Michael: Welcome to this month’s episode of Cup of Bull.
I want to talk to Patrick about why we should be bullish. When you look at the news right now, we’ve got a war going on, we have inflation at 40 year highs, we have a fed that doesn’t know what to do. So I want to ask you Patrick, why should anybody be bullish right now?
Patrick: Well when you look at things like a 25% down for the year, the news likes to focus on that and kind of blooden the streets and spread negativity everywhere.
As a long term investor, you look at where you are going to be with this money. There is no better time to be putting money to work than when the market is down 25. The valuation of companies become attractive. The lower the price, the better the deal and more safe it is to be investing in equities. Keep in mind that the companies that you own are great companies and they have smart people running. There goal is to succeed and they are going to make the right moves whatever the atmosphere to get ahead of all those things that happen.
The crisis of the day.
Yes, high inflation, what do we do about it?
Yes rates are rising, what do we do about it?
There are smart people at great companies making good moves and ultimately that’s what we are investing in and they are going to win. They always have and they always will. When is the best entry point? When things are bad. When there is blood in the streets. When things are ugly, that’s a great time to invest. For people that are already in the market, rebalance your current investments and add money.
Michael: So what about somebody who wants to prepare for the next bear market? Somebody who wants to make sure that the next time we are down 25%, maybe they don’t feel the way that they do right now. What can they do?
Patrick: One bright side of these rising rates is money markets are now actually paying a little bit of money. So building up an emergency fund, you can get roughly 3% in a money market. That’s better than 0% that it was in the really recent past.
Having a fully funded emergency fund or a war chest of ‘this is my just in case money.’ When you have that, first off being debt free and having an emergency fund brings a huge sense of relief and makes it easier to stomach the pain of bad markets. So building up an emergency fund is a good step.
Michael: So it’s natural human tendency to want to take action any time you’re uncomfortable. Nobody likes to sit there and do nothing. So what should we do right now? Should we sit there and do nothing or are there smart things we should do? Or are there things we should definitely not do?
Patrick: Absolutely, the first thing is going back to the plan. All of our clients should have a plan. Review the plan and update the plan if it’s necessary. Look at what you did in the past in the first place and why. In most cases, we did the exact same thing and we keep doing it, rebalance and add money. Now opportunities present themselves when there are bad markets.
We have talked a lot about a lot of Roth conversions with clients. If somebody has got $100,000 in an IRA and it goes to $75,000. They could convert some of that to Roth IRA and make it tax free forever and they are doing that at a 25% discount before the market rebounds higher. That’s one move that is a way to take advantage of bad markets. Reviewing your plan, rebalancing if you had some in cash and some in bonds that is now over weighted versus the stocks, rebalance.
I love that strategy of always planning to rebalance in good markets and in bad markets, it goes both ways. You always need to be buying low and selling high.
Michael: The way I like to think about it is Black Friday. When it is Black Friday everything is on sale. What do we want to do? We want to go into the store and buy as much as possible. It’s a natural human tendency to want to run out of the store or out of the stock market whenever everything is on sale. The smartest thing to do would be to buy and remain bullish.
Any closing thoughts?
There is a term that is procyclical and I struggle when I say that. Everything else in our life really functions exactly like that. When things are in sale, you buy more. When groceries are half price, you are going to fill your cart. With investing in companies or looking at the market, you react the total opposite way. When they are down, you want to sell out of it and want to flee it. When things are up, you want to buy more. That is the wrong way to do it. Buy low, sell high. Procyclical and keep rebalancing and take advantage of it and add money.
Michael: Awesome. Thanks for joining us for this month’s episode of Cup of Bull. Stay Bullish.