​Have you ever been flying in heavy turbulence and watched those big wings bouncing up and down, wondering if they were going to break? Yeah, me too. Given how much weight those wings are carrying and the intense pressures being exerted on them as they travel hundreds of miles an hour, it is a marvel of engineering that the things hold together.
 
Another force acting upon airplanes you may not realize is the pressurization. The cabin steward will politely announce that it is being pressurized for your comfort, but what they really mean is so that you don’t suffocate. At the altitudes most jets fly at you would pass out quickly without pressurization. But the pressurization needed to keep you alive exerts enormous pressure of the structure of the airplane. When I was first learning to fly I was impressed at the red carpet treatment the lineman would give our private aircraft upon landing. But one thing they would never do is open the door for us. I learned that, in the event the plane failed to depressurize on landing, opening a cabin door would create an outward explosive force that could kill anyone standing in front of it.
 
Though powerful structures in the air, airplanes become very fragile once on the ground. Even if being towed at 1 mile an hour, a collision with a ground structure could result in hundreds of thousands of dollars in damages to the wing. The skin of the airplane which can withstand thousands of pounds of air pressure, could be damaged by a mechanic dropping a tool on it. The simple reason being that airplanes are engineered to fly. To get the full value out of an airplane, or any vehicle, you need to first know its purpose.
 
Investment vehicles follow the same principle. You cannot ask, “Is this a good investment?” without first knowing what its purpose is. Investors sometimes complain about perfectly good investments because in a sense, they have purchased an airplane when they really needed a tractor. For example, we call some investments “defensive,” because they are designed to hold up better in difficult markets. Don’t get frustrated if your defensive positions lag behind in a booming market. We refer to other investments as “growth,” since they are designed to take advantage of strong markets. Don’t blame them if they struggle when the economy is bad.
 
When people are unhappy with their investment portfolios it is usually not the investments fault, but more that they are using the wrong ones for the job. With volatility increasing as the election nears, we are already seeing growth investments starting to struggle. Don’t let this panic you. Just realize they were meant for a different purpose.
 
If the markets are concerning you, it may be time to reassess your goals and make sure you have the right vehicle for the job. Remember, airplanes are wonderful at flying, and really bad at everything else. The same could be said of many investments.
 

​It was a great week in our office with my son Jared, and son-in-law Jason, both passing their CFP® exams. Apart from all the pre-requisite educational and experience requirements, they both studied almost every day for over a year to prepare for the very difficult test. You can imagine the celebration when they both passed, and the relief felt by their patient wives.
 
As we discussed their accomplishment, one asked what I recommended as the next step in their journey to becoming the best they could be in the financial planning world. My answer to that question comes from my own experience in the industry. I’ve always been fascinated with investing. Perhaps that began early on when my dad first taught me about making money. He said you can either spend your whole life working for money, or you can learn to let money work for you. I liked the sound of that second option and so I set out to do my own investing. I quickly learned that not only can money work for you, but it can work against you if you don’t invest it wisely.
 
As the years went by, I began to learn the value of “time” in investing. Good and bad economies come and go but the person with time to ride them out seemed to do much better. Impatient investors often found markets unforgiving but patient ones were able to benefit from the up and down cycles. The challenge was surviving the bad times. Thus, came my answer to the question. I told my boys that in order to be a good financial advisor, they had to first be financially sound themselves. If bad times came (and they always do) a person who has too much debt or lacks adequate financial reserves to weather the storm, will experience stress and fear. With those emotions come bad decision making. It is also impossible to give calm advice to others in a time of stress, if you are personally afraid for your own survival.
 
I offer the same advice to everyone I teach about investing. Making money in good times is great, but if you have too much debt or if you lack the financial resources to survive a personal disaster or a long economic downturn, a bad situation can quickly erase all you have worked for. And you certainly can’t help another if you are sinking yourself.
 
The coming years will certainly bring more economic volatility. Just as there have been dark days in the past, there will be dark days to come. It is the nature of life. There will also be many times of bounty and opportunity. Prepare for the storms by getting your own house in order, and don’t delay. Then you will be in a position to not only survive the bad times, but to enjoy and benefit from the good ones.
 

​Launa sent me to the store to buy bananas. I was expecting them to be .69 a pound but when I saw they were only .49 a pound I bought more than she asked for. I like a bargain and when I see one I stock up. I am even worse when it comes to clothes. My family is well aware that my closet is filled with shirts and jeans that still have the labels attached. I know I will need them eventually so it only makes sense to buy them when I find them at a great price.
 
On the other hand, I don’t like being taken advantage of. During the spring of this year there was no way I was going to pay those high prices for toilet paper. No worry, we had plenty of supply from a prior sale. If we didn’t have something and it was overpriced, we would do without. Or we would buy the bare minimum. I think most people are like us to some degree. We all like a great deal.
 
That is why I am often confused by investor behavior and the way people buy stocks and other investments. One of the most common methods I have seen goes something like this. A person calls up and says, “Can you buy me some ABC stock because it’s really been going up a lot lately.” This same person would never walk in a store and upon finding bananas at $5 a pound think, “I need to buy a whole bunch of those because they are getting so expensive.”
 
The flip side of this is the person who calls and says, “Can you please sell XYZ stock because I see it has been going down.” Really? So if you go to the store to buy some new clothes and find out the clothes are on sale do you wait and come back another day? All investors love to quote the adage “buy low and sell high” but in practice it is much more common for them to do the opposite. Perhaps the confusion comes from misunderstanding the adage. What it should say is “buy a stock for less than it’s worth, and sell when it’s trading for more than it’s worth.”
 
Buying or selling investments based solely on price movement is like running out to buy real estate because everyone else is. (Sound familiar?) Or dumping an investment because it is currently out of favor. It is critical to know the “why” behind the price movement. In many cases the movement begins to drive itself, opening up opportunities for those willing to invest against the crowd.
 
This has been, and will continue to be, a year of rapid stock price movement. Be very careful about buying or selling something just because everyone else seems to be doing it. Price movement can be a factor, but it is often the least reliable one. As I say, “Know the Why, before you Buy.” 

​Last week I pointed out the irrational prices of some high-flying tech stocks and mentioned that even though I love tech in the long run, I questioned whether it was worth what Wall Street was paying. Stocks, at some point, will usually return to a reasonable level based on value. I was glad to see Wall Street took my advice as tech fell back closer to earth, giving investors more reasonable pricing. So at the risk of starting another run on the market (of course I am teasing here), I would like to point out another area that is getting my attention.
 
As I mentioned last week, much of the market gains since March can be attributed to a handful of high-tech stocks. What is surprising to me is how many well established traditional companies have been left out of the stock market rally. They have been hidden in the shadows as the focus has been mostly on the tech stocks that have driven the rally. This could possibly indicate an opportunity for investors to rotate a bit out of tech and take advantage of more value oriented stock plays.
 
Given my diverse audience, it would be improper to make specific stock recommendations, but I am happy to mention a few things for consideration. One analytical tool I often use is to consider what products or services I think I personally will be using in the years to come. This is especially relevant during the current crisis with so many companies operating at reduced capacity. I ask myself, “Will these industries ever come back, and if so, which ones are likely to be the survivors?”
 
An example would be the travel industry. With travel way down, airlines are struggling, but do we really believe this will be permanent? What about hotels? They were shut down for a time but are now starting to come back online. The financial numbers for the year are going to look pretty dismal, leading to poor returns and weak stock prices, but do we believe people will no longer stay in hotels or travel?
 
What about the oil and gas industry? There is very weak demand now, but will Americans start driving and flying again, and when they do, how will that affect energy prices? Are there energy companies out there with low stock prices that might benefit from a recovery?
 
Theme parks, entertainment companies, sporting events, restaurants, auto manufacturing, and dozens of other industries are suffering severe setbacks during this difficult time and all fall under my main question. Do we really think these things are down forever or will we one day return to using their products and services as we once did? And when that day comes, which companies stand to benefit?
 
High-tech has stolen the Wall Street headlines for six months, but hundreds of other overlooked companies, whose stocks have not yet seen their own recovery, may be the next investing opportunity.

​The current big market news has not, in my opinion, been the return to record levels but the way in which those levels have been attained. Many businesses are still languishing while market indexes have been pushed up largely by the meteoric rise of a relative handful of high-tech companies. I feel this is creating a potential risk to investors.
 
Years ago, stocks were generally bought in lots of 100 shares each. Trading took time and was relatively costly, giving investors an incentive to carefully value what they were buying. If the stock price got too high it was common for the company to split the stock, thus reducing the total price so the stock would remain affordable to a wider group of investors.
 
Today we no longer buy stock in 100 share lots. In fact, investors can now purchase fractional shares of stock, spending as little as $1 per trade to own the world’s largest companies. They do so using mobile based brokerage firms that don’t charge trading fees. (These firms don’t actually work for free, but the investor sees no trading cost.) This technology is very popular among young investors, even those still in high school. As I have thought about these new investors it has occurred to me that in many cases, they are looking less at the fundamental value of the companies they are buying and focusing more on what they perceive as the constant upward price movement of the stock.
 
You might remember the crypto currency craze of a few years ago. My teenage son asked me to explain how Bitcoin worked, and if I thought it was a good investment. He told me all his friends were buying and selling Bitcoin and he seemed to think they were making lots of money. I’m pretty sure most of those kids didn’t spend a lot of time considering the true value of what they were buying. They just knew the price kept going up.
 
Today when I see the seemingly uncontrolled rise in the price of some tech stocks, companies whose products are very popular with young people, I wonder if we might be seeing a bit of a repeat of the crypto currency craze. It’s almost as if these free trading programs allow them to use stocks as an alternative currency. If so, that would mean they care less about the real value of the company and more about their perception that the stock price will just keep going up.
 
If I am correct, then this is an area where investors should proceed with extra caution. I am a huge believer in the high-tech industry. Everything in our life is becoming automated and the trend will continue. But I am also a believer that revenue matters and profits matter, and eventually all stocks usually return to some reasonable form of valuation. Just because a company has a great product and a great future doesn’t mean the company has infinite value. Don’t get sucked into thinking it does.

​I decided to tackle the project of cleaning up my massive photo library from the past decade. It has been quite a walk down memory lane to times that were much different than they are today. While doing so, a friend called for some financial advice. He has been working on some investment opportunities but his employer just notified him that his salary would be substantially cut until the current crisis was over. He didn’t want to miss out on the opportunities but was concerned about the increased risk such investing would place on his suddenly uncertain finances.
 
As I pondered his predicament I came upon the photos I took while remodeling our current office building. When we bought it, the building had been vacant for years, so we decided to do a major rebuild. I wanted to include a state of the art conference center so in the back section we planned to tear out nine separate offices to make room for it. I gave the go-ahead to the engineer, not fully appreciating what would be involved.
 
The new conference room would be 37 feet wide without any internal support, so the engineer called for a massive steel beam to support the heavy roof. Two huge sections of the concrete floor were then cut out and dug down a couple of feet. I was told the enormous weight the beam would support required a very large foundation.
 
After the holes were dug, they were filled with a web of rebar and steel and filled with five tons of concrete. I didn’t understand the need but I trusted the engineer and was glad he was planning a long future for my building. If you enter that beautiful conference room today, the massive steel beam and its heavy supports are skillfully hidden behind decorative wood pillars. Many people compliment the beautiful room, while being oblivious to the hidden foundation that holds it all together.
 
I told my friend that I am always excited at the prospect of new investing opportunities. But my advice to him was that, like my office building, he needed to first assure his family’s financial foundation was solid. Investing must always be weighed against the risk of losing that which we already have. In some situations, like during a crisis, the risk can be too high. Protecting the foundation is often not the most glamorous or fun part of financial planning, but it is the most important.
 
A handful of stocks have really been on fire this year, constantly hitting new record highs. There is a huge temptation for people to want to jump on board that speeding train. There may be good opportunities for sure, but in times of such uncertainty I would encourage everyone to first make sure their financial foundations are solid. If you want to invest in that train go ahead, but only if you can honestly say that if it winds up in a big heap, your family’s financial condition will still be sound.
 

Assessing the effect of a Trump victory in November is much easier than evaluating a Biden win. Trump is a known entity and despite his unusual style, the actions he takes have been fairly predictable. Wall Street does not like uncertainty and so many investors and analysts are noticeably concerned about how a Biden presidency might affect investing.
 
The biggest issue with Biden is the high number of unknowns. With the assumption that Democrats would control the house, one would normally assume that party platform policies would be implemented. But there is nothing normal about politics these days. The Democratic party is so different than it was even in 2016, and far different than the Clinton years. There are very strong forces within the party already promising conflict. Therefore I consider it likely, based on the huge stimulus legislation already passed by the House, (still pending) that we can expect a very expensive effort to please everyone. I do not like deficit spending and would suggest owning assets likely to protect against this inflationary practice.
 
Adding to the already high level of uncertainty is the elephant in the room, Biden’s mental and physical health. A recent Rasmussen poll revealed that 59% of Americans believe that if elected, he would not fill out his first term. That is astonishing and creates enormous uncertainty about how long he would be in charge, who would be calling the shots during the period of declining health, and eventually who would take over. So assessing Biden requires one to assess Harris and the other power players in the party. This is truly an election like none other, with risks being quite high.
 
One of the bigger concerns to investors is a promised corporate tax increase to 28%. JPMorgan estimated this would shave 5-10% off corporate profits. The party has also promised to roll back the tariff and trade war with China. Like a stimulus package, this would likely be positive for investors in the short run, but it would curtail some of the current industrial return to America. Such an action would suggest investing in companies with China ties. Much of high-tech ties significant future growth to China so perhaps those recent stock surges indicate expectations for a Biden presidency.
 
Under Biden I would expect bigger government, higher deficit spending, and a return to the regulatory days of the Obama administration. The general public does not directly see the effects of Trumps’ deregulation actions, but businesses have benefited greatly from it. More regulation would be negative for investors. It would especially hurt industries that are viewed as being unfriendly to the environment.
 
In short, with so many uncertainties and moving parts, in a Biden presidency I would be more diversified, look for companies with strong balance sheets that hopefully pay good dividends, keep a healthy allocation of high tech, and be very leery of any businesses that might be a target of an aggressively “green” administration.
 

​Now that the political parties have chosen their candidates, I would like to offer my preliminary assessment of how investors might be affected by the November election. It is possible to look at history and party platforms to get an idea of the direction one party might take the country, but politics is messy business and there is no way to know exactly what the final product might look like. Experience teaches that, once elected, the legislation and policies that are actually produced by the controlling party, tend to drift more towards the center than the ones that were proposed on the campaign trail. In a pre-law class at the university a professor taught me that the definition of politics is “The art of compromise” so I find it useful to not get too worked up either way about what is being said at this point in the process.
 
Here are my preliminary thoughts for investors on the upcoming election. Keep in mind that every election is cast as “The most important election in history,” with each side acting like this is the one time the world will end if their team doesn’t win. In fact, I can’t remember an election when this wasn’t an overriding theme, yet both sides take their turns at winning and we are still here today. Elections are extremely important, don’t get me wrong, but our system wisely gave power to the people to change things every two years when needed.
 
A Donald Trump victory: If the president is re-elected the future for investors should be fairly predictable from a political standpoint. For all his unpredictability, Trump has actually been about the most predictable president I can remember. Like him or not, he does what he says he will do. In a second term I would expect a continued reduction in regulations, lower taxes and an accommodative Federal Reserve. These would be welcomed by businesses.  I would also plan for better trading deals with friendly partners as well as a continued tough stance with China.
 
Bringing businesses back to America, specifically heavy manufacturing and pharmaceuticals would be a major emphasis. An infrastructure bill would also be a priority. These are all things I think the markets would welcome. Heavy stimulus spending will add to inflation, so I think equities and real estate would be preferred over the risk of holding certain types of bonds or cash type investments.
 
Before the virus hit, we had the best economy in our history. I would expect a victorious Trump to double down on the policies of the prior four years. Though the virus will continue to play a part, it would seem that the politics of it would diminish after the election. So I see a Trump victory as positive for the stock and real estate markets. Investors love consistency and re-electing a president removes many of the uncertainties a new administration might bring.
 
Next week I will give my preliminary investors’ take on a Biden victory.

I went golfing with a man who asked if I could help him with his retirement planning. He began to tell me a very common financial life story that I have heard many times. He had always struggled to save money. He spent his life earning quite a bit, and spending it as he went along. He had great intentions that once his income reached a point where he could afford it, he would set aside the extra money for retirement. But as is normally the case, rising income leads to rising needs and more importantly, rising wants. Whether it was braces for a child, a new RV trailer for the weekend camping trips, a much needed vacation or a flooded basement after a water line break, something always seemed to come along and require the use of that “extra” money.
 
So I asked him how it was that he was able to drive the ball right down the fairway on almost every shot. He was a very good golfer. He answered that he had found two secrets to a successful golf game. The first is consistency. He said you need to figure out a way to drive, pitch and putt, that can be replicated. He told me that the pros often had their own ways of doing things, each with their unique swing, but what they all had in common was their consistency. They found something that worked and they did it over and over again. Secondly, he said that no one becomes a very good golfer unless they make golfing a priority.
 
I told him he had just answered his own question about how to successfully save and invest for retirement. There are many paths to the same goal but the only way to reach that goal is to get on a path, and stay on it. The challenge with far too many is failure to get on the path. The first step on that path is to budget a certain amount of money for savings on a regular and consistent basis, throughout your life. My friend reminded me that he doesn’t usually have extra money to set aside and I responded, “Yet you have money to golf.” I explained that we have money for the things that are important to us. We pay our house payment, power bills, buy food (and golf), because those things are a priority. When we realize how important it is to be financially self-sufficient in our later years, then we make saving money a priority. Like eating and having a place to live, saving for your future is simply not optional. If you make it optional then something will always come up that will consume your “extra” dollars.
 
In our world, people are often stressed over things they cannot control. Much of that stress can be relieved by focusing on things you can control. Making saving and investing for your future a priority, is one of them.
 

​This week it was reported that second quarter (Q2) Gross Domestic Product (GDP) fell more than at any time in history, and on the news the stock markets opened significantly lower. Trying to figure out the mind of an investor can be a challenging task. Sometimes I think the investing public has an unlimited capacity for pessimism.
 
Let’s consider a few things regarding this news. The GDP fell to an annual rate of about $19.4 Trillion dollars, about the same as it was in 2017, which was a record breaking year at the time. So the big fall was possible because it was at record highs in the first place. Imagine you’ve gotten straight A’s all through school, then one semester you get a B+. You wouldn’t be very happy about it but given the current crisis, I would take a B+.
 
Not so widely reported was a huge increase in personal savings and disposable income. This is natural since most people are still working, or receiving unemployment benefits, but quarantines and shortages of products like new automobiles prevented them from spending. So Americans are storing up cash. 
 
In simple terms the virus has squeezed the supply side of the economy. We just don’t have as many products available to buy. Movement has also been restricted so people have less opportunity to spend. Finally, uncertainty has caused consumers to delay purchases they would have otherwise made. So it should come as no surprise that the economy has contracted.
 
Now, here is the good news. The GDP report was for Q2 which ended in June. Getting all worked up about it is like being fearful of the storm that came through your town last week. It is old news. The storm may have left some damage in its wake, but investing is all about the future.
 
It is not clear how long the virus will be with us but most of our economy is finding ways to regroup and come back on line. Certainly things are much better now than they were during the worst of it. As an investor I like to look for “potential” in the markets. The personal savings rate in Q2 was a whopping 25.7% compared to 9.5% in Q1.* That is a huge amount of “potential” spending as things open back up.
 
In one of my favorite old auto racing movies a driver breaks the rear-view mirror off his car and tosses it aside saying, “My first rule of driving is, what’s behind me doesn’t matter.” The Q2 GDP report looked in the rear view mirror and told us what we already knew. The current reports of businesses re-opening, consumers building up cash accounts and advances in dealing with the virus all point to what is coming. They show the “potential” that investors should be looking towards.
 
One thing about a really bad quarterly report is it increases the likelihood that the next report, even if not great, may look much better in comparison. That is what I am investing for today.