The Wall Street sales machine and business media love to trumpet the enormous investment potential of the “next new thing!” Lately, we hear that the sky is the limit, and the profits are unimaginable for the bold investor in Artificial Intelligence. Just look at NVIDIA…wouldn’t you love to have had a big position of that one in your account?

Even if we believe we are coming to the party early, investing in hot stocks has several challenges. Let’s take a look at the
decisions that face the intrepid investor.

HPA has earned a top 100 ranking on USA TODAY's list of Best Financial Advisory Firms 2024.

With so much emphasis on the Federal Reserve’s actions in raising interest rates the past couple years, including what now appears to be an end to the rate hikes, we thought it would be an appropriate time to highlight the impacts of the Fed’s recent actions and provide some investment perspective on the topic.

This famous line from Gilda Radner’s character, Roseanne Roseannadanna, in Saturday Night Live’s early days, spoke to the reality that there are usually multiple ways that things can go wrong. Several out of work bankers know the feeling.

As we revisit this crucial topic, the “mass” below the surface remains for active mutual fund investors! It’s been a year since we released “Tip of the Iceberg” and the combination of fund fees, tax inefficiency, and performance continue to negatively impact the industry.

When Jamie Dimon, CEO of JP Morgan, famously forecast an “economic hurricane” on June 1, 2022, it made headlines around the world. Broadcasters noted that as the CEO of one of the world’s largest financial institutions, he was uniquely positioned to see economic vulnerabilities...credit card data, corporate loans, mortgages, etc.

Whether you work with a financial advisor or “go it alone,” there are a variety of investment vehicles that can be used to achieve your allocation objectives, including mutual funds, exchange traded funds (ETFs), and individual securities. Are all investment vehicles created equal? For taxable investors, the answer is a clear “NO.” To illustrate this conclusion, the following is a brief study of the total cost taxable investors pay for mutual funds - some components of which are visible while others are well camouflaged.

At my recent ‘coffee group’ gathering, conversation turned to the many abnormal events of the past couple of years. It started with discussion on the pandemic, then moved to the remarkable government policy responses aimed at containing the infections and repairing the economic damage.

As the rapidly evolving realities of the worldwide pandemic became evident, panic ensued in the financial markets. Fear and uncertainty drove investors to seek safety and sell anything with risk.

In the April 2020 paper “Elephants in the Room,” I reviewed the extreme impact that the handful of large digital companies (FANMAG) are exerting on stock market performance. This short list of stocks has provided significant gains to investors
this year, while most of the stock market has lagged. These circumstances have plenty of historical precedent; a review of this history can help with perspective.

As the realities of the Coronavirus induced economic shut-down came into focus, investment markets suffered a dramatic “meltdown” in March. I wrote “Unprecedented,” which aimed to provide some perspective for investors. Now we are 2+ months removed from that wave of panic; it is time to make some follow up observations to prepare investors to deal with the road ahead.

Volatility is a measurement of the ups and downs of price movements. Stock prices change because the everchanging economic conditions impact companies in different ways depending on the nature of their business. Investors react to the news flow by buying or selling based on their view of the future. Some stocks experience more pronounced volatility than others.

In the past few years, equity market returns have shown a marked impact from a handful of enormously capitalized companies.1 These companies are often collectively referred to as “the FANMAG group”, taken from the first letter of each company’s name: Facebook, Apple, Netflix, Microsoft, Amazon and Google.

As the rapidly evolving realities of the worldwide pandemic became evident, panic ensued in the financial markets. Fear and uncertainty drove investors to seek safety and sell anything with risk.

In the last several years of the US stock market’s long bull run, people have often asked “should I lower my risk?” My response usually included an acknowledgment of the concerns of the day (stretched market valuations, Fed policy changes, political upheaval, length of time since the last downturn, etc.), but also highlighted the reality that trying to time the end of a bull market is a fool’s errand that rarely results in success.

On the eve of an election year, Congress has found time to pass the SECURE Act to expand and enhance retirement savings in the U.S. The SECURE Act, which is far catchier than its formal name of The Setting Every Community Up For Retirement Enhancement Act of 2019, has tax and regulatory changes that may impact your retirement plan and your personal retirement planning.

Investment risk management is ultimately about protecting and growing your assets over your time horizon. This involves addressing the aspects of your investment program that can be controlled and then minimizing your exposure to what cannot be controlled.

Ahhh…high school physics class…lots of wonderful memories! It was here that we were introduced to the concept of “momentum,” a measure of the rate of change of an object in motion. Years later, the concept of “momentum” popped back into view unexpectedly in the field of finance. For investors, momentum refers to the rate of change (price performance) of an investment relative to competing assets. Studies on investment performance among stocks showed that momentum exists in relative stock price movements. Stocks that outperformed (high momentum) in the recent...

Most investors I know like to talk about investment return, whether related to their portfolio or to a particular stock they like to take credit for discovering.

Investors want to reap returns from their portfolios, so they measure their performance carefully. Taxable investors know that making money and paying taxes goes “hand in hand”. Too often, they look only at pre-tax return while the more important number is after-tax return. What you get to keep after taxes is what pays your bills!

What constitutes a “high-quality company”? Among academics and investment professionals, the metrics used to identify quality companies differ. Many financial measures have been researched in the pursuit of a factor premium that “aims to capture the excess return of ‘high quality’ companies vs. the market.”

Blue Chips, Red Chips… Large Cap, Mid Cap, Small Cap- most investors understand there is a range of different sizes of public companies. Today, the largest companies have stock market capitalizations (the total number of shares outstanding multiplied by the stock price) approaching one trillion dollars, while the smaller stocks in the public realm sport capitalizations less than $50 million. The largest companies are extremely well known, widely held by investors, and heavily researched on Wall Street. In contrast, most investors have heard of only a few dozen of the small-cap companies making up the Russell 2000 Index. Long ago, investment strategies began to specialize in stocks of different sizes. How does the size differentiation matter?

High Probability Advisors, LLC was created to take advantage of the investment benefits offered through the use of specific “factors” within the construction of our portfolios. Factors are not new; the structure has been used by practitioners for more than 40 years. The combination of several factors in a multi-factor strategy is a more recent development. Each of the five factors utilized by HPA has been identified and supported through academic and industry research as providing an evidence-based approach to enhance return and/or reduce volatility within an investment portfolio.

“How are you holding up in these crazy markets?” In one form or another, this question has been asked by countless friends over the years, especially when stock market declines are in the headlines. During declines, fears about future potential problems come front and center. Doom and gloom on the horizon is a sure way to get everyone’s attention!

Probability is the likelihood that an event will occur, measured by the ratio of favorable cases to the whole number of cases (Wikipedia). For example, consider tossing a coin. There are two possible outcomes, heads or tails. If we toss the coin once, the probability of either heads or tails is 1⁄2 or 0.5, usually expressed as 50%. If we toss the coin twice, the probability of getting two heads is 0.5 x 0.5 which equals 0.25 or 25%.