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How the Market Works

The Magic 8 Ball

Posted by kdadmin on February 7th, 2014.

Last Saturday, one of my clients, who is a very efficient communicator, noted his accounts were down at the end of January and (essentially) asked if he should trust it would recover. Remembering the Magic 8 Ball from my youth, I replied with “Outlook Good.”

In my opinion, the Magic 8 Ball works just like the financial media (and psychics for that matter): say enough equally vague things and you never actually have to say, or stand behind, anything at all. You can always be half right, and breed enough fear and dependence that people will keep buying your papers.

Luckily, that’s not what we do here. We try to be as specific as possible given that no one can actually predict the future. We can, however, notice trends. For example, the macroeconomic indicators seem to be pointing in the right direction; and though the amateurs are all freaking out about the Fed’s tapering, the Fed has been very clear about its intentions and true to form.

Last Saturday, the market (S&P 500) was essentially in the same place it was in mid December, down from its high by 3.8%, while our portfolios were down by roughly 1.2% over the same period.

Enough said.

p.s. After a tumultuous week, the market (S&P 500) is trading at about 1790 as of 12:30 PM CDT today, which is a smidge higher than the 1782 it settled on last Friday.

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