Dougherty Investment Advisors

Financial & Tax Planning

www.Doughertyinvestments.com                                                                                                                                                                                                                              

Markets continue in turmoil as Donald Trump shakes up the world. Let’s face it: some think the world needs shaking up; and many think Trump is absolutely crazy and harmful. As a result, investors, especially those in the later camp, are taking action to reflect a view that the world will be less stable.

 As your investment manager, our job is to put clients in quality investments that can ride through this turbulence. People will continue to use Apple phones even if we have tariffs on Mexico. AT&T will continue to pay interest on its bonds even though the Ukraine war may continue.

 Our view is that we do not sell quality investments during temporary bad situations.  As crazy as Trump’s threatened actions are, he can just as easily reverse his position, which he’s done before. And speaking of temporary situations, we put recessions in the same category. I have lived through eight recessions and have survived to talk about it.

 If we sell quality investments now, we will not own them when they bounce back. Hang in there, and if you have questions, call us. 352-238-6411

 The Dougherty Advisor Team

 A Tradition of Excellence

4048 Deltona Blvd

Spring Hill, FL  34606

Markets Perform Nicely For A Second Year In A Row

Looking back at last year’s predictions for 2024, the two historic predictors did happen.

1. The S&P 500, which had a positive return in the first half of the year, had a positive return in the second half.
2. Historically, in years of a Presidential election, the market has risen (especially, when there is an incumbent running for office through that election year). Note that in the year 2000, when the dot-com bubble burst and in 2008 when the housing crisis happened, the sitting President was at the end of their 8-year term limit.

Historic trends do not always point to the future and as we always reiterate, past performance is not indicative of future earnings, but it was nice to see the historical trends work in our favor.

In summary, we have had two years in a row of a very nice bull market. The interest rates have been stable.  Inflation ended at 2.7% for the year, which is not far off the Fed’s target of 2%.

By the Numbers

Below are valuation changes for 2024 compared to 2023 changes. 

Selected key asset groups:                 

                                                            2024                2023

S&P 500 Stock Index                         +23%               +24%

Tech Stock Fund                                +29%               +51%

Health Care Stock fund                      +1%                 +1%

Utilities Stock Fund                            +19%                -10%    (excludes income)

Corp. Bond fund (Fixed)                    +6%                +10%   (includes income)

Gold                                                     +26%              +13%

Having a 23% gain on the S&P500 brings us to the part of the dispatch where we try to lower future expectations of our clients. Over the previous 100 years, the stock market has averaged growth of about 10% per year, with some years far above that, and others far below. As you can see from the figures above, we have well exceeded this average for both 2023 and 2024 for the S&P and tech stocks.

After A Second Bullish Year, Fighting The Tendency To Trade More Aggressively

During bull markets we often get questions from clients asking if they should sell some of their fixed income and make their portfolios even heavier in stocks. They see the big growth on the stock side and see that the fixed income investments have stayed… fixed (not growing like stocks). The benefit of fixed income is that it provides consistent income, regardless of how the market is swinging.

Then we hear the news repeating the phrase, “record highs today,” and for some investors the fear of missing out starts to kick in.  Keep in mind, without doing any changes to the portfolio, it already has become heavier with stock, because of the stock growth. This by itself can cause the portfolio to be too aggressive relative to the original goals and risk tolerances we established on our initial plan draft. A more prudent action to consider is to rebalance by taking a piece of that growth and moving it into fixed income. Most people know the phrase, buy low and sell high. But when the market is going high, people want to buy in. Conversely, when the market drops, people want to pull out of their stocks and run to safety. You have us to help steady those inclinations.

Dougherty’s Core Group – Update

For those of our clients who have individual stocks in the portfolios we manage, deciding which stocks to recommend is not a haphazard or casual process for us. We select a core group of about 25 companies using detailed analysis, a review of research reports, and then a ranking prospective. Within our core group we breakdown the companies into subgroups, ranging from Aggressive to Income. This allows us to have options to weather different market conditions.

We are constantly evaluating and re-evaluating our core group. One of the companies that we are cutting from our core group is Johnson and Johnson. Johnson and Johnson has been making changes and spun off Kenvue, the consumer brands part of the company, such as Listerine, Band-Aids, Tylenol, and Aveeno lotion. Pharmaceutical companies are especially vulnerable to lawsuits and after twenty years, their drug patents expire. As 2024 progressed, we have not seen the growth potential that was once with the company. After evaluating a number of factors, we are phasing out Johnson and Johnson from our core group of stocks.

2025 Predictions

We start the year 2025 recovering from hurricanes in the southeast, having snow storms in the north and suffering wild fires in the west. There is a lot of talk about changes in the federal government, cryptocurrency regulation and AI/ChatGPT. There are now self-driving taxis. There are robots at some restaurants delivering food to tables. Some may think this dispatch was written by AI, but we humans remain at the helm at this office. Admittedly, the thought of having a robot to clean the windows and water the plants has crossed our minds.

There is also talk that January might end as a down month for the market. A theory is that people will want to trim some of the growth in their portfolio that they weren’t able to do at the end of last year because of already realized gains from the trimming done earlier in 2024.

As for the year, historically, a year without political elections tends to be a positive market, which means 2025 could be a third year in a row for the bull market. That being said, we don’t know when the market will have a correction or pull back. We continue to stick to our mantra: stick with quality, quality, quality.

As always, we love to hear our readers’ reactions.

The Dougherty Investment Advisors Team

Past performance does not guarantee future results.

 A Tradition of Excellence

Do You Have FOMO Disease? 

We know several people that suffer from FOMO.  The disease comes with high anxiety, restlessness, and it occurs mostly in men.  No, we’re not talking about a strange new virus. 

 We’re talking about an investment malady that stands for Fear Of Missing Out.  Yes, after we’ve had a good year in the financial markets, many investors want to jump on the train—any train—to ride along with the gains.  Unfortunately, they often forget about the quality of their desired investments.

 Tech stocks drove the S&P index of 500 stocks up 23% in 2024, a wonderful year.  Historically, stocks bounce around.  For instance, in 2022, they dropped 22%.  But all these ups and downs over many years work out to an annual average of about 10%, including dividend income paid.  At that rate of growth, values can double in about eight years. Wow!

The moral of the story: Stick to quality.  Yes, Bitcoin has screamed up since the election, but does anyone really understand it?  Tesla has jumped up 69% since the election, but their auto sales actually declined in 2024 from 2023.  True Yes.

 In other words, the cure for FOMO is not poor-quality investment fads.  At our firm, we agree with the philosophy of Warren Buffett: If you don’t feel comfortable with the thought of owning a particular investment for 10 years, don’t own it for 10 minutes.  And you shouldn’t either.

 Believe it or not, for those investors that came in late to the markets in 2024 they have actually seen negative returns.  During that time interest rates climbed, and investors got a little nervous with the thought that if consumers have higher interest rates they’ll buy less and slow down the economy.  Don’t fret!

 Here’s the good news for 2025: There’s lots of opportunities if we stick with quality investments.  Consider these ideas: Interest rates on many stable interest-paying securities such as bonds still pay very good yields. And corporate stocks and stock funds in certain sectors, including technology and healthcare, are projected to have corporate growth at a very healthy 20%.  And don’t forget utility companies that are expanding to keep up with energy demand.  Growing profits drive growing stock prices. 

Even after the good year that we had in ’24, our firm does not waiver from stability and quality, even as we look for bargains to benefit our clients. 

Happy New Year!  And be sure not to catch FOMO. As always, we love to hear our readers’ reactions.

The Dougherty Investment Advisors Team

Past Performance Does Not Guarantee Future Results. Consult with an advisor regarding your situation.

November 8, 2024
Dougherty Dispatch: New Prez Elected—Run to the Hills–or to the
Bank?
What a month in the financial markets! As we have told our clients in Hernando County before, do not let your political emotions control your investment decisions. Historically, long-term market results ignore who the president is. Be careful of social media rants and shortsighted investment projections, up or down.

Some questions our firm has been receiving:
1. Will there be a recession? It’s like the question, “Will I die?” Yes, but not today. Or next week and probably not next month. Our economy is chugging along pretty well with few of the usual suspects that create recessions. We don’t have
extremely overvalued real estate or stocks, high inflation, or very low consumer confidence.

2. Will markets crash? Probably not soon. See prior answer. And they didn’t the last time Trump was in office. But historically we’ve always had crashes and crashes don’t care who is president.

3. Will tips, social security, and overtime income become tax-free? Yes, and I’m happy to announce that all future income for our firm will be treated as tip income. Kidding! Traditionally, except for a couple of small hidden exceptions, our nation has always taxed all work income the same. It would be a nightmare to implement these crazy ideas—and be very unfair. It’s hard to believe Congress would pass this.

4. Will new tariffs increase inflation? They didn’t when Trump imposed them in his first term. And, Biden kept most of them in place, so he wasn’t too concerned about them, either. Often the threat of tariffs are used as a negotiating tactic to get fairer trade deals.

5. Will tax laws change? Not much. The big tax law changes from 2017 reduced tax rates, created bigger child credits, and changed itemized deduction calculations. They are scheduled to sunset in 2025. Don’t worry: Virtually all will be renewed because politicians hate to raise tax rates—even though government currently spends 35% more than it collects—each year. Every time collections increase, spending increases more.

6. Can Elong Musk help Trump reduce government spending? Maybe, but it will be much more difficult than landing a rocket back to its launch pad—or sending a man to Mars.

The Dougherty Investment Advisors Team

Past performance does not guarantee future results.

It’s a good thing I didn’t write the dispatch on August 1^st.  We would have missed the bumps and spills in early August.

The first thing our clients should do in digesting recent market activity is to re-read our previous dispatch, our six-month review.  We talked about the 24% increase in 2023 and 15% increase so far this year and that “we have already well exceeded” the historic 10% annual average for markets.  We also pointed out that “investment trends historically change” and that favorable “sectors in the economy rotate based on economic and investor cycles.”

Ugly August?

August is notorious for dips.  And, after big rises, stocks normally take a dip.  If there is at least a 10% dip, it is called a correction. 

A few major factors influencing the markets on Monday:  One, there was a report Friday that unemployment claims were higher than expected.  Over the weekend, based on its markets opening earlier than ours, the Japan markets went way down based on the unemployment data and on Japanese currency activity.  This contagion spread to our markets by the time they opened on Monday morning.  Separately, it became more widely known that investor Warren Buffett is selling a chunk of his Apple stock.  Amateur investors interpreted that as a vote from Buffett that the economy was sinking.  To the contrary:  His investment in Apple had grown to over 50% of his entire investment portfolio, which greatly exceeds any professionally managed fund.  It should never have gotten that high and it was about time he sold some of it off—in our humble opinion.

There are also headlines about recession today.  Economically, a recession is when the economy has negative growth (shrinks) for two quarters (six months) in a row.  We’re not there.  But, again, as we said in the previous dispatch, “Warrant Buffett likes recessions: It’s a good time to go shopping!”

Volatile Trading

Our markets these days have a combination of factors that cause some wild swings.  One is the easy computer access that retail investors have to news and trading.  Social media and news outlets have space to fill, and they love exciting headlines.  Upon hearing these headlines, many people can instantly trade right on their telephone—while having lunch at Panera Bread or riding on an elevator. Another factor is that large managers of funds, such as hedge funds, pensions, and other mutual funds, have computer programs that decide when to sell and buy.  We’ve talked about this before.  When there is a bit of good news, the programs say buy, buy, buy.  And then, with bad news, sell, sell, sell. 

For all these reasons, it is foolhardy and amateurish to attempt to do short-term trading or “restructuring” in the middle of day-to-day turmoil.   

In 1987, the stock market dropped 23% in two days.  In the 2008  period, the stock market dropped 50%.  In March of 2020, at the depths of the Covid crisis, the market dropped 25% in one month.  Contrast the last 30 days: we’re down 5.7% and still up 10.4% since January 1.

Remarkably, from the Covid crisis level in 2020, the stock market index is more than 105% higher today.  The market has always rebounded, not 25% of the time, not half the time, but every single time.

The Answer May Be Closer Than You Think

In addition to receiving questions from our clients about investments, we also receive inquiries about miscellaneous issues, such as gifting money to others, trust and estate planning, senior living transitions, credit protection, and marriage financial strategies.  We welcome this opportunity to discuss all types of things.  In addition, let us remind you that the book John wrote, Your Financial Guide For Financial Success, covers all these topics (and more!) in greater detail than a telephone conversation can and should be a first step in exploring solutions.  Then, as a next step, talk to one of our advisors to confirm and explore aspects of the issue.  Also, John recently published an updated edition of the book to account for various law and tax changes.  It is available on Amazon, Kindle, or just call the office for a copy.  

As always, we love to hear our readers’ reactions.

The Dougherty Investment Advisors Team

 Past performance does not guarantee future results.