Another New High in the stock market this week. The longest bull market in U.S. history continues. The combination of the new highs and the length of the bull market makes many individuals nervous that a recession and bear market are close at hand.

“This time it’s different” is considered the four most dangerous words in investing. This time it may indeed be different. The recovery from the great recession has been the slowest in U.S. history. So many different factors and players were involved in the causes that many attempts at solutions were ineffectual or even counterproductive. From 1960 till 2000 the S&P 500 grew at a compound rate of 8.29% and Gross Domestic Product Grew 7.63%. But from 2000 till 2018 the S&P 500 grew at a 4.05% and GDP grew 3.72%. Perhaps the slower growth rates have prevented excesses and prolonged the uptrends. Or perhaps “Making predictions, especially about the future, is very difficult.” (Yogi Berra)

Our favorite data source for predicting the future is our strategy spreadsheet. When we have an excess of ten top buy recommendations, we are comfortable with the market. We currently have nineteen. We base our comfort level on the strategy company actions. NOT buying their shares back is the first action taken by nervous companies. It is obvious that laying off employees, stopping expansions, reducing dividends, or canceling purchase contracts are all more difficult than stopping buybacks. We have found this early warning signal is accurate and useful.

What do we do when we see data that predicts a market decline? We continue to hold the stocks of companies that continue to repurchase their shares. As prices decline in a bear market this gives these companies the opportunity to repurchase even more shares with the same cash outlay. Our research process is to pick securities that are of high quality, safety and value just for their recovery potential after bear markets. Companies that suspend their buybacks fall off our buy list and are sold. We build up cash reserves with the sales proceeds and we also find new ideas as prices decline and therefore tend to buy when others are selling. It is more than ten years since the great recession started its recovery and individual’s annual SELLING has exceeded buying for the entire period.

We have a goal of outperforming the S&P 500 index by 5% a year. But that is not our main goal. Our main goal is to assist clients to stay invested in difficult times and avoid buying overpriced and or risky securities.

Katz Family Financial