Thursday, November 4, 2010

An Outstanding October!

From the Desk of Joe Rollins

All the dire forecasts and predictions of gloom and doom going into September and October of this year wound up being off target, as further evidenced by the excellent market performance during October. During October, the return on the S&P 500 was 3.8%, reflecting that September and October had the best performance ever for those two months in the history of the U.S. financial markets. In fact, the S&P is up 8% for the last three months, and up 16.5% for the one-year ended October 31, 2010. How do these returns compare to the returns of your money market account?

Rollins Financial’s total portfolio under management was up 9.8% compared to 7.8% for the S&P through October 31, 2010. Coupled with the S&P gain during 2009 of 26.46%, Rollins Financial’s total portfolio had a very impressive 12 months in 2009 and 10 months for 2010.

My “Why is Everyone so Jumpy?” post published on October 16, 2010 garnered a lot of emails from clients, many of whom expressed outrage with my supposed presumptuousness in that post. A few people told me that everyone was jumpy because of all the negative financial news and the never-ending media reports of the almost assured U.S. economic catastrophe that they believe we are facing.

There is almost universally good news about the economy. I agree that it’s not great, but it’s also not catastrophic. In the last few days, it was announced that the GDP’s growth for the third quarter of 2010 was at 2%. This means that the last five consecutive quarters have reflected gains in the GDP, which should be encouraging to even a doomsday reader.

Thirty-year fixed-rate mortgages in Atlanta dropped below 4% last week. Even though there continue to be reports that the Federal Reserve wants to push down interest rates further, it is hard to believe that right now you can secure a 30-year mortgage at a sub-4% interest rate. If you are buying a home today, you can easily do so.

Corporate profits in America are nothing short of breathtaking at the current time. Corporate America is reporting unheard of profits in the history of American finance. As I have stated in several prior posts, corporate profits lead to higher stock prices.

I've had conversations with several of my clients this week about investing additional money in their portfolios. Unfortunately, I heard all too often that they were leery of doing so because of the horrible economic news being reported by the media. Sadly, many of them are scared to invest. My answer to their concerns is that there is rarely a better time to invest than when times seem bad. Here are a few quotes to illustrate my point:

“The time to buy is when there’s blood in the streets.” – Baron Rothschild

“Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can’t buy what is popular and do well.” – Warren Buffett

As we all know, yesterday was the mid-term election day. I’ve fielded a lot of calls from concerned clients who ask my opinion on the potential impact to the stock market from the election results. Frankly, I think that the market will go down for a few days regardless of who wins. There’s an old Wall Street saying that would definitely come into play here: “Buy on the rumor; sell on the news.” Once the news is out, the market will go down for a short period of time, but this will only be a temporary adjustment.

The trend in the market is clearly up, as the two very strong months of September and October have illustrated. If the market does pull back after the election results – regardless of who wins – you should be a buyer in that market.

Over the last few days, I have had no choice but to watch way too many political ads and commentators on the election. The one thing that seems to be missing in politics today is a candidate that is fiscally conservative but socially liberal. We seem to have a choice of either the far right or the far left, but no real moderate candidate. The Democrats are free-spenders who are greater advocates of individual freedoms. The Republicans are more fiscally conservative but seem to meddle in citizen’s private issues. I’m more interested in someone who will stay out of our wallets and our bedrooms. If that candidate ever arrives, I’m going to bet that he or she will be wildly successful.

Our current leaders are learning the hard way that they do not have an unlimited checkbook to spend and pay back their political allies. Because of that, the next two years will likely be much more fiscally conservative, and I cannot help but think that will be a good thing for stocks and for the U.S. economy.

As always, the foregoing are my opinions, assumptions and forecasts. It is perfectly possible that I am wrong.

Best regards,
Joe Rollins

Important Disclosures
Rollins Financial's investment results noted above are actual historic returns as represented by our entire portfolio of assets under management. They are neither the best nor the worst portfolios; they are simply the average of all of our portfolios combined. Data presented reflects past performance, which is no guarantee of future results. Investment results and principal value will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. These results also do not include the effect of our management fees on investment results. The results do, however, include all fees charged by mutual funds and any expenses charged by account custodians.