CIG Asset Management Update: The Choice for Today’s Investor: Red Pill or Blue?
Summary:
* What happens if the market steps out of Plato’s Cave?[i]
* Equity valuations are still expensive and equity duration remains historically high.
April 2022 Returns:
In the 1999 movie The Matrix, Morpheus offers the protagonist Neo the choice between a red pill or blue pill. Morpheus says, “You take the blue pill…the story ends, you wake up in your bed and believe whatever you want to believe. You take the red pill…you stay in Wonderland, and I show you how deep the rabbit hole goes.”[x] Neo is offered a choice between continuing to live his life in contented ignorance or learning an unsettling, life-changing truth.
This type of choice was explored thousands of years earlier by Plato in his Allegory of the Cave. In it, a conversation between Plato’s brother Glaucon and Socrates describes a group of people who have lived their entire life chained in a cave facing a blank wall. These people watch shadows projected on the wall and believe the shadows are the only things that are real. What happens when one is freed from the cave to face reality; how would they cope; would they choose to return to the cave? The story goes on to assume a freed prisoner goes back to the cave to free the others so they too could learn the truth about the real world. Socrates and Glaucon conclude the other prisoners would likely kill anyone who tried to free them; that they would not want to leave the security and comfort of the world they perceived to be real.[xi]
It feels like markets have been living in the same contented ignorance as the aforementioned people in the cave and ignoring valuations. The Buffet Ratio, which is the total market capitalization of U.S. stocks divided by the Gross Domestic Product of the economy, hit a dizzying 202% on December 30, 2021. This was far more than the 143% seen back in March 2000 at the peak of the dot-com boom. While the recent sell-off in the markets has brought the Buffet Ratio back down to 170% as of April 30, 2022, it remains above the dot-com peak.[xii]
After a decade, it appears that some market participants seem to have begun stepping out of the cave to see reality. As of April 30, 2022, the S&P was down -14.3% from its all-time high hit on January 4, 2022, and the NASDAQ 100 was down -23.3% from its peak set back on November 22, 2021.[xiii] A bear market is defined as a -20% correction from the high. Surely with the NASDAQ 100 trading in bear market territory the worst is behind us, right? Not necessarily. In August 2020, we reminded investors in A Reminiscence of a Bubble Past[xiv] how the S&P 500 lost 50% and the NASDAQ lost 78% from the March 2000 peak to the October 2002 low.[xv]
As we discussed last October in What if the Bubble Bursts?[xvi], the market can trade lower for longer. It took just under 13 years for the NASDAQ 100 to recoup its losses after the dot-com bubble burst. Many investors are likely not comfortable with a 13-year time horizon where they simply just climb back to even. In April 2021, we asked the questions, Do you have enough time? Why is this time different?[xvii] and discussed how the average duration for a balanced portfolio was up to 43 years, 2.5 times longer than the historical average. The average duration corresponds to the time that it would take for investors to recoup their investment if they only received dividends and interest and never sold. The S&P 500 is +4% higher as of April 30, 2022 than it was on March 31, 2021, when the average duration was calculated.[xviii]
We are not alone in thinking that the market has become highly speculative. At the Berkshire Hathaway annual meeting on April 30th, Warren Buffet said U.S. markets have become “almost totally a casino,” and “overwhelmingly large companies in America, they became poker chips and people were buying and selling like three-day calls, two-day calls.”[xix]
Of course, markets – and the investors who participate in them – always operate across a broad range of risk with wise investment at one end and the “gambling” described above by Mr. Buffet at the other. The term speculation describes where one is on that range. Buying stocks with a “margin of safety” to protect the investment’s value in adverse conditions, like Mr. Buffett does, is considered less speculative, while uninformed or knee-jerk investments, such as short-term call option buying, are more speculative. Gambling involves the deliberate creation of new risks for the sake of diversion. Today, many investors see “investing” as a form of entertainment.[xx]
Assessing where the market is and where our clients’ portfolios should be along the range discussed above is among our most important focuses at CIG. Of course, we avoid gambling and attempt to be at the less speculative and more prudent side. Given our holistic approach and utilizing active management, The Ride[xxi] can be smoother, and clients may sleep better at night during periods like we are experiencing now.
Charles McKay, the author of Extraordinary Popular Delusions and the Madness of Crowds (1841), highlights that “Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, and one by one” in speculative manias.[xxii] Recently, Bank of America’s Michael Hartnett discussed his Capitulation Indicators checklist suggesting that while the recovery process has begun, we have a fair way to go. For every $100 coming into the market during this cycle, only $3 has gone out. In past bear markets the average was $50 going out. Additionally, only 0.2% of industry-wide assets invested have moved out of the market versus 3% to 6% during prior market lows.[xxiii]
For those who would opt for the blue pill, we would welcome the opportunity to learn about where you think the market is and how your portfolio is positioned to weather the process of market capitulation ahead. We saw many bear market rallies during the dot-com bust, to only see the market grind lower for two more years before finally hitting rock-bottom. As of April 30th of this year, the Growth Benchmark is down -12% YTD, something not seen since the Great Financial Crisis.[xxiv]
This report was prepared by CIG Asset Management and reflects the current opinion of the authors. It is based upon sources and data believed to be accurate and reliable. Opinions and forward-looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.
[i] https://en.wikipedia.org/wiki/Allegory_of_the_cave#Summary
[ii] The Growth Benchmark is a blend of 60% Russell 3000, 25% MSCI All-Country ex U.S. and 15% Bloomberg U.S. Aggregate Bond indices. Sources: CIG, Zephyr, and Morningstar.
[iii] The Balanced Benchmark is a blend of 45% Russell 3000, 10% MSCI All-Country ex U.S. and 45% Bloomberg U.S. Aggregate Bond indices. Sources: CIG, Zephyr, and Morningstar.
[iv] Zephyr: S&P 500
[v] Zephyr: Bloomberg U.S. Aggregate Bond
[vi] https://www.msci.com/end-of-day-data-search
[vii] https://www.msci.com/end-of-day-data-search
[viii] finance.yahoo.com
[ix] finance.yahoo.com
[x] https://en.wikipedia.org/wiki/Red_pill_and_blue_pill#Background
[xi] https://www.masterclass.com/articles/allegory-of-the-cave-explained
[xii] https://www.gurufocus.com/stock-market-valuations.php
[xiii] Calculated by CIG Asset Management using data from finance.yahoo.com
[xiv] https://cigcapitaladvisors.com/a-reminiscence-of-a-bubble-past/
[xv] Calculated by CIG Asset Management using data from finance.yahoo.com
[xvi] https://cigcapitaladvisors.com/cig-asset-management-review-what-if-the-bubble-bursts/
[xvii] https://cigcapitaladvisors.com/cig-asset-management-review-do-you-have-enough-time-why-is-this-time-different/
[xviii] Calculated by CIG Asset Management using data from finance.yahoo.com
[xix] https://www.ft.com/content/418b5af6-ce43-419e-845a-d63f303638f0
[xx] Chandler, Edward. Devil Take the Hindmost – A History of Financial Speculation.
Plume Books, 2000, page xiii.
[xxi] https://cigcapitaladvisors.com/june-2020-asset-management-update-the-ride/
[xxii] Mackay, Charles. Extraordinary Popular Delusions and the Madness of Crowds.
Harriman Definitive ed., Harriman House LTD, 2018.
[xxiii] https://cigcapitaladvisors.com/cig-asset-management-review-do-you-have-enough-time-why-is-this-time-different/
[xxiv] The Growth Benchmark is a blend of 60% Russell 3000, 25% MSCI All-Country ex U.S. and 15% Bloomberg U.S. Aggregate Bond indices. Sources: CIG, Zephyr, and Morningstar.
Image: Septimiu Balica/Pixabay
Find Your Optimal Staffing Level
If your practice has too few staff members, patient care may suffer and collections may slow down. If you have too many, you’ll face rising operational costs. Is there an optimal level that will allow you to operate your practice efficiently without letting your costs get out of control and creating dissatisfaction among patients?
Start by using medical industry benchmarks for comparison. Various organizations collect a wide variety of data on staffing levels. You’ll want to compare apples to apples, so it’s important that you use data from practices similar to yours in terms of practice area(s), size, annual revenues, and the number of physicians employed. It’s also important to follow the same methods used in the survey when determining your practice’s numbers for comparison.
Look at These Key Benchmarks
Two benchmarks you should look at are the average number of support staff per full-time-equivalent (FTE) physician and the percentage of gross practice revenue used for support staff salaries. The first benchmark is the number of full-time staff (not including mid-level providers) required to support one full-time physician. The percentage of gross revenue is total staff salary expense divided by gross revenue over the same period.
Be Ready To Adjust
If your physicians see more or fewer patients daily than the average patient load, you’ll likely want to compensate for that difference when you compare your practice with benchmarks. Looking at the number of patient visits per year or week or the gross charges per physician can help you gauge your support staff to FTE physician ratio. Similarly, your practice may require more support staff than a benchmark indicates if your ratio of mid-level providers to physicians is higher than a benchmark survey suggests. By the same token, your need for support staff may be lower if you have no mid-level providers.
Start by using medical industry benchmarks for comparison.
We Can Help
To schedule a complimentary consultation with a CIG Capital Advisors professional, click here.
Article Links:
https://www.medicaleconomics.com/view/making-medicine-better-for-women
https://insidexpress.com/lifestyle/health/the-only-guide-that-make-hiring-for-your-private-medical-practice-easy/
https://www.ama-assn.org/practice-management/private-practices/tips-help-private-practices-lessen-sting-staffing-shortages
images: iStock by Getty Images
CIG Asset Management Update: Prudent Risk Management is Prudent Investment Management
Summary:
* U.S. equities before and after the March FOMC meeting
* A differentiated view and alternative assets can add value in difficult markets
March 2022 Returns:
Commentary:
Domestic equity returns for the month can best be looked at before and after the March 16th Federal Reserve (“FOMC”) meeting.
Pre-FOMC, March 1 through March 14 the S&P 500 was down -2.5%.[ix] As the Russia/Ukraine war intensified, crude oil hit a 13-year high of $130/barrel on March 7 with Europe and the U.S. considered banning all Russian oil imports.[x] On March 10, the February Consumer Price Index increased +0.8% m/m and +7.9% y/y, the highest rate since 1982.[xi] On March 15, the February Producer Price Index showed prices rising +10.0% y/y, tied with January 2022 for the biggest 12-month move since the current series began in 2011.[xii]
On March 16, the Federal Reserve raised interest rates by +0.25%, the first rate hike since 2018. In the press conference that followed the announcement, Federal Reserve Chairman Powell discussed in soothing tones[xiii] the timing of potential future rate hikes and that the Federal Reserve members are working on a plan to start to reduce the nearly $9 billion balance sheet.[xiv] “The Fed has got your back” seems to have become the dominant market narrative.
Post-FOMC, March 15 through March 31 the S&P 500 was up +8.6%.[xv] Despite reports of persistent inflation and an inversion in the yield curve, markets appeared to be encouraged that the next FOMC meeting would not take place until May 3-4. The war continued. On March 25, the University of Michigan Consumer Sentiment Index hit an 11-year low as consumers deal with the highest inflation in 40 years.[xvi] On March 29, the yield on the 5-year U.S. treasury surpassed the yield on the 10-year U.S. treasury, something that has not happened since 2006, before the Great Financial Crisis. In normal markets, as bond maturities lengthen in time, bond yields increase. An inversion in the yield curve historically has been one of the most reliable indicators of an impending recession.[xvii] Finally, on March 31, the Bureau of Economic Analysis released the February Personal Consumption Expenditures Price Index, the Fed’s favorite inflation gauge, showing a +6.4% annual increase in February, the steepest rise since February 1982.[xviii]
We continue to offer a differentiated view. Market history has taught us to be very careful during markets like the one described above. We scenario plan – we don’t forecast the market – meaning we are cognizant of the possibility of both continued upside speculation (like post-FOMC) and significant declines (like the 2000-2002 bear market). In significantly up markets like 2019, CIG captured mid to high teens for clients. When markets were more challenging in 2020, our clients were well-served by our risk-balanced strategy – an approach that strives for resilience to specific economic conditions. We currently hold positions in alternative assets, such as gold, a long/short fund, and a managed futures fund in client accounts which have increased in value year to date. Overall, we remain focused on striking the right aggressiveness versus defensiveness in client portfolios given the evolving uncertainty in the markets, economy, and geopolitics. Other market pundits appear to be more positive. On March 25, Jim Cramer on CNBC firmly stated, “I think the bear market is over!”[xix]
CIG attempts to manage the risk of the markets to try to limit losses. Risk management is key to how we think and execute – prudent investment management is prudent risk management. Given a holistic approach and utilizing active management, The Ride[xx] can be smoother, and clients may sleep better at night.
In today’s markets, how would you like to protect and then grow your nest egg to achieve your financial goals? We would welcome speaking with you to explore your needs and how you are tracking against your plan.
This report was prepared by CIG Asset Management and reflects the current opinion of the authors. It is based upon sources and data believed to be accurate and reliable. Opinions and forward-looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.
[i] The Growth Benchmark is a blend of 60% Russell 3000, 25% MSCI All-Country ex U.S. and 15% Bloomberg U.S. Aggregate Bond indices. Sources: CIG, Zephyr and Morningstar.
[ii] The Balanced Benchmark is a blend of 45% Russell 3000, 10% MSCI All-Country ex U.S. and 45% Bloomberg U.S. Aggregate Bond indices. Sources: CIG, Zephyr and Morningstar.
[iii] Morningstar: S&P 500 TR USD
[iv] Morningstar: Bloomberg US Agg Bond TR USD
[v] https://www.msci.com/end-of-day-data-search
[vi] https://www.msci.com/end-of-day-data-search
[vii] finance.yahoo.com
[viii] finance.yahoo.com
[ix] Return calculated by CIG using data from finance.yahoo.com
[x] https://www.cnbc.com/2022/03/06/us-crude-oil-jumps-to-125-a-barrel-a-13-year-high-on-possible-western-ban-of-russian-oil.html
[xi] https://www.bls.gov/news.release/cpi.nr0.htm
[xii] https://www.bls.gov/news.release/ppi.nr0.htm
[xiii] This is how the media and market missionaries described his demeanor.
[xiv] https://www.federalreserve.gov/mediacenter/files/FOMCpresconf20220316.pdf
[xv] Return calculated by CIG using data from finance.yahoo.com
[xvi] https://news.umich.edu/inflation-top-consumer-issue-top-policy-challenge/
[xvii] https://www.chicagofed.org/publications/chicago-fed-letter/2018/404
[xviii] https://www.nytimes.com/2022/03/31/business/economy/pce-inflation-february.html
[xix] https://www.cnbc.com/video/2022/03/25/jim-cramer-says-the-bear-market-is-over.html
[xx] https://cigcapitaladvisors.com/june-2020-asset-management-update-the-ride/
Image: iStock by Getty Images
CIG Asset Management Review: Uncertainty About How Much Risk You May Be Taking Is a Risk unto Itself
Summary:
* Threat of a growing war, inflation and interest rate hike fears led equities lower
* Risks may be buried in your portfolio
* Will the “January Barometer” portend a bad year ahead?
January 2022 Returns:
Commentary:
So far in 2022, inflation, interest rate fears and war in Europe have led equities lower as crude oil surged +27.27% to close at $95.72 a barrel[xvii] and the yield on the 10-year U.S. Treasury bond rose +0.33% to 1.84% on February 28.[xviii] Partially because of the horrible events in Ukraine, we have seen crude oil reach $130.50 and the 10-year U.S. Treasury bond as high as 2.13%, since then on an intraday basis. Amid these events, fixed Income did not provide a safe haven, as the Bloomberg U.S. Bond AGG Index lost -3.12% in the first two months. The S&P 500 suffered its worst January since 2009, during the depths of the Great Financial Crisis.[xix] The year is off to a difficult start. But what year hasn’t over the last few?
What does a bad first month suggest for the rest of the year? In 1972, Yale Hirsch, founder of the Stock Trader’s Almanac, introduced the “January Barometer”, which simply put says, as goes the S&P 500 in January, so goes the year. Our team is focused on illuminating potential blind spots as we attempt to manage the risks of the market in efforts to protect clients’ assets. There were many events in January that underscore the importance of managing those things that may fall outside of what is clearly visible.
On January 5, the minutes from the December 2022 FOMC meeting showed the Federal Reserve was becoming more hawkish than expected. A key section of the minutes stated, “Participants generally noted that, given their individual outlooks for the economy, the labor market, and inflation, it may become warranted to increase the federal funds rate sooner or at a faster pace than participants had earlier anticipated.”[xx]
Technology stocks are particularly sensitive to interest rates and the tech-heavy NASDAQ 100 Index reacted negatively to a potentially more hawkish Fed that same day, falling -3.1%, its largest daily loss since March 2021.[xxi]
We have witnessed many investor portfolios outside of CIG that are overweight large cap information technology stocks versus a typical growth benchmark. At CIG, we have significantly limited our exposure in what we believe is an expensive sector, to approximately 55% of the benchmark allocation in our managed accounts. To those who may read this who are not currently CIG clients, we would ask, “Do you know how much risk you are taking in technology currently?”
Many investors have also chased yield in a low interest rate environment and as a result, the duration of their fixed income portfolios may have increased. These portfolios tend to have more bonds that have maturities in the 10- to 20-year range. When interest rates rise, longer duration fixed income tends to fall more than shorter duration. Corporate bonds many times also lose value as higher rates can potentially lead to more defaults.
At CIG, we have limited the duration in the fixed income portion of our portfolios to approximately 90% of the Bloomberg U.S. Agg Bond Index. We have also limited our exposure to corporate bonds to about 2% of our fixed income exposure. The benchmark currently has 24% in corporate bonds that the Federal Reserve will no longer be buying once they stop expanding the balance sheet. Do you know how much risk you are taking in the fixed income portion of your portfolio?
In Part 2 of this Market Review, we consider additional potential risks given February’s events and explore further Yale Hirsch’s January Barometer. If you would like to learn more, please click here to e-mail Brian Lasher.
Part of our mission is well-informed investors. For those who may not currently be CIG clients, we believe you would find benefit in assessing what risks exist in your portfolio – such a conversation has no downside for you. A “second opinion”, if you will, seeking nothing more than to help increase your knowledge. Please click here to schedule a strategic review with CIG Asset Management.
This report was prepared by CIG Asset Management and reflects the current opinion of the authors. It is based upon sources and data believed to be accurate and reliable. Opinions and forward-looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.
[i] The Blended Growth Benchmark is a blend of 60% iShares Russell 3000 ETF, 25% iShares MSCI ACWI ex U.S. ETF and 15% iShares Core U.S. Aggregate Bond ETF. Sources: CIG, Hedge Fund Research, Yahoo Finance and Morningstar.
[ii] The Blended Balanced Benchmark is a blend of 45% iShares Russell 3000 ETF, 10% iShares MSCI ACWI ex U.S. ETF and 45% iShares Core U.S. Aggregate Bond ETF. Sources: CIG, Hedge Fund Research, Yahoo Finance and Morningstar.
[iii] Morningstar: S&P 500 TR USD
[iv] Morningstar: Bloomberg US Agg Bond TR USD
[v] https://www.msci.com/end-of-day-data-search
[vi] https://www.msci.com/end-of-day-data-search
[vii] finance.yahoo.com
[viii] finance.yahoo.com
[ix] The Blended Growth Benchmark is a blend of 60% iShares Russell 3000 ETF, 25% iShares MSCI ACWI ex U.S. ETF and 15% iShares Core U.S. Aggregate Bond ETF. Sources: CIG, Hedge Fund Research, Yahoo Finance and Morningstar.
[x] The Blended Balanced Benchmark is a blend of 45% iShares Russell 3000 ETF, 10% iShares MSCI ACWI ex U.S. ETF and 45% iShares Core U.S. Aggregate Bond ETF. Sources: CIG, Hedge Fund Research, Yahoo Finance and Morningstar.
[xi] Morningstar: S&P 500 TR USD
[xii] Morningstar: Bloomberg US Agg Bond TR USD
[xiii] https://www.msci.com/end-of-day-data-search
[xiv] https://www.msci.com/end-of-day-data-search
[xv] finance.yahoo.com
[xvi] finance.yahoo.com
[xvii] finance.yahoo.com
[xviii] finance.yahoo.com
[xix] https://www.ft.com/content/5cf5199c-5538-40b6-a059-d2c795108919
[xx] https://www.federalreserve.gov/monetarypolicy/fomcminutes20211215.htm
[xxi] https://www.bloomberg.com/news/articles/2022-01-05/nasdaq-100-posts-worst-day-since-march-sparked-by-fed-minutes
Image: iStock by Getty Images
CIG Asset Management Review: How To Be A More Strategic Investor In 2022
Summary:
* US and developed international equities rallied
* The importance of remaining rational in an increasingly emotional environment
Commentary:
A Blended Growth Benchmark returned approximately 2.80% while a Blended Balanced Benchmark gained about 1.96% in December.[i] These benchmarks represent the theoretical performance of diversified passive portfolios blending indices related to geography and asset classes. During December, international stocks in developed markets were higher with the MSCI EAFE net index up +5.05%[ii], slightly besting the S&P 500 index (up +4.48%[iii]), while the MSCI Emerging Markets equities lagged, only gaining +1.62%.[iv] From an asset class perspective, Fixed Income was down slightly as with the Bloomberg US Agg Bond Index falling -0.26%.[v] Crude Oil recovered a little more than half of November’s losses, gaining +13.6% to close at 75.21 a barrel.[vi]
A recent Wall Street Journal article cited an American Psychological Association survey conducted last year that found that after two years of pandemic, nearly one-third of adults are struggling with basic decisions, including small choices like what to eat or wear.[vii] One of the experts interviewed suggested that one way to make decisions was to replace individual choices with all-encompassing principles that do the work for you. If you create and honor rules, for example, you can better assess risks, mitigate biases and act. The year ahead, as with any new year, will bring both challenges and opportunities. How we meet these challenges will impact, in our opinion, our ability to capitalize on the opportunities and manage the challenges we are presented in the market. Here is what we suggest.
Avoid looking in the rear-view mirror. While the newspaper may state that the S&P 500 has returned 8.4% each year since its inception in 1957 to December 31, 2020[viii], no one should put 100% of their retirement savings into the S&P 500. If one did, those savings could be exposed to potentially swift, unexpected losses. We explored this exposure in Risk Happens Fast. So, why would we consider the S&P 500 a benchmark for what your real-world, diversified portfolios have done? We should not.
Search for the best potential investments going forward, not what worked in the past. CNBC’s twice yearly “Millionaire Survey” discussed the inherent risk of buying and holding onto large technology stocks (FANGMAN) – “They [investors] haven’t got the guts to pull out.”[ix] For example, investors continue to ignore Apple’s missing earnings guidance in its recent quarter given the prospect of reaching a $3 trillion market capitalization. And the Apple car? Bulls have been trotting that one out since 2014. We’ve seen how a drawdown in technology stocks played out in 2000, and shared our thinking in What If the Bubble Bursts?
Pay more attention to what is going on beneath the surface. In December, Bloomberg ran a story when the S&P 500 closed at a 52-week high. It highlighted that 334 companies trading on the New York Stock Exchange hit a 52-week low, more than double the amount of those hitting 52-week highs on that same day[x]. The last time that the market experienced this Market Internal[xi] was just prior to the tech bubble collapse more than twenty years ago. We discussed other internals, as well – poor liquidity and retail trader’s share of stock market volume in Inflation and Fragility.
Consider that we are likely in uncharted territory. Over the last decade, the Federal Reserve has tried multiple times to end its various “money printing” programs, but it didn’t take long before a market downdraft caused a “U-turn.” This time, the difference is that the Fed is perceived to have lost control of inflation. On January 5, Federal Reserve meeting minutes[xii] indicated officials are considering an earlier timetable for shrinking their $9 trillion balance sheet – that’s not just raising rates or tapering buying (“printing”), that’s completely taking away the liquidity punchbowl. In our opinion, the most prudent prescription is The Return of Active Portfolio Management.
The Wall Street Journal article mentioned above concludes with advice from Annie Duke, a former professional poker player and author of How to Decide. She reminds us that many decisions can be tweaked later but we must ask, “What might be the early warning signs of an unpleasant outcome?” Active risk balanced investing can help identify potential problems, guide us through a volatile market landscape and help us in managing the outcomes.
In December, we presented our unique perspective on the current investment and economic environment via a small group gathering of select clients and prospects. To listen to the recording of our presentation, please reach out to your Wealth Manager or Brian Lasher <blasher@cigcapitaladvisors.com>.
You can find more information on this and related topics at https://cigcapitaladvisors.com/category/asset-management/.
As we enter 2022, we remain focused as always on ensuring that client portfolios are aligned with their planning objectives and long-term goals.
This report was prepared by CIG Asset Management and reflects the current opinion of the authors. It is based upon sources and data believed to be accurate and reliable. Opinions and forward-looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.
[i] These indices shown are broad-based and used for illustrative purposes only. Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, expressed or implied is made regarding future returns. The Blended Growth Benchmark is a blend of 60% Russell 3000 Index, 25% MSCI All-Country World Index excluding the US ETF and 15% iShares Core U.S. Aggregate Bond ETF. The Blended Balanced Benchmark is a blend of 45% Russell 3000 Index, 10% MSCI All-Country World Index excluding the US ETF and 45% iShares Core U.S. Aggregate Bond ETF.
Sources: CIG, Hedge Fund Research, Yahoo Finance and Morningstar
[ii] https://www.msci.com/end-of-day-data-search
[iii] Morningstar: S&P 500 TR USD
[iv] https://www.msci.com/end-of-day-data-search
[v] Morningstar: Bloomberg US Agg Bond TR USD
[vi] finance.yahoo.com
[vii] https://www.wsj.com/articles/decision-fatigue-is-real-heres-how-to-beat-it-this-year-11641186063
[viii] https://www.wsj.com/articles/wall-street-bets-s-p-500-will-say-goodbye-to-outsize-stock-gains-in-2022-11640514607
[ix] https://www.cnbc.com/2021/12/28/millionaires-want-to-own-a-little-less-of-everything-bubble-next-year.html
[x] https://www.bloomberg.com/news/articles/2021-12-27/it-s-december-1999-based-on-the-nyse-shares-touching-new-lows
[xi] Market internals are a series of indicators that traders can use to get a sense of where the market is heading.
[xii] https://www.federalreserve.gov/monetarypolicy/files/fomcminutes20211215.pdf
Chess image: Carlos Esteves/Unsplash
Stock exchange board image: Pixabay/Pexels
Practice Resolutions for the New Year
The end of the year is a time for reflection. It’s also a chance to apply the lessons of the past going forward. If one of your 2022 goals is to improve the operational, administrative, and financial aspects of your medical practice, here are some ideas you might be able to incorporate in your list of New Year’s resolutions.
Review Current Patient Service Approaches
The delivery of superior patient service takes leadership and commitment to patient needs. You can resolve to use staff meetings and personal example in the coming year to reinforce your practice’s values concerning patient treatment and care.
Superior care translates into high rates of patient satisfaction. Patient surveys have been found to be a particularly effective tool in providing feedback regarding a wide range of patient care and customer service issues.
Monitor Financial Performance Regularly
Tracking your practice’s financial results during the year allows you to identify trends and make changes as needed.
You may want to put a dedicated staff member in charge of focusing on several key indicators or metrics, such as your practice’s collection rate, overhead percentage, and number of office visits. These indicators should be reviewed at regular intervals as the year progresses.
We can help you interpret what the numbers are saying and see the big picture. Staying on top of performance throughout the year can enhance your practice’s financial management.
Improve Collections and Billing
Finding a way to streamline and simplify payment for services rendered may be a goal for your practice in the coming year. One approach that can work to reduce both billing expenses and collection difficulties: Have your receptionist ask for copays before your patients leave your office – or even better, when they arrive.
Ensuring that you bill for all of your hospital services in the coming year is another worthwhile resolution. When you are seeing patients at a hospital, be sure to make a record of your work promptly and transmit the information to your billing staff. Though it’s more efficient to call your billing office immediately after you complete procedures, if that’s not feasible, create electronic or written notes for later use by your billing staff.
Establish a process for following up on unpaid accounts. Make follow-up calls within a certain number of days of when services were provided or when the original bill was due.
Establish a Training Plan
Staff training can pay off in increased productivity, improved morale, and a more efficient operation. Look into what ways your support and administrative staff could benefit from training, seminars, and other educational opportunities. Budget for a specific dollar amount to be spent on staff development each year. Online seminars and training sessions can be a cost-effective alternative.
Plan for Capital Expenditures
As you prepare your budget, identify the equipment you intend to replace and set priorities for the systems and technologies your practice will need going forward. Determine what, if any, areas in your current facility need to be remodeled or expanded.
Preparing a detailed plan with a very specific timetable for achieving goals can help you clarify what needs to be done to keep your practice competitive.
We can help identify and prioritize the measures that will help your practice run more efficiently in the coming year. Please contact us for assistance.
Finding a way to streamline and simplify payment for services rendered may be a goal for your practice in the coming year.
To schedule a complimentary consultation with a CIG Capital Advisors professional, click here.images: iStock by Getty Images
CIG Asset Management Review: What If the Bubble Bursts?
Summary:
* US Equities surge while international equities lag
* Tesla and the growing stock market bubble
* What happens when a bubble eventually bursts?
Commentary:
The S&P 500 index gained +7.01% in October, bouncing back from its September decline and closing at an all-time high.[i] Overseas markets were up, but much less so versus the U.S., with the MSCI EAFE net index up +2.38% and the MSCI Emerging markets up +0.93%.[ii] Fixed income did not offer much in the way of returns for the month with the Bloomberg US Agg Bond Index falling -0.03%.[iii] Crude oil added to September’s gains, increasing +11.38% and closing at $83.57/barrel, a 7-year high[iv], despite global growth forecasts being revised lower.[v]
We continue to be concerned that U.S. equity markets may be in a bubble. Tesla, for example, gained +44% in October.[vi] In just 2 weeks, the company gained $310 billion in market capitalization. That gain is more than the market cap of 482 companies in the S&P 500 Index.[vii] Tesla’s current market cap is over $1.2 trillion, greater than the market capitalization of Toyota, VW, Daimler, GM, Ford, BMW, Honda and Hyundai combined![viii] Tesla isn’t the only stock that may currently be overvalued.
When we look at the market using several different measuring sticks, we find more extreme valuations. The Buffet Ratio, which we have talked about before and measures total market capitalization to U.S. GDP, is at 215.5%, double the 107.5% seen in May 2007, right before the Great Financial Crisis and 50% higher than the March 2000 dot com boom high of 142.9%.[ix] The current Shiller PE ratio for the S&P 500 is 40.09. The only other time that we saw the market trade at such a high price to earnings ratio was during the dot com bubble, when the S&P 500 traded above 40x from January 1999 through September 2000.[x] No one can predict with any degree of certainty just how much larger the current bubble can get or how long it may last, but we must take note of what has happened when previous bubbles finally burst.
How bad can things get when a stock market bubble bursts? During what was, prior to now, the largest stock market bubble, the dot com boom, the NASDAQ 100 hit its then all-time closing high on March 27, 2000. The broader market, as measured by the S&P 500, did not reach the bottom until October 9, 2002 with a peak to trough loss of -49%.[xi] As illustrated in the chart below, a lot of money was lost in different sectors and factors during this period while gold and consumer staples, which clients currently have exposure to, gained.
An investor would have to be extremely unlucky to buy at the top and sell at the bottom. What do returns look like if you bought one year before the top, on March 27, 1999 and held on for three years after the bottom, October 9, 2005? The S&P 500 was down -6.8%, and the NASDAQ 100 lost -24.7%. Notably, gold, energy, financials, industrials, utilities, materials, and value stocks were up.
As seen in the chart below, it took just over 7 years for the S&P 500 to get back to its March 27, 2000 high (from point (1) to point (2)). Just months after the market had recovered, the Great Financial Crisis began, and the market did not bottom out again until March of 2009. The S&P 500 did not fully recover until March 4, 2013 (point (3)). If you bought the S&P 500 on March 27, 2000, you had a very brief amount of time in 2007 to get out even, or you had to wait until March 2013 to recoup your losses, just under 13 years after the dot com peak![xii] “Do you have enough time?” was the title of a recent Asset Management Insight.
Source: barchart.com
During the dot com bubble in 1999 to 2000, many investors believed that traditional valuation metrics such as price to earnings and price to sales no longer mattered. “This time is different” was a phrase often used. During the pre-Great Financial Crisis housing bubble many believed again, “this time is different”, no money down mortgages and other financial innovations would forever change the way assets were valued, and residential real estate has never gone down on a country-wide basis. Ultimately, traditional valuation methods won out and both bubbles burst.
History has taught us to be very careful. We continue to stay the course of risk balanced investing – take enough risk to reach your goals but not much more. We remain focused on striking the right aggressiveness versus defensiveness in client portfolios given the evolving uncertainty in the markets and the economy.
This report was prepared by CIG Asset Management and reflects the current opinion of the authors. It is based upon sources and data believed to be accurate and reliable. Opinions and forward-looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.
[i] Morningstar: S&P 500 TR USD
[ii] https://www.msci.com/end-of-day-data-search
[iii] Morningstar: Bloomberg US Agg Bond TR USD
[iv] Finance.yahoo.com
[v] IMF, FactSet
[vi] Finance.yahoo.com
[vii] @zerohedge 10/29/2021
[viii] Finbox 10/25/2021, https://twitter.com/JamesEagle17/status/1452950604662419464
[ix] https://www.gurufocus.com/stock-market-valuations.php
[x] https://www.multpl.com/shiller-pe, as of 11/08/2021
[xi] CIG calculated using data from finance.yahoo.com
[xii] Data from barchart.com
image: iStock by Getty Images
Easing into Retirement
Given the physical and emotional demands of their profession, it’s little wonder that some physicians look forward to retirement. However, many other doctors nearing retirement age are reluctant to turn their backs completely on their profession and would rather find a way to ease into retirement.
What should you do if retirement is on the horizon, but you would prefer to transition gradually into retirement by working part-time? Here are some things to consider if you are thinking of cutting back on your work hours.
Review Your Finances
First off, determine if you can afford the reduction in earnings that reducing your work hours will entail. Pay particular attention to any debt you are carrying (mortgages, etc.). Ideally, you don’t want to be overly burdened with debt once you are no longer practicing full-time.
A review of your current net worth can give you a clearer picture of your overall financial standing. Net worth takes into account the value of all your assets as well as your outstanding liabilities.
If you’ve been funding a tax-favored retirement plan, hopefully you have accumulated sufficient assets to provide a steady stream of income for all the years you may be retired. If you still haven’t met your goal, you’ll want to determine if your earnings from part-time work will allow you to comfortably continue adding contributions to your retirement plan. You’ll also want to determine when you can start taking penalty-free withdrawals from your plan(s) and project what your tax situation will look like. These are all issues we can help you assess.
Look at Your Options
If you are part of a multi-physician practice, talk to your colleagues about what arrangements can be made for you to start cutting back your hours. You may need to revise your practice agreement to incorporate a new compensation arrangement. Typically, such arrangements are based on the productivity of the part-time physician less a share of practice overhead expenses.
If you are a solo practitioner, you may find it hard to practice part-time without creating problems with your current patient base. Patients may feel that you can’t deliver the type of patient care they expect if you are practicing part-time. Bringing in a physician assistant may be helpful. However, recruiting another physician who would eventually take over the practice may be the most effective route for solo practitioners.
Give careful consideration to the financial arrangements you make with the new physician. When it comes time to sell, you’ll want to have a formal purchase agreement that outlines all of the rights, obligations, and responsibilities of the buyer(s) and the seller. It should also include a valuation of the practice.
Consider Malpractice Insurance
Don’t ignore the issue of malpractice insurance when you are weighing the pros and cons of going part-time. You need to be certain you will be covered during your part-time years and after you stop practicing completely. “Tail coverage” can protect you against any malpractice claims that may be filed against you after you retire.
We Can Help with Retirement Planning
Whether you are serious about transitioning to part-time work or are simply exploring your options, be sure to consult with us. We can help you run the numbers and evaluate your financial preparedness for retirement.
If you are part of a multi-physician practice, talk to your colleagues about what arrangements can be made for you to start cutting back your hours.
To schedule a complimentary consultation with a CIG Capital Advisors professional, click here.