Select Page

January 13, 2020

Chadd Mason, CEO The Cabana Group

News-Driven Market Predictions Can Be a Recipe for Disaster

What a week! In just about seven days, we (the U.S.) and the world have stepped back from the brink of war with Iran, Iran has shot down a civilian aircraft killing 176 innocent people (and then lied about it), and the Iranian people have gone from marching in the streets chanting death to the U.S. to now marching in the streets chanting death to their own ruler. You just can’t make this stuff up. Not only is this an example of just how fast news events can change, but it is also a prime example of how relying on news events of any kind are a recipe for disaster when it comes to investing.

One week ago, news pundits (and so-called investment experts) on television were shouting warnings that the overbought stock market would quickly drop in the face of the military conflict in Iraq and collateral fallout. I read one article last week that said the conflict could “immediately cause a 15% correction in equities”. Along these same lines, many clients were concerned and several asked to liquidate their accounts to cash. I referred them to the commentary I wrote last Monday night discussing past military conflicts’ historical impact on the U.S. economy over the short term. More importantly, I pointed out that markets very quickly figure out what is important and what is not as it relates to the attractiveness of asset classes. This is true whether we are talking about war, natural disaster or some foreign or domestic political upheaval.

Since the market close on January 7, when the bottom appeared to be falling out of the stock market, the S&P 500 is up nearly 3% as of this writing. Anyone who sold assets because they “predicted” a particular market response have now lost 3% in returns and are faced with the incredibly difficult decision of whether to “get back in”. After all, the bullish response may now be over, and the selling could resume! This is called a dilemma and one that you do not want to be faced with.

What I have just laid out is an incredibly important lesson in investing. It is impossible to predict the stock market or any other market for that matter. If it were possible, everyone would do it and it would therefore have no value. Have a process that you believe in and can stick to. There are a million ways to be successful in investing, but every one of them has a process. Warren Buffet has a process and the fanciest market technician has a process. Find data points that are meaningful to the performance of the assets that you invest in and follow them religiously. Try to stay invested and collect dividends and interest if you can. You won’t always be right, but you will be getting paid while you wait. Staying invested is the key to long term success. Making investment decisions based on anything else is what some would call gambling. It is a fool’s game. Don’t be a fool with your money.

At Cabana, we remain in our Moderately Bullish Scene and have not reallocated.

IMPORTANT DISCLAIMERS

This material is prepared by Cabana LLC, dba Cabana Asset Management and/or its affiliates (together “Cabana”) for informational purposes only and is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed reflect the judgement of the author, are as of the date of its publication and may change as subsequent conditions vary. The information and opinions contained in this material are derived from proprietary and nonproprietary sources deemed by Cabana to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by Cabana, its officers, employees or agents.

This material may contain ‘forward looking’ information that is not purely historical in nature. Such information may include, among other things, projections and forecasts. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this material is at the sole discretion of the reader. Past performance is not a reliable indicator of current or future results and should not be the sole factor of consideration when selecting a product or strategy. All investment strategies have the potential for profit or loss. All strategies have different degrees of risk. There is no guarantee that any specific investment or strategy will be suitable or profitable for a particular client. The information provided here is neither tax nor legal advice. Investors should speak to their tax professional for specific information regarding their tax situation. Investment involves risk including possible loss of principal.

Cabana LLC, dba Cabana Asset Management (“Cabana”), is an SEC registered investment adviser with offices in Fayetteville, AR and Plano, TX. The firm only transacts business in states where it is properly registered or is exempted from registration requirements. Registration as an investment adviser is not an endorsement of the firm by securities regulators and does not mean the adviser has achieved a specific level of skill or ability. Additional information regarding Cabana, including its fees, can be found in Cabana’s Form ADV, Part 2. A copy of which is available upon request or online at www.adviserinfo.sec.gov/.

The Financial Advisor Magazine 2018 Top 50 Fastest-Growing Firms ranking is not indicative of Cabana’s future performance and may not be   representative of actual client experiences. Cabana did not pay a fee to participate in the ranking and survey and is not affiliated with Financial Advisor magazine. RIAs were ranked based on percentage growth in year-end 2017 AUM over year-end 2016 AUM with a minimum AUM of $250 million, assets per client, and growth in percentage assets per client. Visit www.fa-mag.com for more information regarding the ranking.

The Financial Advisor Magazine 2019 Top 50 Fastest-Growing Firms ranking is not indicative of Cabana’s future performance and may not be representative of actual client experiences. Cabana did not pay a fee to participate in the ranking and survey and is not affiliated with Financial Advisor Magazine. Working with a highly-rated advisor also does not ensure that a client or prospective client will experience a higher level of performance. These ratings should not be viewed as an endorsement of the advisor by any client and do not represent any specific client’s evaluation. RIAs were based on number of clients in 2018, percentage growth in total percentage assets under management from year end 2017 to 2018, and growth in percentage growth in assets per client during the same time period.  Visit www.fa-mag.com for more information regarding the ranking.

Cabana claims compliance with the Global Investment Performance Standards (GIPS®). In addition to the firm’s third-party verification, six of Cabana’s core portfolios have been performance examined consistent with GIPS® standards. The Global Investment Performance Standards are a trademark of the CFA Institute. The CFA Institute has not been involved in the preparation or review of this report/advertisement. Verification assesses whether (1) the firm has complied with all the composite construction requirements of the GIPS standards on a firm-wide basis and (2) the firm’s policies and procedures are designed to calculate and present performance in compliance with the GIPS® standards. Verification does not ensure the  accuracy of any specific composite presentation unless an independent performance examination has been conducted for a specific time period. Past performance is not indicative of future results. Due to various factors, including changing market conditions, the portfolios may no longer be reflective of current positions.

No client should assume that the future performance of any specific investment or strategy will be profitable or equal to past performance. All investment strategies have the potential for profit or loss. All strategies have different degrees of risk. There is no guarantee that any specific investment or strategy will be suitable or profitable for any investor. Asset allocation and diversification will not necessarily improve an investor’s returns and cannot eliminate the risk of investment losses. While loss tolerance and targeted “drawdown” are identified on the front end for each portfolio, Cabana’s algorithm does not take any one client’s situation into account. It is the responsibility of the advisor to determine what is suitable for the client. An advisor should not simply rely on the name of any portfolio to determine what is suitable. Cabana manages assets on multiple custodial platforms. Performance results for specific investors may vary based upon differences in associated costs and asset availability.