My claim or my “value-add” to my client relationships is not some sales B.S. that I can call tops or bottoms in asset classes. Far from it. In fact, I generally take an “I’d rather be late and right, than early and wrong” approach to my timing decisions. I do want to be clear, the data overwhelmingly suggests the markets are late in the topping process for risk assets. Even though it is late, now is the time to prepare because if the data really begins to slow, risk assets could significantly fall.

So why is calling turning points so emotionally hard to do? There are many reasons, but two primary ones come to mind. First, most people have bias that create blind spots to the turn. The chief, most widely publicized, is recency bias. Just like it sounds, it is where one takes the most recent past and projects that into the future. This creates an expectation. When the actual results contradict the expectation, the person does what? They look for information that confirms the expectation and will completely ignore data that would naturally lead to a change in course. By now, the person has anchored their decision making to the cost basis or the amount of capital contributed to the investment and will refuse to respond to the incoming data until their account reflects the original expectation. This negative feedback loop continues until the emotional pain is too great and are forced to liquidate. The two primary fears in this scenario are fear of being wrong and fear of loss. The exact opposite takes place when one has achieved great gains. Fear of missing out and fear of leaving money on the table over-take all other reasonable capital preservation decision making. I can write about this so effortlessly because I’ve experienced them all - many times.

The second problem with call turning points is more of an industry (or systemic) issue. The individual bias are challenged, but with personal work can be conquered. The second problem is more difficult. Humongous bank and brokerage is not compensated to issue caution. There is no vested interest. The media has no vested interest in stories of caution or conservatism, because a sizable amount of their revenue comes from humongous bank and brokerage. While I no longer have a front row seat in any big Wall Street firms, my information suggests that all asset programs are driven by compliance - not independent thought.

There is zero intellectual curiosity. The “advisors” or sales people continue to beat the drum of what brings in the most revenue to the organization- not to your brokerage account. They continue to speak gobbledygook about how you can’t time the market, buy and hold, invest for the long-term, asset allocation, blah, blah, blah. And when the bear market strikes, they don’t have to accept responsibility. “Well, the market went down,” they’ll say. It’s not their fault. No one could see that coming. It is cancerous bias to always buy and never sell. The main question is… where does this “fantasy” money come from to keep buying lower if you didn’t sell higher? If a manager under performs, you just change the manager. The advisor still keeps your fees. The advisor never accepts responsibility for the poor results, they again point the finger to… the manager.

Calling turns, both up and down, takes career risk. But- I’m in the risk management business. This is what I get up early every morning to do. I’ve been managing risks for clients for over 20 years. I fully own this and make no excuses. I make a lot of mistakes. I record those mistakes and move on. There is no perfection when dealing with the future. The most typical question I get from prospective clients is, “well that sounds great Paul, but how do you know when to get back in?” and I can hardly blame them in asking such a question. With “advice” today, you either get the perma-bull, which is most every humongous bank and brokerage firm and advisor because you don’t have to think or take responsibility for your actions. They get to continue to pitch you product 365 days every year.

Or, you get the perma-bear, bloviating fear like a broken clock is only right once every 10 years. You never see the same person who calls the turn and the top, subsequently call the turn at the bottom. The perma-bear is always right at the top (accept you’ve made no money for 10 years listening to him, but he’ll later write a book about calling the top) and the perma-bull is always right at the bottom (accept you’ve lost the majority of your money by then, but he’ll site some obscure comment he made in passing about being “cautiously optimistic” to feed the self-righteousness).

Humongous bank and brokerage doesn’t deal in facts you see. To answer the question about when you get back in? You get back in when the data (aka the facts) dictate that you get back in. I’ve spent a great deal of my professional life behind the curtain. Pretty much every humongous bank and brokerage model is centered around consensus. When you begin with consensus you are devoid of, (again) intellectual curiosity and financial puzzle solving. You then lather on top of consensus a big, thick dose of “valuation” and “economic theory” and it is no wonder why customers are so confused. This is all opinion based. When you begin and end with facts it makes the process definable and repeatable… and accountable- something humongous bank and brokerage will never do. At least with facts, I know when I am wrong. Wall Street will simply come up with new spin to justify the original opinion.

It’s the cycle. It has always been the cycle. It will always be the cycle. To think in terms of cycles, you have to acknowledged some bending or curvature of the data- right? Global data has been slowing since the beginning of 2018. US economic data peaked in the third quarter of 2018. It is now the middle of 2019. I’ve come up with a straightforward way for individual investors to understand cycles- called Four Seasons Cycle Investing. It is a play on the actual four seasons to identify turning points in the economy. It is data driven. It is not my opinion. It is a road map to anticipate the most likely future scenario. Is it perfect? No. Is it fool proof? No. But what I can speak to is how well this process stacks up to what millions of individuals receive as “financial guidance” from humongous bank and brokerage sale people and those useless plans handed out by the thousands of financial planners out there. The Four Seasons Cycle Investing approach is repeatable and fact based. This approach can be both bullish when the cycle indicates and bearish when it is prudent to do so. And if you can’t tell by now… I’m going out on a limb to say, here in the middle of June 2019, even the bear’s portfolios aren’t bearish enough.

Financially Prepared Winter!

P. Franklin, Jr., CEO

All opinions and estimates included in this communication constitute the author’s judgment as of the date of this report and are subject to change without notice. This communication is for informational purposes only. It is not intended as an offer or solicitation with respect to the purchase or sale of any security. This information is subject to change at any time, based on market and other conditions. Any forward looking statements are just opinions – not a statement of fact.

Investing may involve risk including loss of principal. Investment returns, particularly over shorter time periods are highly dependent on trends in the various investment markets. Past performance does not guarantee future results.