Q.  If the government shuts down on October 1st, are stocks in for a rough patch?

Goldman Sachs recently concluded that U.S. government shutdowns generally have not meaningfully impacted equity returns.

In the 14 government shutdowns since 1980, the S&P 500 posted average returns as follows:

Date of Shutdown                           (0.1)%
Shutdown Periods                           0.1%
Date of Resolution                          0.3%

One exception is the most recent contentious shutdown in December 2018.  The S&P 500 dropped 2% on the day the spending authority expired.

Q.  Is the recent stock market correction over?

What correction you say?  After all, the recent drawdown in the S&P 500 ending September 20th was only 4.3%.  But under the surface, many stocks traded substantially lower.  For example, the average stock on the NYSE was off 15% from its 52 week high, and the average stock on the NASDAQ was off 25% (source:  Drach Market Research).  It has been a tough couple of months for many stocks.

Is the correction over?  We are encouraged that breadth off the low has been impressive and sentiment remains bearish, but this week will be dominated by news on legislation out of Washington and the debt ceiling.  And then earnings season starts in two weeks.  So it appears the market may remain bumpy for a while longer while building a base for the next rally phase.

Q.  Where do you stand on investing in China, the world’s second largest economy?

Xi Jinping’s campaign against private enterprise is far more ambitious than meets the eye.  His recent regulatory crackdown on technology, education, and casino stocks – and making cryptocurrency transactions illegal – is telling of a broader goal.  He is trying to call back China’s decades-long evolution toward western-style capitalism.  In Xi’s opinion, private capital has been allowed to run amok.  Xi, like Mao Zedong, sees capitalism as a transitory phase on the road to socialism.  The goal is to build China into a “modern socialist power,” Xi declared in a speech in January.  President Xi’s “new development concept” emphasizes greater equality through common prosperity, reduced vulnerability to the outside world, and greater state intervention in the economy.

Beijing’s crackdown on private businesses has wiped out hundreds of billions of market value in the past two months.  And it looks like the state’s tightening will increase, which may make matters worse for Chinese stocks.  Unlike the U.S., China is not supporting its stock and bond markets with massive amounts of money.  Since the start of the pandemic, the money supply in China has remained stable while it has increased five-fold in the U.S., with another $4.5 trillion awaiting U.S. legislative approval.  It appears that the Chinese government may want the correction in Chinese stocks to continue.

Avoiding Chinese stocks has not been costly to investors.  Since 1992 the MSCI China Stock index has returned an average of 2.2% annually, including dividends.  Over the same time period, the MSCI Emerging Markets index grew 7.8% annually; the S&P 500, 10.7% (source:  Wall Street Journal). 

We are entering an era of one globe, two systems.  Our position is to avoid direct investments in Chinese stocks mainly because of their stated move away from capitalism.  We will continue to have “indirect” exposure to China through investments in U.S. multinationals like Apple.  Risk management may be best served by taking no position in Chinese stocks.
 
Q.  What is “stakeholder” capitalism and how does it affect my portfolio?

Milton Friedman said that corporations should pursue profit (“shareholder value”) as their primary and sole goal.  The truth about maximizing shareholder value is that mathematically you can only maximize one variable.  Proponents of “stakeholder” capitalism claim that is focusing on the wrong variable.

The theory of stakeholder capitalism states that all stakeholders – customers, employees, suppliers and society – should be considered in a corporation’s mission and business operations.  While some investors view this as an admirable goal, it is not without cost.  Focusing on all stakeholders, in theory, dilutes the profit goal.  If profits are less (and subsequent growth in profits is lower), the value placed on a public company is less.  And if enough companies practice stakeholder capitalism, the expected rate of return on the stock market will be reduced which can affect long-term returns for investors.  It is argued that shareholder capitalism is the reason public companies in the U.S. have much greater value versus public companies in other regions like Europe where stakeholder theory is more popular.

 

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Knowledge – Results

Experts in Risk Management

Are you prepared for the next market correction or financial crisis?

Knowledge – Results

Experts in Risk Management

Are you prepared for the next market correction or financial crisis?

Knowledge – Results

Experts in Risk Management

Are you prepared for the next market correction or financial crisis?

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This is achieved through an ongoing assessment of market risks given your specific financial situation and goals.

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Leadership Team

Richard Furmanski

Richard Furmanski

CFA

has been a portfolio manager and analyst for over 35 years. He manages conservative, tax-efficient portfolios for both pre-retirees and retirees. His lower risk approach appeals to investors who want less volatility and competitive risk-adjusted returns.

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Mary Ellen Adam

Director of Operations

has been in office administration for over twenty years. Her experience includes customer service, firm operations, and office administration. She interacts with our clients on a day-to-day basis and handles any requests that may arise.

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Frequently Asked Questions

If you can't find the answer to your questions here, feel free to give us a call at 847-847-2505

Do you manage both stock and bond portfolios?

Yes. We build a portfolio of conservative, high-quality stocks and hold them for the long-term. The average holding period is 4 – 5 years. Our focus is on stocks that are suitable for retirement portfolios.

Our high-quality bond portfolios are designed to provide both income and stability of principal. Bonds provide the anchor for balanced accounts (those holding both stocks and bonds).

What is your investment philosophy?
We take great care in purchasing only high-quality stocks and bonds intent on a multi-year holding period. Portfolio turnover and taxable realized gains are modest in comparison to other active managers. We do not time the market but will become more defensive, in terms of stock holdings, when market conditions warrant.
Will the portfolio be managed in accordance with my financial goals?
Yes. Each of our clients has a custom-tailored portfolio. These custom portfolios are designed to meet specific client objectives with a thoughtful approach to specific constraints such as risk tolerance. And as each client’s situation changes, the portfolio does as well. There is no cookie cutter approach.
What kind of expertise do you have and how can that help me in difficult markets?
We have been working with high-net-worth clients like you since 1982. Over that time we have helped them to navigate several bear markets and financial crises (including the stock market crash of 1987). We hold the Chartered Financial Analyst (CFA) and Certified Financial Planner (CFP) designations.
Are you sensitive to taxes when managing portfolios?
Yes. Our holding period for an individual stock averages 4 plus years which means our turnover is low and realized gains can be carefully managed. Further, where possible, we tax loss harvest small losses as a way of offsetting gains taken elsewhere in the portfolio.
How have you performed?
Results will differ by client and the level of customization but we have provided competitive investment returns for many years.
How do you charge for your services?
We charge a management or consultant fee based upon the size and level of customization of the account. As the account grows, we benefit together.

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