Is it the end of the year yet?

Oh, wait, that was only the first 5 trading sessions of 2016? Are you kidding me?

I don’t know about you but my order size for the extra-large bottle of fruit-flavored TUMS is clearly going to have to increase. : )

Like our friend Dr. Ed, I too went to see The Reverent this weekend. Wonderful movie, intriguing and clearly shows the fighting spirit our ancestors carried. There is a horrific scene in the movie which goes on for much longer than one would hope for.

DiCaprio takes on this bear for three rounds and is nearly killed. With little actual speaking script the entire movie, he spends the rest of it fighting back to his ultimate victory in tracking down the man who killed his son and left hi m in the woods for dead.

Watching the gruesome scene of the attack itself felt like a rerun of last week’s markets. Few stones were left un-turned as we all seemingly once again think that if China is not growing at 10%, we will all perish.


As suggested in the first note of the year, the drumbeat of “The January Effect” is loud and clear, muscling in on all that is important. Before we decide that somehow the first 5 days measures the whole of the year, let’s review a few stats.

Since 1950, the market has been up 42 times in the first 5 days. Of those 42 events, the market indeed ended the year in positive territory 35 of those times – for a comforting 83% success rate. Not too shabby.

There were however 23 years where the first 5 days were down – with 12 of those years ending in positive territory after all – or 52% of the time. Not great – but not Armageddon.

Back when commercial rest estate was in the tank in the early 90’s, 1991 started the year out down 4.6% in the first 5 days. It ended the year up over 25%! That was because the world turned out to not be ending after all.

The issue is this – there is no data which assures anyone of any outcome. Every day – every year is a new one.

Every single problem we are currently being told to fret over, as the experts warn us that they become “Black Swans”, is being attacked right now to build solutions.

Like the rest of our history – all forward movement, all opportunity – starts with a problem to solve.

For DiCaprio’s character – it was she er survival.

For us – it is patience and discipline.

Besides, the very definition of a “Black Swan” is something that surprises everyone. Right?

The Bigger Picture

You see, for many, many years, the world has been ending. Indeed for most of the years since I have been in business since 1982.

We have had excuse after excuse. At times, when we did not have one to fret over – we created one.

Is this start of the year ugly? You bet it is. But here is the key:

As long-term investors, one needs to muster the courage to look back on all the other times that seemed dire. One needs to harken back to the days – like these currently – when all around us seemed like we were collectively walking on egg shells.

It is human nature to feel afraid of a future we cannot yet see.

As stated before, faith and fear ask of us the same exact thing: To believe something we do not yet see.

Here is the deal though: with very, very few exceptions, during all those other times when the news and “facts” seemed so negative, so terrible, assured of certain coming doom – the outcome was far different from the “perception” at the time.

Yet Another Viewpoint

While the whole world shudders and bomb shelters are built, earnings need to be reviewed to see just how terrible it is on the factual side.

Dr. Ed’s team reminds us that when we take away the clear rough patch (and earnings crush) in the energy sector, the earnings multiple for the rest of the SP 500 falls of f pretty well – far from the dreaded “overpriced” category.

Further, if we take away the effect of just the 4 – FANG stocks, you get an event lower number multiple:

Taking away the energy disaster – we get a P/E multiple of 15.6

Taking away the energy and FANG’s – the rest of the market goes to a 14.7 multiple.

In essence, a vast majority of the marketplace has already suffered mightily while their earnings, well, have not.

Back to The Point?

I am pretty sure Warren is not selling much.

The public is on the other end of that stick with the last 13 weeks showing mutual fund selling at a nearly $250 BILLION annualized pace.

Can we point to anytime in the past where the mass public, reacting to one bleeding headline after another, seemingly in never-ending waves, had it all figured out?

I think not…but that does not make it any easier.

So even though I hate red ink far more than anyone reading this morning’s note, I have my TUMS close and an over-weighted amount of cash idle, patiently waiting for when it really hurts.

It is ugly and painful to watch for now.

But short-term money needs are never in the markets and hence, not at risk.

Long-term investors make their money during these times – when it hurts.

In the grander scheme of things, the data suggest it is far more likely that we are closer to upside surprises than we are to the end of the world….or Armageddon 16.0.