THE VIRTUS VIEW

Good afternoon to all.

This communication is intended to add value to your life by helping you separate the real news from the white noise, understand the critical economic events that you read about every day and outlining  alternative investments which might be advantageous to you in these times.  We send this weekly e-mail to both clients as well as individuals we hope become future clients.  Thus, to my valued clients, since we use many alternative investments in your portfolio currently, some of the e-mails might discuss assets that you already understand.  It never hurts to review your knowledge of those investments.

Please feel free to forward these e-mails to any friends you have who you believe will benefit from learning more about finances and investments.

I wanted to discuss stock market strategy again since 2009 has started of like 2008 ended.  Here we are half way into January and the S&P 500 is already down over 8%.   We are left again with wondering where the bottom is for equities.  It appears we will test the November lows of 752 for the S&P 500 but that is not a certainty. 

What is a certainty are the half truths written by many on Wall Street.  I was reminded of this again while reading an article sent to me by a colleague.  The article states if you were invested in the S&P 500 from 1984 to 2008 but missed the 10 best days of the stock market your return would have been 3.9% compared to the index’s return of 9.8%.  This data is most assuredly accurate but it does not tell the entire story.  So I did a little research and came across this analysis from Paul Gire in The Financial Planning Journal:

His study looked at DOW 30 returns from 1984 to 1998, which was 17.9%.  He wanted to examine this theory in a bull market (which one would assume is a time you don’t want to miss days in the market).  The table above shows what your return would be if invested in the Dow 30 during that period assuming you missed the 10 best days, 10 worst days, and missing both the ten best and worst days in the market.  He went on to research the impact of missing 20, 30, and 40 days of best and worst performance.

So yes your return would be lower that the 17.9% if you missed the 10 best days.  But if you missed the 10 worst days your return would be 6% greater per year.  Now granted it is probably unrealistic to assume one can be invested in the best days but be so good (i.e. lucky) to be out of the market the worst days.  So what if you are out both?  Your return would have been 20.3% compared to the 17.9% return of the overall index. 

I am not recommending that you start trying to time the best and worst days.  Rather to be careful when reading some of the marketing tools which are trying to persuade one through emotions, in this case greed, to buy their investments.  Patience is needed in times like these, not fear of missing out on some possible gains.

In November I wrote that we should be selling into a rally if preservation of capital was a priority to you.  The time for that was in December and early January.  If you have been doing this like I have, you should have raised some cash for future investments.  In the next Virtus View I will discuss the importance of finding the right stock leadership to invest in going forward as opposed to holding existing stocks waiting for them to recover or using a shotgun approach.

Best Regards

Brian Tillotson

Wealth Manager

Virtus Wealth Management

2435 E. Southlake Blvd

Suite 120

Southlake, TX 76092

817-717-3812

866-407-4320

Fax: 817-416-6585

www.virtuswealth.com

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