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The bad, the ugly and the opportunity

The bad, the ugly and the opportunity

By Marc DeCuffa, APMA®

The year of 2022 has been another wild one for the Markets. While the previous three years had been marked with the fear and uncertainty of COVID-19 they were overall fantastic years for stocks. All major indexes were continuously hitting all-time highs, pushing valuations to extremes, all while making us feel like there was no end in sight.

Now as we all move on from COVID-19, even though it is still lurking around the world, the economy is now facing the dire consequences of the very tools that saved the world from financial collapse during the pandemic. The loose monetary policy, rock bottom interest rates, real estate boom, increase in wages due to shortages laborers, etc.

We are all also faced with the following realities: equity markets do go down from time to time, as do bond markets, “buying the dip” isn’t a fool-proof plan, and day trading crypto isn’t a sustainable “side hustle” or retirement strategy. What better way to illustrate this point then looking at HOOD (Robinhood Markets Inc.), which had everyone with a phone and stimulus check trading stocks and “shooting for the moon”. HOOD had its IPO the Summer of 2021, and hit the secondary market in the mid $30’s. As the embodiment of the momentum and uncheck optimism of its users, HOOD quickly shot up to $85! It also quickly dwindled downward along with the broad market. Almost a year and a bear market later, it’s trading near $7 at this moment. Quick math on that tells us it is trading down ~91% from its all-time high.

So, why am I writing this? To shame investors of HOOD and make people feel bad? Not at all. If we are invested in this market, we all feel bad right now. HOOD is simply an example of the euphoria that has been brewing in the stock market over the past few years.

So as the pendulum swings back towards its other extreme, pessimism and fear set it. Yet we must remember these emotions are in response to outside stimuli, things we, as individuals, have little to no control over.

Now I can get into the chain of events that have brought us to the highest inflation seen since the 70’s, the Fed raising rates at clips last seen in 28 years, or how the NASDAQ is down over 31% at the moment; but those things might not even matter for your situation. At Proxy we like to focus more on the actions (or non-actions) we all can take to get us through these challenging times.

First, take a quick moment to reassess your feelings during this market drop. These times are the true gauge of your risk tolerance. If you have thought of selling everything, if you are losing sleep over your investments or fear that you don’t have enough time to recover what has seemingly been lost, you took on too much risk.

It’s easy to say we are aggressive when “risk assets” represent big upside, but when we are faced with the downside our real risk tolerance is revealed. If you are one of the many people now rethinking your risk tolerance: all is not lost. Especially if you have time on your side, since historically markets have been cyclical with their ups and downs. With our guidance and time, your recovery could be both quicker and less painful. On the other hand, if you took the down payment for your pending home purchase which was sitting safely in a savings account (probably earning nothing), and threw it all into

QQQ (Nasdaq ETF), you might have to wait a while before your dreams of homeownership are a reality. You should also, at this point, seek out our team to help you avoid compounding the issue.

Second, if you did everything “right”, as in, you understood the appropriate amount of risk you should be taking and were on track for your goals prior to this bump in the road, stay the course! If your goals and time horizons for investing have not changed, neither should your investments.

Work with your Advisor at Proxy to make sure you are still properly positioned and if small adjustments should be made, that’s not a problem either. Just don’t let your emotions push you to make rash decisions. Don’t make decisions that will affect yourself and your family while “lizard brain” is in control. One of the most important jobs of your Advisor is to be the buffer between you and the eject button when your brain is in “fight or flight” mode. Our Advisors will not only work hard to put you on the right path to financial freedom but will also prevent you from unnecessarily undoing those years of hard work, saving, and discipline.

Lastly, don’t look at this as all bad. The expression “making lemonade out of lemons” pops to mind. Maybe because it’s going to be 90 degrees today in NYC and lemonade sounds good. Or maybe because we can take the challenging, sour market we are in now and make the best out of it. If you are looking at big loses in your investment account or have no investments and fear getting into the market now; focus on the future. This might sound disconnected from your emotional pain from the losses in your portfolio. It’s not. We understand you and have talked with clients in these markets for decades.

The lemonade to come from this will be yielded from the extreme sell off, one where many overpriced not so good companies are trading at all-time lows, but also many great companies with tremendous opportunity are trading at real discounts. Those great companies, that investors were willing to buy at all-time highs and at severely overpriced valuations, are now priced at relative discounts. Yet so many are afraid to jump on the deal. You don’t run away from a Black Friday sale, do you?

Allows us to use some humor and a quick metaphor to describe what’s happening in plain language…

The peak of the 2021 stock market was like ordering Lobster at a fancy restaurant, with a price tag of “Market Price” (MP). You know MP means you are going to pay a lot for that lobster, likely US$50/lb in the US these days, but you don’t care because it’s delicious, everyone is having lobster and you don’t want to miss out!

Come June 2022, we are not sitting in a plush seat, arms folded on a white tablecloth, awaiting a bottle of sparkling water and our chance to order the MP special of the day. Today you are pacing the aisles of the local market, unsure of what to buy… if anything.

Back and forth, as you pace the aisles of the seafood department you are overlooking the fresh Maine Lobster on sale for US$8/lb! (Okay, now I want some lemonade and lobster)

Point being, there are opportunities being created for investors. Opportunities to buy the very same thing that they loved before, the thing that has been so consistently good that we’re willing to pay anything for it, yet now is at a huge discount, they ignore it. Keep in mind not everything is lobster, and somethings are in the bargain bin for a very good reason.

If you are looking to learn more about how to properly identify your risk tolerance, plan for your future goals, or hear more about how the current market fits your situation, please contact your Advisor for a check-in on your situation.

At Proxy, we are Wealth Done Better®.

Marc DeCuffa, APMA®

Director of Wealth Management

Proxy Financial

Disclaimer: Investing in financial markets carries risk, including loss of principal. You can lose some or all of the money that is invested. Past performance is no guarantee of future results. The material contained herein is for informational purposes only. This document does not constitute a recommendation of securities, securities portfolio, transactions or investment strategies. The projections were created based on hypothetical information, there is no guarantee that any of them will come true. Proxy Financial is a registered investment adviser. Proxy and its Financial Advisors are not licensed in all states to offer securities and insurance products. This site is not a solicitation of interest in any of these products or service in any state which the registered representative is not prope