• This quarter’s earnings season just started last week, so it is still early.  Results were centered on the big banks which mostly reported blow-out earnings and revenues.  The stock reactions, however, were mixed.  When the bar is set high heading into earnings season like this quarter, the market’s performance has been uneven.  Consensus estimated growth in earnings for this quarter is 24% (source:  FactSet), with about 26% growth forecast for all of 2021.  Strong earnings growth helps justify today’s rich market valuations (see main section below).  Earnings growth combined with low bond yields and full fiscal and monetary stimulus are giving investors confidence that forward returns will be positive combined with little fear of a big drop.
     
  • As stocks March higher, there is broad participation which is a very healthy sign.  The S&P 500 advance-decline line has been making new highs along with the market over the past year, a sign that gains are spread across a wide array of companies rather than concentrating on a few big gainers.  See the graph below:

     Source:  Bespoke Investment Group

WHEN EVERYTHING IS PRICEY

The good news for investors is that the economic rebound from COVID-19 is looking like it is real.  The bad news is that financial assets have never been so expensive at the start of a recovery.
 
How can money managers and other investors justify buying stocks when valuations are at their highest starting point for a recovery ever?  Partly because earnings will likely rebound faster than previous crises or recessions.  In fact, all the appreciation in the S&P 500 this year has come from higher earnings rather than higher multiples on those earnings.  Also, companies will discuss how operating changes made during the pandemic should help sustain higher margins – a key metric supporting equity valuations, in our view.
 
In spite of high valuations, more money has flowed into stocks in the last five months than in the last 12 years!  Bank of America has likened the stampede to a “melt-up” in markets.
 
While there are signs of irrationality (IPOs, SPACs), many of today’s market leaders are tech giants that print money, unlike the dot.com era when valuations were based on clicks or eyeballs.
 
The problem with an ‘everything rally’ is that everything is expensive, including bonds and real estate.  Bond yields are near 40-year lows.  Maybe the real bubble is in bonds, not stocks.
 
High valuations don’t necessarily point to a crash ahead.  Rather they are an indication that forward returns will likely be lower than average, probably a good bet over the next few years.
 
It is hard for investors to sit still in frothy markets, but that’s exactly what they should do.  Waiting for a bubble to burst based on high valuations has led to terrible investment decisions in recent decades.  We agree with the late investing legend Jesse Livermore who once said, “Money is made by sitting, not trading.”  Stay the course.
 

 

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?

Knowledge – Results

Experts in Risk Management

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

Real Retirement Solutions

designed to improve
  • Wealth Preservation
  • Management of Risky Assets
  • Peace of Mind

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

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Professional Expertise

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

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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