While the S&P 500 remained near its all-time high, the recent massive selloff in the technology sector went mostly unnoticed. But for investors who follow the so-called “FANG” stocks (Facebook, Amazon, Netflix, Google) the hit was painful: About $60 billion in value was wiped out in just one afternoon, representing the largest selloff in nearly 2 years.
The wipeout was a function of just how big these companies have become and the position they are in with new tax reform looming. Tech companies are expected to receive little benefit given its already-low average tax rate of 18.5% (below the 20% proposed rate).
This has caused investors to rotate out of the tech stocks and into the financial services sector, which stands to benefit more from a corporate tax rate that would drop from the current 35% to 20%.
Interestingly, the S&P 500 was relatively unaffected while this rotation into financials and out of tech ensued. The index’s volatility actually remained low, as did correlations among the S&P 500’s member stocks.
In other words, the diversity offered by the S&P 500 Index allowed for the index too remain relatively unscathed by the trading within the tech and financial sectors, a key reminder to investors that having proper exposure across the markets continues to be important with the S&P 500 near its all-time high.
What Are Your Own Possibilities?
Sometimes, the pursuit of wealth can leave a void in our lives—a place left empty because we lacked the energy or time to pursue a dream. There is a saying: “Wealth is not an end, it is a means to an end.” The problem is that the complexity of creating wealth and the subsequent financial planning often gets in the way of seeing and pursuing an end truly aligned with your highest purpose in life.
My life’s work has been focused on this critical unmet need. I hope to help people see the possibilities that open up once you escape from the chaos and confusion that characterize so much of the wealth management field today. I absolutely know it is possible to put a large portion of wealth management on automatic; I have built the system, structure, support and discipline to achieve this; and I’ve seen how using these benefits helps people define and achieve their highest ambitions. This approach is both effective and rewarding.
Clients are surprised sometimes when I ask them about their higher purpose and possibilities. It is not that they feel I’m prying; they just don’t expect an advisor to be concerned with such matters. I tell them that these are the most important questions for them to consider when it comes to financial planning.
Does intelligence equate with investment management success?
What might it take to succeed in investing? Intelligence alone? You have to be intelligent to get into Mensa. They only accept applicants with IQs that place them in the top 2 percent of the population. One might expect that if Mensa members formed an investment club, their returns would exceed market averages, or at least match them. In actuality, between 1986 and 2001, while the S&P 500 was returning a robust 15.3% annually, the Mensa Investment Club had average returns of 2.5% per year.
How did these geniuses and near geniuses manage such poor results in such a strong market? Their basic problem was a lack of discipline. Instead of using their intellects to determine a sound investment approach and sticking with it, they got sidetracked into exploring trendy new tools and theories of how to predict market trends. When one strategy didn’t work they tried another. They made frequent trades, thus increasing their transaction costs. In short, they provided a perfect example of Warren Buffett’s comment: “Investing is not a game where the guy with the 160 IQ beats the guy with the 130 IQ.” Common sense and discipline will beat erratic genius every time.