North Bay investment pros: remain calm despite Wall Street volatility

The recent gyrations of the stock market - where daily fluctuations have taken investors on a literal Wall Street roller-coaster ride - have caused some North Bay residents to reach out to local investment professionals.

Their advice: Don’t panic and understand that holding stocks over the long term has historically been a crucial element of an investment strategy to accumulate wealth.

In practice, following that wisdom can be hard, especially after the Dow Jones industrial average suffered its largest point drop ever on Feb. 5 as it plunged 1,175 points, resulting in a 4.6 percent decline. But just last week it steadily started climbing back and by Friday’s closing was near 900 points above where it was two weeks ago.

Investors will have to learn to live with volatility in 2018, advisers said, and recalibrate how much risk is acceptable to achieve their personal investment goals.

“Volatility just scares people,” said Spencer Sherman, founder and executive chairman of Abacus Wealth Partners in Sebastopol. But he said there is an upside to staying the course.

“Equanimity makes you money,” Sherman said. “Volatility is inherent in the markets. ... If there is no volatility, there isn’t the rewards.”

Market data shows how turbulent the stock market has been this year. Investors placed $59 billion into equity mutual and exchange-traded funds in January, but this month had pulled out $47 billion as of Feb. 12, said David Santschi, director of liquidity research for TrimTabs, a research firm in San Francisco.

“People are really dumping the U.S. (equity) funds hard,” Santschi said. “They’re no longer buying the global funds, but they are not selling it.”

The reasons given by market experts for the sell-off include a ballooning federal deficit under President Donald Trump’s tax bill and spending package; rising worker wages that could trigger inflation and the possibility of rising interest rates; and a tightening of monetary policy at the Federal Reserve. All of that has contributed to a sense that the bull market for the last nine years may be coming to its end.

Some clients have called Denise Gilseth, branch manager for Stifel investment brokerage in Santa Rosa, looking for advice given the recent volatility. Many of them are near or in retirement, so the fluctuations are much more of a concern than for millennial investors who have years to build their portfolios.

“We are not a robo-investment firm. We listen to our clients,” Gilseth said. “When my clients are telling me they are nervous, I listen to them.”

Some investors are taking their stock gains and siphoning that portion into short-term certificates of deposits to provide more security, she said.

“I am mainly peeling profits and socking those away,” she said.

Stocks still have value, Gilseth noted, pointing out that even with the recent losses, equities are back to a level of gains from October.

Indeed, some argue there is still opportunity to be had. That includes Nate Pile, editor of Nate’s Notes investment newsletter in Healdsburg, who contends the stock market is in its final phase of a bull market.

“This is where the biggest money is made in the bull markets near the end,” said Pile, who has published his newsletter for 23 years and was a former junior high math teacher.

His newsletter focuses on a portfolio holding of about 20 growth stocks - which also includes a gold exchange-traded fund - that has some biotech and semiconductors companies.

“Our job is to position the portfolio to what the markets are doing, not what we think it might do,” he said.

Still, Pile recommends investors sell off holdings to the point where they can sleep easily at night and stash a portion of their portfolio in a safer investment such as cash. Some of his subscribers have not been through a bear market. The last one started in the fall of 2007, when he noted that he also “took some chips off the table.”

Investors should be steady and slow in their purchases into a specific stock and continue that same approach as they start to sell - never trying to time when the market or a stock may go south, he said.

“It’s hard to find things that are cheap anymore,” Pile said. “But that doesn’t mean that it (a stock) isn’t going to go up.”

He points to MannKind Corp., a biotech company based in Westlake Village, as a stock he is still bullish on because of its Afrezza inhalable insulin product. The company is attempting to ramp up its sales via outreach with physicians, and Pile notes that it typically takes as much as three years for diabetes drugs to become popular with doctors. The stock reached a high of $6.71 per share on Oct. 10 before declining in recent months. It closed at $2.99 per share on Friday.

At Abacus Wealth, the advisers include time to practice mindfulness at their weekly staff meetings so they can maintain calm and prevent their clients from reacting impulsively to the markets.

“I recognized that the ability to maintain equanimity with the volatility of the markets is a key to earning high returns and minimizing stress,” Sherman said in an email. He has led a mindfulness retreat at the Green Gulch Zen Center at Muir Beach for local financial advisers.

The firm conducts different investment models for its clients based on how much risk they are comfortable with, including factoring in such historical trends as the ?1929 stock market crash. Abacus Wealth wants to ensure its clients have enough money in bonds to cover downturns.

“How much volatility does a person have to take on to reach their goals?” Sherman said.

Still, stocks are an important part of any portfolio, he said. For instance, $1 invested in 1926 in the Standard & Poor’s 500 index would have returned $6,035 at the end of 2016, compared to $134 with U.S. long-term government bonds, according to Janus Capital Group.

“There is no comparison with the amount of money people have made compared with cash and bonds,” Sherman said of stock investing.

The firm offers free financial counseling sessions, regardless of a person’s income or savings. The next one will be on May 15. Index mutual funds, he said, are a great option to start a diversified portfolio at a lower cost. “Mutual funds do a great job in keeping fees down and taxes down,” Sherman said.

Investors, he said, should not be too concentrated in U.S. stocks given that global equities bring better diversification. Local investors also tend to hold too much technology stocks given our proximity to Silicon Valley.

“You are betting on an A-plus student keeping up the A-plus,” Spencer said of stocks such as Amazon and Apple, instead of betting on a B-plus student going up.”

You can reach Staff Writer Bill Swindell at 707-521-5223 or bill.swindell@pressdemocrat.com. On Twitter @BillSwindell.