¡Olé!

The annual Running of the Bulls was held in Pamplona last month, in a tradition that dates back to at least 300 years before the signing of the Buttonwood Agreement (the precursor to the New York Stock Exchange).  Not to be outdone, Wednesday of last week saw a celebration of sorts for our own “running of the bulls” - the longest bull market in history for stocks, at 3,453 days and counting.

Bull markets are, somewhat ironically, defined more by what they aren’t than what they are.  As long as stocks don’t drop more than 20% from a peak, the bull market keeps running. If they drop more than 20%, the bull market gets posthumously dated to the last peak and all of a sudden you’re in the middle of a bear market.  Or they don’t get backdated and you have to wrap your head around having lived through a Schrodinger’s cat-esque market that was technically both bull and bear since the last market peak. Not to worry though! As of this writing the S&P 500 has surpassed the January 26th levels to reach a brand new all-time high, so this bull market still has legs.  Probably.

Happy 2018!! (Blows noisemaker.).  POP!  What’s that?  The sound of the market bubble popping?  The crypto bubble popping?  (Confetti rains down).  Ahh.  Just the confetti popper thing.  (Sigh of relief).

The first newsletter of this new year is brought to you by the letter “A”.  As in “Active Management”, inspired by a real-life conversation with a JP Morgan salesperson last month.  

Risk is one of those words that means something different to everyone...and therefore has people coming up with various vague yet philosophically profound-sounding definitions like “the possibility of more things happening than will happen”, “the unknown”, or “am I the eponymous character in a live-action Schrodinger’s cat experiment?”  (okay, we made that last one up).  

For financial planners like us, risk is paradoxically both the antithesis of our business but also the main reason we’re needed in the first place.  Heath Ledger’s Joker had a nice little quote about this very thing:

Batman: “Then why do you want to kill me?”
Joker: “I don’t...I don’t want to kill you...what would I do without you?  No, no, no!...you….complete me.”


Technically, I think in that example risk is actually Batman to the financial planner’s Joker...but we’ll go with it anyway.  So where does risk come into play in financial planning?  Well, everywhere.  But we’ll just look at two examples today: insurance and portfolio management.