of Spring in the Northern Hemisphere. Weather-wise, anything can still happen. Especially in Nebraska, where today we had snow, slush, rain and temps ranging from the 20's to the 40's. Tomorrow we may hit 60. It's Spring and, whatever the short-term forecast projects, the 'seasonal' forecast takes precedence because sooner or later, it's going to warm up and the things that are supposed to get green will get green. It's a Seasonality Thing. The same thing happens in the financial world, although it is not governed by the tilt of the planet versus the sun.

There are Weather seasons, Calendar seasons, Business seasons, Political seasons, and last but not least, there are Bull Market and Bear Market seasons. Some have similar drivers, like the calendar. Some are driven by longer-term influences, like political re-election cycles, and Bull Market and Bear Market cycles. The most important factor is awareness, because very rarely does it snow in the northern hemisphere in July, and very rarely does the temperature hit 80 degrees in February. Unlike weather seasons, longer-term seasons require a different type of scrutiny and analysis. Especially when it comes to financial markets.

"There is no bigger target for the contrarian than the long-term trend."

In the investing world, if you believe that every event is like a bottle rocket that flies off in a totally unplanned and unexplainable fashion,you will always be a surprised observer, and rarely a successful participant. Things happen for reasons, especially when billions of dollars are ivolved. The players in a game this large never put anything down to mere chance or fancy. It is a complicated, never-ending chess match between global masters with unlimited capital and unimaginable patience. The key to success for normal people like you and I are to change the rules to conform to our own time-frames.

We can define the parameters and the variables of involvement for our own hard-earned money. This is not an exercise best left to a radio talk show, or a TV 'investment game show guest,' or a self-proclaimed locker room genius. It is a job for an experienced, accountable, fiduciary investment professional. It's harder to qualify under those parameters than you might expect. But we are out there, ready to answer the hard questions, eyes wide open.

Back to seasonality, equity markets are still enjoying the long-term, multi-year push of an economy-driven, corporate earnings-driven Bull Market. It has been in place since 2009 and, like most things that are that long-in-the-tooth, it has had a complicated journey. It is larger than politics. The critical drivers are far more complex, although partisan politics continue to push the day-to-day headlines and public sentiment. Multi-year business cycles/seasons are still comfortably in the driver's seat.

There is no bigger target for the contrarian than the long-term trend. This is especially true for those who are primarily seeking personal gain and notoriety. In the contrary, ironically, an advisor who is NOT obsessed with personal notoriety will work to put their clients in the most favorable position consistent with a long-term trend. This is in full recognizance that change is down the road, as always, and that they have a plan for that as well. That is how conscious advisors operate. We want to take full advantage of the reality of the day. We don't get caught up with the negative outlooks being touted by those who are seeking headlines and we remain responsive to our clients' needs. Sounds simple, doesn't it? But it's not.

© 2018 Edward D. Foy

Sources: Bloomberg, Marketwatch, StockCharts, Blackrock

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What You Don’t Own Can Be As Important As What You Do Own

February 21, 2018

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

When you have been investing for a long time, like my thirty-eight years as a professional, you learn how to simplify the process.The basic skills and lessons gradually become more clear. This is in sharp contrast to the early days, when the rules alone could befuddle the mind, let alone the financial market’s gyrations. One of the more subtle advantages of having earned experience in a field of endeavor is that you are surprised less often by the events of the day. You have seen it before. You remember how the process transpired in the past. You recognize the sequences that preceded and followed similar events. Perhaps most importantly, you don’t get too excited or discouraged, and are more capable of taking appropriate action.

Now, this does not mean that eventually the activity of financial markets appears to become clear as day. Financial markets are the brain child and the playing field for the most aggressive, most brilliant people on earth. They utilize the services of the most complex computers, computer programmers, and artificial intelligence algorithms that mankind can devise. Yet, an experienced investor learns to recognize certain patterns in the market activity that can lend clarity to seemingly hopeless confusion. They have their own protocols and algorithms that assist them in navigating towards their objectives.

One of the most profound lessons I have ever learned is that it’s not as important what you own, as what you don’t own. Our current Bull Market in equities is a great example, especially over the past twelve months. Equity indexes have advanced in a remarkable fashion over the past twelve months. The move has been broad, but it has NOT been all-inclusive. If you were unfortunate enough to own positions in energy and/or real estate securities over the last rolling 12 months your portfolio has NOT grown at the 17% rate of the S&P 500 Index and the Russell 3000 Index. Over that same period of time the Morningstar US Energy Sector Index fell -3.4%, the Dow Jones Utilities Average only gained +3.6%, and the Dow Jones US Real Estate Index fell by -1.8%. So why would anyone waste their time and their portfolio dollars on these sectors when there were so many wonderful choices!

If you want to be a better investor, Job One is to avoid playing with the broken toys. Identify not only what IS working, but what is NOT working. This means that you have to be paying attention to the entire toy box all of the time. Unfortunately, most people don’t have the time or the resources to be this discerning. So they make decisions to either 1) choose a professional to assist them, 2) pick and choose on their own and hope they get lucky, 3) resign themselves to owning the whole toy box with its sub-par results. Obviously we have a strong opinion on the most effective solution. This is one of the most important ways that we help investors manage risk. It’s worth the price of admission all by itself.

Every investor is different, and deserves their own, unique solution.While we do utilize investment models representing multiple styles, the exact solution depends on our client’s exact situation. Different investment models address different investment objectives, bring consistency to the solutions, and efficiency to the execution. However, all of our investment models share the same risk management principles of avoiding what is not working. This holds true for bonds as well as for equities. It is also a natural reality of investing in diversified models that you are not going to pile all of the assets into one asset class, no matter how many home runs it is hitting at the moment. It is nice to have a home run hitter or two in the lineup, but it’s even better to have runners on base consistently. For an efficient portfolio allocation, this means implementing multiple asset classes into the portfolio. It does NOT mean including a player that can’t get on base for their life, in the hope that one day they will get lucky, or unlucky enough to get hit by a pitch.

© 2018 Edward D. Foy

Sources: Bloomberg, Marketwatch, StockCharts, Blackrock

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Hopping Onto A Moving Bus

January 23, 2018

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

How do you hop onto a moving bus, and why would you?Hopping a bus to your destination is a pretty straight-forward process. Determine which bus is headed in the right direction, wait for it to pull up and stop, confirm the bus, and step inside. But what if the bus isn’t clearly identified, and what if it doesn’t come to a complete stop? What if the bus stops short, or long? What if the bus doesn’t stop at all, but slowly moves forward, or even backward? The net result is that you can become so consumed by the first detail of the journey that you compromise the destination, or miss it all together.

The reality is that almost never does your investing bus slowly pull up, stop, and announce all aboard.The investing busses are always on the move. They are not waiting for you. You need to be prepared for them. This can be especially true in our current environment where equity investments have just completed a fabulous year. Do you not hop on just because of that? And do you have to put all of your money on the same bus at the same time? Is that wise?

Finally, to make matters worse, investing busses are rarely the variety that haul music superstars from show to show in relative anonymity.Investing busses are often covered with garish advertising and promises of future performance. There may even be someone on the upper deck announcing the next amazing feat to be seen! And how much will the ticket cost, in fees and commissions, in opportunity cost if you wait too long, and with the investment risk that your bus must might break down or turn around?

We have a process that helps clarify these situations.First and foremost, understand exactly what you control and what you do not control. Future market direction is beyond your control. How long the ride lasts is beyond your control. How far you need or want to travel may or may not be in your control. You ultimately must decide that the journey is worth figuring out the variables along the way. You will learn how well you adapt to changes in the route and the rate of progress when are you settled on the bus. Bottom-line, if the trip becomes too uncomfortable, all you have to do is get off the bus. And hopefully you will be farther down the road than if you never took the shot at all.

Investing is a fabulous teacher. There is no one correct fashion or style or pace. Your experience will be as unique as you are. If you cannot muster up enough courage to take a big first step, opt for a smaller step, and dollar-cost-average. You can systematically learn how various busses run their various routes. You even have an ‘Uber’ option, where you can hire a Prius or Escalade driver, a.k.a. a registered investment advisor, to personally take you where you want to go. If you like the idea of a party bus, just turn your TV to CNBC and start dialing the 800 numbers that pop up constantly. That would never be my preference, but to each their own.

So why in the world am I banging the table about getting invested, getting on the bus? I started in this business in 1980, with double digit interest rates, double digit inflation, and single digit equity market returns. Needless to say, it was a challenging time to ‘get on the bus,’ but I learned a great deal. The 90’s was a different lesson entirely. There was so much negativity in the 80’s that we were halfway through the 90’s before investors realized that things were actually getting better with the U.S. economy as well as the global economy. And investors started clamoring to get on the bus. The 2000’s were distinguished by two of the worst Bear Markets in the history of the U.S. stock market. So far this decade we have been experiencing single digit returns until last year. Investors remain suspicious. This does not feel like the late 90’s to me. It feels way better than that. We are riding one of the longest Bull Markets in history and it hasn’t even gotten crazy yet.

© 2018 Edward D. Foy

Sources: Bloomberg, Marketwatch, StockCharts, Blackrock

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Trust Your Eyes, Not Just Your Ears

December 22, 2017

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

Trust your senses.This statement quickly launches into a philosophical versus practical debate about inputs, reality, and behavior. Before I disengage most of the readers please know that I am going to focus on practical applications, not philosophical postulations. And we are going to be talking about not just trusting your senses but trusting your instincts, which includes your personal experience and biases. Our senses provide us with a first perimeter of information, primarily for defensive reasons. The same holds true for our instincts. Self-preservation is a primary instinct that should always be appreciated and nurtured. While we are fortunate to not be living in the wild, defending ourselves against the weather and natural predators, we must continue to maintain those capabilities in the present environment.

The messages our senses receive can be confusing when they are intense or conflicting. Sights can be too bright, sounds can be too loud, smells can be too strong, and touches can be too violent. When we receive information that is intense and may represent a threat it is important to rapidly interpret so the best immediate course of action can be taken. That is basic self-preservation. When we receive information that is conflicting it is important to interpret, isolate, and filter to assist in making the most appropriate decision and reaction.

When it comes to financial information, the senses of sight and sound take precedence.We are bombarded with information about financial markets, insurance, and health care. It is one of the last, great door-to-door sales prospecting venues. Instead of knocking on our front doors, or calling us on the telephone, they assault our senses on television screens, computer monitors, and emails. The sales pitches come from retiring actors and game show hosts and convincing strangers with fabulous smiles and disturbing messages. This happens on the professional front as well, as we are presented with opinions and forecasts and prognostications that boggle the mind. Who is right and who is wrong? Who can you trust?

We choose to trust our eyes and not our ears.The opinions are simply opinions. The reality is that not one single human being is able to predict the future. Ever. Yet people continue to desire to divine the future. We prefer to pay very close attention to what is happening around us at the present moment, and remember exactly how we got here in the first place. This approach, coupled with our decades of experience, serves us much better than listening to the hype. We very carefully filter information. We very consistently insulate ourselves from the tip-of-the-day. And we very diligently analyze price and trend data as it presents and changes daily.

One of the oldest and best pieces of advice is to ‘consider the source.’This is especially true in our current environment where all of the major news outlets are very politically polarized and motivated in the presentation of their interpretation of ‘the news.’ Once upon a time our news was presented based on facts and we were left to form our own opinion. Today the news media chooses to present and direct the facts based on their opinions. This represents a huge conflict of interest, but a powerful tool for those who may benefit from manipulation of mass opinion.

In the financial world the same truths hold true. Accordingly, we choose to trust our eyes and not our ears. We do not listen to Jim Cramer on CNBC, or CNBC at all for that matter. Likewise we choose not to be swayed by CNN, PBS, ABC, NBC, CBS, or even Fox television. AP, UPI, BBC and Reuters have all become effective spin-masters and are very happy to help you make up your mind. For us, we hold to, ‘Just the facts, ma’am.’ We trust price and trend. We look for the signs in the forest at our feet and watch the skies for changes in the weather. It is not simple, but it is effective.

© Edward D. Foy

Sources: Bloomberg, Marketwatch, StockCharts, Blackrock

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When Markets Decline

April 25, 2018

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

Near the end of our daily, local TV news we get a ten word or less synopsis on stock market.It always amuses me how so much drama can be presented in such a short snippet, especially when markets decline. Of course, the ‘market’ that is quoted is the Dow Jones Industrial Average (DJIA). While the DJIA only represents thirty of the thousands of stocks that are traded, it is the granddaddy of market indexes. It’s current price is approximately 24,000, the biggest number of the U.S. equity indexes, so its price moves are often reported as hundreds of points. Toss in a dramatic verb like plunge, collapse, plummet, or tumble, add a serious tone and a frown, and Voila! we have drama, which is how news is reported these days. How I miss Walter Cronkite.

It is a reality that markets can decline, and rise, and trade sideways.That reality introduces risk, and creates opportunity. The riddle is how you interpret a market move, assess risk, and recognize opportunity. Financial professionals utilize a number of parameters as they work to recognize market fluctuation. And interestingly, a hundred different financial experts can give you a hundred different interpretations. There is a lot of science, but even more art form in the work. It all starts with the objective. Some advisors are all about growth. Others are more concerned with safety and other groups are only interested in income. Just as the advisors’ points of view differ, the investors’ investment objectives differ. The answer to the riddle can often be found in the conversations that take place between the investor and their personal advisor.

Back in the 80’s and the 90’s, you took a market decline with a grain of salt. News traveled slower. Markets traded slower. Major market moves generally took much longer to unfold. Technical trading tools were limited, even primitive by today’s standards. In most cases, the best thing to do during a market decline was sit tight and wait it out. That changed in the 2000’s, when we experienced two major market declines that each dropped prices by 50% just five years apart. The March of 2000 high for the S&P 500 was 1553. It dropped to 768 in October of 2002, rose to 1576 in October of 2007, before dropping to 666 in March of 2009. It took until March of 2013 to regain and break through to new highs. That’s a total of thirteen years for prices to totally recover.

The rules of engagement had to change. Nobody wanted to lose another thirteen years. The responses were again quite varied for both advisors and investors. Several chose to just drop out of the game, with a record number of advisors retiring, and investors settling for CD rates of return. Others went ‘dumpster diving’ into alternative asset classes, long-short strategies, and hedge fund ventures. And finally, a majority began to develop ‘rules engines,’ a.k.a. algorithms that sought to alter investment strategy as markets declined. Institutional implementation of these algorithms hinged upon computer-driven trading in volumes that could not be managed in the traditional stock exchanges. But every mechanism carries its own risks. By eliminating human trading risks such as judgement and price consideration, computer trading introduced risks such as trade compression and tail execution.

Once again, the calming response came from the personal advisor, the one who actually knows their client.Investing is not a one-size-fits-all business. It does not come down to the end-of-day Chicken Little stock market report. The most successful advisors constantly study the markets, assessing risk and searching for opportunity. Most importantly, they communicate with their investors. The most successful investors stay in tune with the markets, sticking to their long-term plan, but accepting detours and adjustments along the way. Most importantly, they communicate with their advisors. Teamwork gets the job done right.

© Edward D. Foy

Sources: Bloomberg, Marketwatch, StockCharts,

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SELECTOR® Money Management

2018 First Quarter Review

In The First Quarter We Experienced The First 10% Correction In Domestic Equites In Seven Quarters

This is guardedly apologetic, because it was such a smooth ride the last 1.75 years, and 2017 was almost creepy comfortable for domestic equity investors. There wasn’t even a 5% correction in domestic equities during 2017, and 2018 opened with a January that was amazingly positive and productive. In February, domestic equity markets finally exhaled, and that rest/pullback continued through the month of March. Even with a moderate (-10% year-todate) correction the total return numbers at the end of the first quarter barely lifted one’s concern. While the S&P 500 Index closed the first quarter down just -0.76% , the trailing 12-month total return the for the S&P 500 Index was still +13.99%.

From A Sector Perspective, The First Quarter Was More Diverse

Only two of the eleven S&P sectors, Information Technology and Consumer Discretionary, finished the first quarter in positive territory, up +3.53% and +3.08%, respectively. Hardest hit were Telecommunication Services, down -7.46%, and Consumer Staples, down -7.12% . Energy, Basic Materials, and Consumer Staples were all down over -5%, with Utilities, Health Care, Industrials, and Financials progressively better, but still closing the first quarter in negative territory. Most telling were the trailing 12-month returns, with Telecommunication Services -4.95%, Consumer Staples -1.37%, and Energy -0.06%. Sector selection, as usual, was the predominant factor in managing total returns.

International Equities Also Finished the First Quarter In Negative Territory, With The Exception Of Emerging Markets Equities

After mirroring the U.S. equity run-up in January, the MSCI World Index, excluding the U.S., ended the first quarter down -2.19%. The MSCI Europe Index finished the first quarter down -1.84%. Emerging markets equities enjoyed an even more impressive positive run in January and were able to retain positive returns at the end of the quarter. The MSCI Emerging Markets Index finished up +1.28%, with considerable assistance from the Latin American sector.

With A General Pullback in Equities, One Would Expect Bond Markets To Rise, But Not So

Bond markets started their own correction in early January, as equity markets rose. The bond market decline continued into February as equity markets started their pullback. Institutional focus on bond markets were not impacted by the equity market decline, but rather by the specter of rising interest rates and rising inflation. This largely detached bond markets from their traditional role as buffers on equity market declines. On the contrary, bond markets were leading equity markets lower. The end of March we finally saw some rallies in the investment bond sectors, but their end-of-quarter numbers were not reflective of the sort of relief we normally expect. The U.S. Corporate Investment Grade Index finished down -2.32%, while the U.S. Aggregate Bond Index was down -1.46%.

The Correction In Equities Is Still Not Resolved

While April is traditionally and historically a positive month for equities, and while the economy is projecting positive numbers, a correction can be like an infant’s temper tantrum. It’s not over till it’s over. Like the parent who gets to carry their screaming child out of church, or out to the shopping mall parking lot until everyone can calm down, our role becomes more challenging as we work to preserve capital and manage volatility. The church and the shopping mall and the stock market will continue to stand, but there may well be a better time than the present to visit. April signals the start of the next corporate earnings season, which is expected to be a good one, and the first reflection of the recent changes in tax laws, most importantly a huge corporate tax cut. It should be interesting.

© Edward D. Foy

Sources: Bloomberg, Standard and Poor's, StockCharts, Blackrock

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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

As the Director of Research, Drew has a special role in monitoring changing markets and trends. He is actively involved in executing portfolio allocations and reallocations and general research for the company. In addition to his duties as the Director of Research, Drew also takes the lead as the firm's Chief Compliance Officer. While not a flashy job, compliance is absolutely essential to financial services, and Drew brings his experiences to bear in order to ensure things are done right.

Drew has worked at Foy Financial Services since 1996 after graduating from the University of Nebraska-Lincoln. He has also been extensively involved within the Scouting community as a Scoutmaster, a Cubmaster, Den Leader, and father of an Eagle Scout.

Drew is quite the family man, entirely devoted to his wife and six children. There are certainly a few members in the house, and as the oldest have started to leave, the family is quick to take in more pets.

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