Tudor February 2021 Commentary
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A Rambunctious Start to 2021
Dopamine as a Driving Force for Speculation

“Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas.” - Paul Samuelson, economist

Sure. That idea would go over well with the mob of investors that crowded into the investing universe as 2021 opened up. Pockets of massive speculation cropped up in markets this year as COVID-inflicted cabin fever induced an army of bored smartphone users to push buttons on their phones intermittingly for fun. These things most often end poorly, but dopamine is a powerful reward seeking hormone that motivates this kind of behavior. Back in the old days, the motivator was neighborly cocktail party discussions, but now social media has a front seat in this adventure-seeking outlet.

If Investing is Anything but Boring, You're Doing it Wrong

Remember the last time you were on a plane? Consider the moment the overhead speaker clicked on and you heard those familiar words..."This is your captain speaking..." Our guess is that you tuned it out - didn't give it much thought - because the whole flight prep routine, and the flight itself, is usually pretty boring. We trust the airlines, the pilots and their experience and would hope for nothing more than boring along the way. On the other hand, if you came to realize that your pilot(s) in their younger days were daredevil test pilots (maybe only crashed once) it might cause you pause. Especially since your goal is to simply get from Point A to Point B safely and effectively. A successful outcome should not be contingent on the level of excitement.

Committed to Boring, but Effective Outcomes

We are convinced that investors that have entrusted the care of their finances to us would expect nothing less than careful consideration and diligent allocation of their investment accounts - and time-tested research of the best methodologies - considering 84% of investment strategies either do not improve outcomes or lower risk.(3) Ultimately, the ideal approach is one where excessive excitement is squeezed out of the process because this can detract from good outcomes.

While there are firms that cater to every whim, our view is that the vast majority of investors would rather not fly with a risk-taking test pilot. Any yet many do, sometimes unwittingly. In nearly three decades, we have seen a fair share of flame-outs. Our advice: stick with quality strategies and quality securities. They will get you where you want to go.
Bear Market Ingredients -
Remember January Commentary

Just as airplanes can fly at high altitude for a considerable time, markets can do the same. However, high-flying planes need to come down to refuel at some point, and we noted in our last commentary that the ingredients for a bear market are being blended together.

One year ago at this time, fear was building in February 2020 to push markets down by 35% through March 23rd.(1) Fear was palpable. Nearly every asset class was under pressure. Contrast that environment with recent months - where confidence and greed (and dopamine) have kicked in.

We sent out a warning shot in our January email commentary noting six ingredients currently stirring that increase the probability of a bear market down the road. Some of the six included new stock issuance (IPO's), a record number of brokerage account openings last year, a large and wide spectrum of overly enthusiastic/bullish investment firms and record margin debt (borrowing to buy stocks).(4)

Bear markets occur when confidence is high and FOMO kicks in - fear of missing out. Memories of declines feel distant and investors take on significantly more risk. Holding reserves in cash feels uncomfortable and old-fashioned and buying on the dips seems natural. Untrained investors are drawn in during the first third of a bear market decline as markets dip and are viewed as buying opportunities.
Some Anti-Bear Market Ingredients

The good news is that the yield curve is nicely sloping now (short-term rates lower than long-term rates) which is bullish. Banks make more money with a steeper curve and this also shows the Fed is being accommodative for a growing economy.

Other good news is that there is a bit of political stalemate, rather than excessive skew one way or the other. Markets like that - less damage can be done in stalemate or or at least subdued stalemate.

As noted last month, hold tight. There are only probabilities of bull and bear markets. However, we will be more vigilant in 2021 and will communicate our thoughts over time.
When You Retire Can Make a Big Difference
A person with $1 million invested 100% in the S&P 500 as of 1/01/73 withdrawing an inflation-adjusted $100,000 per year would be out of money in 9 years, i.e., as of 12/31/81. A 2nd person with $1 million invested in the S&P 500 as of 1/01/82 withdrawing an inflation-adjusted $100,000 per year would have $6.32 million remaining after 39 years, i.e., as of 12/31/20. (BTN Research).
This illustration brings up two important considerations:

  1. Retirement timing is a big factor in retirement outcomes, and...
  2. Excessive withdrawals in retirement can be devastating. Minimizing investment withdrawals exponentially improves retirement success

Our cash flow analysis for you prior to retirement can
provide a basis for solid decision-making
1.4%
The rate of inflation in 2020 (Consumer Price Index)

7.4%
The rate of inflation in the decade of the '70's

(Source: Department of Labor)
37%

The current top Federal income tax rate

(Source: Internal Revenue Service)
“Timing, perseverance, and 10 years of trying will eventually make you look like an overnight success.” - Biz Stone
Dow Industrial Index

March 23, 2020 - 18,214 (2020 low)

February 26, 2021 - 30,932(1)

70% Recovery
Enjoy the week...
Grant S. Donaldson, MS, CPA
(1) yahoofinance.com, S&P500 historical data, Barrons, Morningstar.com, Vanguard benchmark returns
(2) Information available upon request
(3) Source: Hulbert Financial Digest, Happy 35th Birthday
(4) Financial Industry Regulatory Authority
Past performance is not indicative of future results.  Nothing in this communication should be construed to contain a solicitation to buy or an offer to sell any security.  Some information contained in this communication has been provided by sources other than Tudor Financial, Inc., the accuracy of which is the responsibility of the provider.  Advisors affiliated with Tudor Financial are Registered Reps. of Westminster Financial Securities, Inc.,40 North Main Street, Suite 2400, Dayton, Ohio 45423, member FINRA/SIPC. If you would like a copy of our Schedule ADV Brochure, a written disclosure statement outlining our background and business practices, please contact our office.