About Greg Werlinich

Werlinich Asset Management, LLC (WAM) is an independent, fee-only investment advisory firm. We specialize in working with regular, middle-class Americans that the typical Wall Street firms would rather ignore. We provide customized portfolio management solutions designed to meet the unique needs of each of our valued clients. We are patient, long-term, tax-efficient investors with a long history of helping our investors build and protect their wealth.

Don’t Succumb To Blind Fear

The past week has been a very turbulent, and nerve-wracking, time for investors. Stock markets around the world have been rocked by massive losses. In just the seven trading sessions, the Dow Jones Industrial Average (#DJIA) has fallen about 850 points, or 5%. By comparison, the S&P 500 has fallen 5.2%, the UK FTSE a slightly better 4.8% while the German DAX has dropped a whopping 6.9%. These are significant losses in only seven trading days.

Today was a microcosm of the past few weeks as the major averages were whipsawed all day long. At one point, the #DJIA was down 2.8%, before finishing down 1%. Similarly, the Dow Jones Transportation Average (#DJTA) was also down 2.8% before actually ending the day 18 points higher. The S&P 500 dropped 3% before winding up down only 0.9%. Investors who panicked today and sold at the bottom will likely regret that when the market inevitably recovers and they find themselves sitting in cash on the sidelines, missing the large gains.

So what are the reasons for the big declines and the crazy volatility? They include (just to name a few): a growing economic malaise in Europe, concerns about a continued economic slowdown in China, fears on an expanding Ebola outbreak, continued trouble in the Middle East thanks to ISIS and other terrorists, plunging oil prices thanks to the dollar surging in value against most other currencies and horrible policy decisions within OPEC. You could probably add concerns over social unrest in Hong Kong. Don’t forget natural disasters like cyclones, hurricanes and typhoons that are growing in frequency and magnitude. And that doesn’t even count worries about economic slowdown in this country, anticipation about future rate increases by the Federal Reserve and uncertainty about the upcoming mid-term elections. Phew, did I miss anything?

Given all the ills that I enumerated above, we should all dump everything, build a bomb shelter and stick all of our money under our mattress, right? WRONG!! Succumbing to fear, acquiescing to panic and abandoning your financial plan is exactly the opposite of what you should be doing.

First of all, in my opinion, you shouldn’t be investing any money that needs to be spent in the next two years. So if we take that as a given, and if we assume (yes, I know what happens when we assume, but that’s the only way I can continue this narrative) that the money you have invested is for some future purpose (of at least five years), than weekly volatility is really irrelevant. In fact, it is normal and present opportunities.

Let’s put things in perspective. On October 9, 2007, almost exactly seven years ago, the #DJIA was 14,164.53. From there it proceeded to go down for the next year and a half, finally hitting bottom on March 9, 2009 at 6,547.05, for a loss of 53.8%. From that low, the market hurtled forward for the next five and a half years, erasing all of those losses before peaking on September 19 at 17,279.74, a gain of 163.9%! Today the #DJIA closed at 16,141.74, which means we’ve fallen 6.6% from the high. Is that really so bad? In the grand scheme of things is that likely to derail your future plans?

The truth about the stock market is that it goes up and it goes down. And after a prolonged period of going up, with only a few very short down periods, we were due for a correction of sorts. Now, I don’t know either the depth or duration of this correction, but I’m confident it won’t be nearly as bad as 2008/2009. Global economic conditions are MUCH better today, even with all of our problems, than they were back then. So relax, have a nice glass of wine (or whatever your drinking pleasure is), take stock of your portfolio and look at your “wish list” of stocks that you’d like to buy. Perhaps now is the tie to use some discretionary cash to pick up one or two of them on the cheap. Then sit back, wait for the rebound and congratulate yourself for remaining calm and sticking with your plan.

Full disclosure: I purchased one new position last week, and another one this afternoon, totaling about $600,000. So I’m putting my money where my mouth is. I’m very confident those will be very opportunistic and profitable purchases, creating solid profits for me and my clients for years to come.

 

Have You Taken My Advice?

This year I’ve written blogs entitled “Don’t Panic”, “I Hope You Didn’t Sell”, “It’s Still Not Time To Panic”, “Tech Stocks On Sale” and “The Market Continues To Climb A Wall Of Worry”, to name a few. Do you see the trend? Throughout the year I’ve urged my newsletter and blog readers, as well as my clients, to simply sit tight, ignore the pundits, and maintain their equity positions. There has been nothing to dissuade me that domestic equities are the best investment category for most investors this year.

And as I sit here moments after the market opened, the #DJIA is trading just over 17,000, again within spitting distance of its all time closing high of 17,138.20 set on July 16. Even better, the #S&P500 is less than two points from its closing high of 1,988.31 set on July 23. The tech heavy #NASDAQ is over 4,500, its highest level in 14 years, and approaching the all time high closing price of 5,048.62 set at the height of the tech bubble on March 10, 2000. Without question, the bull market remains in force.

Why have I been so sure about my position to remain fully invested in the face every foreign and domestic problem, both economic and political? It’s very simple: the Federal Reserve and its easy money policy. As long as their accommodative monetary remains in place, there is no reason to contemplate selling. And I believe there will be no policy changes until the second quarter of next year, at the earliest. They will err on the side of waiting too long to raise rates, and possibly allow inflation to grow more rapidly than they would prefer, rather than risk putting the brakes on economic growth.

Even when they do begin to raise rates, which they will likely do in a VERY measured fashion, I believe the market can continue to rise, because it will be confirmation that the economy is improving, and that is good for business, which is good for stocks. But that will be an argument for next year. For now, my advice remains the same: stay the course. Ignore the Talking Heads and tune out the blather. Buy the dips. Own quality stocks and reinvest your dividends. This is the best way to save an invest for your future.

Invest or Die Poor

Do I have your attention? Good. This is serious stuff. If you are like the vast majority of Americans, you are primarily responsible for your own financial future. And the deck is stacked against you. In the old days, before the 1990’s or so, it used to be that you got a job, worked there for 20 or 30 or 40 years, retired at 60 or 65 with a nice pension, then lived your remaining lives playing golf, tending your garden or doting on your grandchildren. Unfortunately for you, the rules have changed and you must change with the times, before it’s too late.

Today, you must save and invest for yourself, and basically by yourself. Your investing options include a 401k (or 403b or a 457), various IRA’s (traditional, rollover, beneficiary Roth, SEP, SIMPLE) and basic taxable accounts. Within these basic frameworks you can invest in individual stocks and bonds, REITs, MLPs, mutual funds and ETFs, options, etc. The key word in all of that is “invest”.

Unfortunately, traditional avenues for “saving”, like bank deposits and certificates of savings (CDs), are no longer viable options for building, or even protecting, your wealth. With interest rates at or near zero, and inflation around 2%, you actually lose money (after taxes and inflation) by putting your money in the bank. To put that in some perspective, if you put $100,000 in the bank in an account that earns 0.10% (which is generous), you would earn a paltry $100 per year. Assuming you pay about 30% in taxes, that leaves you with a meager $70, or about enough money to pay for one tank of gas.

Even bonds (in this case I mean high quality government or corporate bonds), a staple of many investment plans, offer far too little yield today to compensate you for taking enormous interest rate risk. Sometime in the next 12 months or so rates will likely begin to increase, at which point bond investors will start to lose money on their current holdings. High yield, or junk bonds, do offer slightly better yields, but the easy money has already been made there. The spread between treasuries and high yield is far to small today to warrant new investments in high yield.

So what are your options? What can you do to generate a decent return on 30 or 40 years of saving and investing, that will outpace inflation, and create sufficient wealth to live out your days without running out of money? You MUST invest in the stock market in some way. Whether it be through individual stocks or via mutual funds and ETFs, stocks give you the only viable way, TODAY, to achieve a viable financial future.

I recommend putting your money in high quality, dividend-paying equities that have a history of paying those dividends, in increasing amounts, year after year. Properly selected, a portfolio of stocks like Verizon (VZ), ExxonMobil (XOM), Lockheed Martin (LMT), Pfizer (PFE), Emerson Electric (EMR), Union Pacific (UNP), Medtronics (MDT) and JP Morgan (JPM) just to name a few, will very likely grow much faster than inflation, or any other liquid investment option. (*Disclosure: I own every one of those stocks in my own accounts and for clients).

To summarize, I believe that we must all take responsibility for our own financial futures. In doing so, we must also recognize that times and conditions change. The current conditions dictate that we have to invest the vast majority of our savings in order to have any reasonable hopes of achieving a secure retirement. Looked at over a 5, 10, 15, 20 or 25 year time horizon, this type of investment plan isn’t as risky as you might think, and it offers the only reasonable way to earn enough money to fund your retirement. So if you aren’t already investing your retirement money, you better get started before it’s too late.

The Market Continues To Climb A Wall Of Worry

As I write this 10 minutes before the market opens after the Memorial Day weekend, the Dow Jones Industrial Average stands at 16,606, down a mere 110 points from the record high established on May 13. On the other hand, the Dow Jones Transportation Average registered a new high of 7,986 on Friday, the same day the S&P 500 closed over 1,900 for the first time. So as you can see, things are remarkably good. Yet if you listen to the news or watch the TV, the mood does not match the reality. It appears to me that the majority of market observers are negative on the market. The commentary continues along the themes of fear and caution with many “experts” suggesting that the market is primed for a collapse. In the face of all this general pessimism, the market continues to gain ground, or “climb a wall of worry”. If sentiment remains this gloomy while the market remains at such lofty levels, I believe the market will continue to rally to ever higher levels.

Indeed, I believe that the market should end the year higher than it began, perhaps by as much as 10%. With that overarching belief in mind, I remain fully invested in my own accounts and on behalf of my clients. I don’t attempt to trade the short-term movements; rather, I look to buy the securities I want when opportunities present themselves. And I only buy things I believe will out perform the broad market for at least the next three- to five years. If I don’t have that confidence, I don’t buy it.

I also think that the battering endured by the biotech and high growth technology sectors may be over, suggesting that it could be time to nibble at some stocks in those sectors. Many prior high-flyers dropped between 25% and 50%, or more in a very short period of time. It also may be time to look at some downtrodden housing stocks as the housing numbers are expected to perk up over the next few months. Finally, as a core holding, the value sector, as represented by dividend-paying, blue chip stocks continues to be a smart place to put your money for excellent long-term returns. Indeed, that’s where the bulk of my own money is invested.

Tech Stocks Going On Sale

There is a sale going on right now in technology stocks: are you buying? Since hitting a high on March 6, the tech sector, as represented by the NASDAQ, has dropped 6.25%. More recently, the index has dropped 4.58% in just the past four trading days alone. Previous high-flyers like FireEye (FEYE – down 49%), Twitter (TWTR – down 43%), Rackspace (RAX – down 38%), Yelp (YELP – down 32%) and Netflix (NFLX – down 25%) are just a few of the examples of the recent carnage.

So what’s a growth investor to do? Do what I do: make a list of the stocks you’d like to own, along with an entry point at which you would start to buy. If a stock you want falls into the buy range, don’t buy a full position right away. This way you’re protected in case the price continues to fall. Consider buying in three equal tranches to build a full position.

Unless you’re a seasoned growth investor, be careful about which stocks you go after. You may want to pass on those trading at triple-digit multiples, or without earnings of any kind. These “story” stocks can be incredibly volatile and short-term losses can be severe. Just take a look at the chart for 3D Systems (DDD). If you can’t stomach the ups and downs of that rollercoaster ride then perhaps you may want to look at more seasoned at companies like Amazon (AMZN), Mastercard (MA) or even Facebook (FB).

Whatever you choose, go in with the understanding that you may have to be patient as you wait for the sector to recover. If you manage your expectations, and invest a reasonable amount of money (probably starting at 5-10%) then this could be a good time to dip your toes in the high growth arena.

 

*Disclosure: Werlinich Asset Management, LLC owns small positions in NFLX, AMZN and FB.

It’s Still Not Time To Panic

Even though the market has dropped for four straight days, with losses on the Dow Jones Industrial Average (#DJIA) yesterday exceeding 200 points, it still isn’t time to panic. It would appear that, once again, the turmoil is principally related to the unrest in the Ukraine, with additional worries about stagnating growth in China.

The bottom line to me is that all of this is simply noise. What investors should must focus on is that economic growth in this country is modest but stable. The Federal Reserve remains committed to a slow and steady program of tapering their bond buying program while maintaining low interest rates well into 2015. And the federal government has managed to create a budget compromise that means stability for the next two years. All of this suggests that the market should continue to move generally higher, albeit in fits and starts.

So what should investors be doing? You should be maintaining whatever allocation you have to equities, and buying quality positions on dips. Look to add to the defense, transportation, technology and medical sectors. I would also look at industrials, agriculture and banking as well. Bond-like investments in REITs, BDCs and even utilities can add additional yield to certain portfolios.

I’m not suggesting that anyone take on more risk than they’re comfortable with. Everyone should be invested such that they can sleep at night. That being said, I believe that this is still a good time to be invested in the stock market; it’s not time to sell.