NCM Blog

Last Thursday the S&P 500 closed above the threshold that marked its exit from the longest bear market since 1948. To be clear, this was not the worst bear market in terms of percentage declines, but it was the longest in terms of days; this bear market lasted 248 trading days. Now, investors are questioning: “Are we really out of the bear market or is this just a head fake?”

Buffett said, “People are trying to outsmart each other in arenas that you don’t have to play in.” Absolutely. There are so many complicated investments being pushed in the marketplace. If you can’t really understand them, don’t hesitate to just put them in the “too-hard-to-decipher” pile---and move on! There are already plenty of simple investments to choose from to build a solid diversified portfolio to help any investor achieve financial independence.

What can investors do to improve their retirement prospects AND provide a little more peace of mind in retirement? Building an investment strategy with a “dividend growth” focus might be the smartest move any investor could make.

Each year there are incredible and shocking upsets, creating amazing “Cinderella” stories where a low ranked team beats a higher ranked team and advances farther than expected. As with this year’s tournament (..along with nearly all prior ones), March Madness not only provides fun and excitement, but also important lessons that we can compare to investing.

In summary, while all these current banking crises are disconcerting, we continue to believe that we are NOT facing a similar issue as we experienced in 2008-2009. The main cause of that crisis (i.e., leveraged and securitized loans with defaulting borrowers) is very different from the current landscape. Most, if not all, U.S. domestic major banks appear to be much more well capitalized. Late last week, in a sign of trying to instill more confidence in the banking system, 11 of the largest financial institutions collectively deposited $30 billion into First Republic Bank. From what we currently know, this latest crisis appears to be caused by one bank’s (SVB) utterly gross mismanagement and the involvement of another two banks which were too heavily involved with crypto businesses. However, all this being said, we can’t rule out the possibility of further contagion. Remember, in the short term markets are driven by fear and greed and computerized trading that is very momentum driven.

SVB had a concentrated customer base. Too many of their deposits were from the venture capital/private equity/crypto space, which were all “hot money” areas. Here is the problem: Just as any investor, they should have diversified their customer base. This was a classic “bank run” as this close-knit community all headed for the doors quickly together.