The year of 2022 will certainly remain in the history books for decades to come as one of the most volatile ever. Our WSG structure, strategy and processes have done their job as I created them to do. The tools I created were not built to avoid volatility completely, but instead to capture only about 70%, or less, of the downside and in an uptrend all, or more, of the upside. Most of our clients have different tolerances for time, risk and volatility, but in general we remain on track with our process boundaries.
We have started to hear a few horror stories from clients about their friends, family and people in their social circle who have been negatively impacted financially from the capital markets this year, to the point that new life choices are needing to be made.
If you come across someone in your family, friends or social circle who mentions financial challenges, or would just like a “second opinion”, feel welcome to refer them to our practice. Helping people manage financial problems is what we do best.
Below is an excellent update from Brittany Jarocki, CFP. So excellent that I am going to poach it for the current edition of The Weekly Update. ENJOY!
James O. Lunney, CFP®
CERTIFIED FINANCIAL PLANNER™ Professional
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Investing involves risk including loss of principal. No strategy assures success or protects against loss.
Price and Value are two important factors of financial markets. Generally, the two move hand-in-hand as the price of an equity tends to reflect the value one would get from owning it.
Just like how I imagine Tom and Gisele would hold hands walking around their 12,112 sq foot mansion – fingers intertwined, smiling, laughing, counting their money.
But now, much like Tom and Gisele, Price and Value are divorcing. Living separately and moving in different directions. Little to no connection, certainly fingers not intertwined.
As the stock prices of Corporate America continue to decline, they become disconnected from the value they offer. The price of a share of Corporate America generally reflects the value that it offers. Of course, value is in the eye of the beholder, but most investors generally agree on the price that a stock should be through basic supply and demand.
For example, do you believe that tech companies provide less products and services (i.e. value) today than they did ten months ago? Or less today than they will two years from now? Said another way, are their products and services less valuable today than they were ten months ago?
But their stock price certainly disagrees. The NASDAQ, a tech-heavy index, experienced a 30% decline from the beginning of 2022 to its low in May 2022.
Yet, are tech companies, products, and services actually 30% less valuable?
Not in my opinion.
Insert price and value divorce.
See, Gisele used to think that Tom’s dedication (obsession) with football was amazing, made him happy, and brought in the big bucks (though, we all know Gisele was really the household breadwinner). Tom being on the road and missing important holidays, birthdays, and being very strict about his training was the price Gisele was willing to pay for the value of his football stardom. But once Gisele got sick of paying those high prices, the value of Tom playing football decreased dramatically. The price she had to pay no longer reflected the value she got from Tom playing football.
Unlike Tom to Gisele, I still believe that many companies of Corporate America are just as valuable (if not more) than they were ten months ago, even though the price doesn’t reflect that. To me, that means a lot of Corporate America is on sale right now!
I believe it will certainly take time to recover, but there has never been a time in history when the markets and values of Corporate America did not recover. So, unlike Tom and Gisele, I believe that Price and Value in the financial markets will come back together and be stronger than they have ever been before.
I remain focused.
I am interested in your thoughts, comments, and questions!
Brittany N. Jarocki, CFP®
CERTIFIED FINANCIAL PLANNER™ Professional
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.