I cook or grill quite often around here because when I don’t? It’s not like I have a back-up, another person here to make my dinners magically appear. My pallet is sophisticated and wide, seafood, steak, Cajun, and smoked barbecue – you name it. And not always but often enough I’m on my own for meals around here. Which led me to this notion, I think it’s most apropos to discuss just what happens when I’m preparing a dinner in the kitchen and I drop a knife. It happens rarely, but when it does, look out! You’ve never seen a man hop back faster, my arms fly back, along with whatever part of my lower body I can protect including my crown jewels? Basically everything I own [including toes] get out of the way, far away from anywhere a falling knife may land! This concept is just the thing I wanted to re-visit. Many people out there don’t react the same way with their money, their savings, they actually seek out falling knives. They have a strange attraction to falling knives, especially any newbies to investing. It’s mostly amateurs that will throw their hard earned money at Wall Street’s “falling knives”. Let’s discuss why not to do this, too early anyway.

[Please refer to my several articles on brantology.com where I talked, months ago now, about “paradigm shifts” and subsequent Bear Markets for stock and bonds. All you have to do to catch those past writings is go to my Homepage here and type in relevant words into the space bar then several articles will appear for your perusal.]

Back to “Catching a Falling Knife” –
When financial markets get shaken to this magnitude, [issues down 20-70%], they don’t just all the sudden get put back together and behave the way they did before, not after a debacle of this magnitude. Real life doesn’t work this way either, breaks like this change the landscape, and forever. Here’s what you need to know – expect a change in leadership within financial markets once we get passed the shock and awe of a bear market. I’ve yet to witness a stock market that behaves exactly the way it did before it tumbled. Resets do happen but each new expansion [of asset prices] is unique and different. A couple good examples [from the recent past] – when the internet bubble popped beginning in March 2000, notice what happened once the selling subsided and the market was mostly on the mend. This took a couple years but the leadership was no longer internet or tech stocks. In fact, it took two decades before this recent bubble formed [again] in the U.S. technology sector. After the internet debacle and a two-year bear market in stocks, [2002] financials were the leading sector out of that bear market. Consequently, financials were destroyed during the 2008 Great Recession. But before that happened they were market leadership, even in Western Europe. And the financial sector has generally underperformed most years since the 2008 debacle, [with some exception]. What you need to understand is that paradigm shifts not only impart influences on sectors of the economy, but also how much investment capital any sector will attract going forward in the next run-up. Sectors that did well before the market crash will almost always underperform afterward, while other sectors that were largely ignored during the subsequent run-up in stock markets could now become the new market leadership – it happens. I’ve personally never witnessed a leading sector before a crash that immediately returns to market leadership after a deep sell-off.

What I’m saying here is be prepared for some kind of meaningful sector rotation to take place in U.S. financial markets. This is a great reason to work with a trusted financial advisor so that you can be placed on the right track to make progress toward your [individual] goal(s). Otherwise, the alternative could look like this – have you ever heard the term “the lost decade”? This term was used to describe a period of time after the internet bust in the year 2000, all the way through the year 2009, it was a decade long bear market in U.S. stocks. The period was tedious to get through because had you bought the S&P 500 index on January 1, 2000 and held it through December 31, 2009 your average annual return would have been a paltry 2.3%/year, or a consistently negative net return after annual inflation. Continuous losses for an entire decade? Who would sign-up for that? The fact is that many did sign-up-for-just-that. 🙂 Microsoft was in the S&P 500 index back then and I know its stock price went absolutely nowhere that entire decade. Again, this is where a professional financial advisor can add value to you and your plan(s). So if you aren’t working with a professional yet, please find an advisor that will work hard to earn your trust… imperative! 😉

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