As we start a new year it is import to get a sense of ones financial health.  The best way of doing this it to track ones net worth and monthly spending.  To do this first calculate your total debt load.  This is the sum total of all loans you’ve taken out and money you owe to people.  Next calculate the value of all of your stuff.  This is harder than it sounds because most of our stuff is difficult to fix a value to.  Something like a home is easy. Go to Zillow or a similar real-estate website and there you will find a reasonable value for your home.  Other things are more complex.  Cars, collectibles, furniture and other items may have a lot of values for us, but may be hard to place a fair market value on.  For simplicity I only add items I can sell (on eBay or craigslist) for at  least $500 to my net worth list, and get a price estimate by checking what similar items are valued at by using a reputable source like Kelly Blue Book for cars.  Once I have the value of all the things I own I subtract my debt load and there is my net worth

To track spending is just as simple.  If you use credit/checks/and debit cards for all or most of your purchases then you just add up the total value of expense in a given month.  What I also do is itemize the spending so I get a sense of how much I spend on groceries, dining out, entertainment, housing, etc… each month.

Once you’ve done all of this you know how much you are worth and how much you spend each month.  If all is going well you are worth more than you owe and you spend less than you make in a month.  You can also develop a plan to pay off your debts and allocate money for investment.  

Is history repeating itself? Back in January we saw a dramatic decline in selling followed by a steady rise in the indexes that continued till May.  Guess what; we are now seeing a dramatic decline in selling and continued strong buying.   This is a nice setup for a Santa Claus rally.  So if the pattern holds we could see a steady rise in market value over the next 5 months!  However, we mustn’t forget that this is still a political economy.  So any rumblings about trade or impeachment or … <insert your favorite political topic> could impede this rally.

We  are now 392 days till the 2020 election, and who will be inaugurated President in 2021?  The economy and the market have benefited from some of Trump’s policies; other policies… not so much.  Take trade.  Trump’s review of ways to limit American capital investment in China by restricting Chinese ADR listings in the US spooked the markets.  However, the SP500 is up nearly 38% since Trump’s election. So what does the future hold. In spite of the fundamentally sound economy my prediction is more volatility as the election approaches and politics get nasty.  We are already seeing buying volume dry up on the NASDAQ as selling continues to increase. Similar situations exist with the SP500 and DJI, but not as bad.  In fact the buying and selling behavior of the DJI almost looks normal.  The primary culprit in my opinion is the uncertain trade and tariff policy, the continuing trade war with China, and the slow down in the world economy.  Even if the American economy is okay many of the big companies we invest in make huge profits overseas. Expect those profits to be lower as the world economy slows down.  For some sectors we are already in an earnings recession.  On the bright side a down market presents many good buying opportunities.  Remember the old saying, “Buy low; Sell high!”

It been a very volatile past few years for the markets, but in spite of this it is up nearly 9% since it opened on January 1 , 2018. Of course since the beginning of this year the NASDAQ is up ~23% and the other indexes are up similarly, but remember that ~19% plunge between October and December 2018? In situations like this it is tempting for the active investor to just be in cash. There is no shame in having a large cash position.

However, having a large cash position is not an excuse for the active investor to stop being active. You should in fact be more engaged in what is going on. Maintain a “Christmas shopping list” of companies that you would like to buy and be ready to buy them when a good price becomes available. If you have a 401(k) you should be contributing to it up to your company’s matching point (why give away free money?). If you’re like me and work for a company that doesn’t match you should be contributing regularly to your own IRA.

Also use periods of volatility to evaluate your whole retirement plan. For example ask yourself where are you going to live, what will your health situation be like, what is your debt situation like, and what do you plan on doing. Each person will have a different answer to these questions and maybe even have a different set of questions! The important thing is that you think about these things and develop a plan for your future. I’m of the opinion that a person should not retire until they have ZERO credit card, student loan, and auto loan debt and should have little or ideally no mortgage.

So while the volatility continues you should be vigilante; keep an eye out for new buying opportunities for great companies and take care of some big picture financial items to guarantee a prosperous retirement.

On my birthday in 2015 I got laid off from a job I thought I loved, working with people who I thought I liked.  You can say this triggered a mid-life crisis.  Being a M.A.N. (middle aged nerd) with a PhD degree I thought I would have job security until I decided to retire.  It never occurred to me that I, Dr. “MAN”, could ever be unemployed or for that matter be laid off!

So I took time off from the working world to do some soul searching.  I could afford to do that because I made wise financial decisions all of my life, and I continued to use my money wisely.  This includes planning for my retirement.  Even though I’m back working, I’m still managing my IRA using a few quantitative (quant) tricks I’ve picked up over the years.

Here I plan on sharing my quant analysis of current market trends and my thoughts on personal finance.  My hope is for others to learn from my experiences and gain financial independence.

Good company in a journey makes the way seem shorter. — Izaak Walton

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