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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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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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 the 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

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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