WCCB TV Interviews Dr. Chris Mullis

Source: WCCB TV / Local Financial Advisors Say “Stay the Course” Following Historic Market Drop

Dr. Chris Mullis,  NorthStar’s Founding Partner, did an on-air interview with WCCB TV news anchor Drew Bollea discussing how people should think about their investments in the midst of a global panic induced by the coronavirus. (click image to watch video)

Ironically, this interview was recorded on March 9, 2020 — exactly 11 years to the day since the crescendo of global panic that marked the bottom of the 2007-09 bear market.


Here’s the memo that we sent clients and friends ahead of this interview that elaborates on the points made during the news report: 

March 9, 2020

At this morning’s opening level of 2,764, the S&P 500 is down over 18% from its all-time high, recorded on February 19. Declines of that magnitude are fairly common occurrences — indeed the average annual drawdown from a peak to a trough since 1980 is close to 14%. But such a decline in barely a month is noteworthy, not for its depth but for its suddenness.

As we all know by now, the precipitants of this decline have been (a) the outbreak of a new strain of virus, the extent of which can’t be predicted, (b) the economic impact of that outbreak, which is equally unknown, and (c) most recently, the onset of a price war in oil. (That last one is surely a problem for everyone involved in the production of oil, but it’s a boon to those of us who consume it.)

The common thread here is unknowability: we simply don’t know where, when or how these phenomena will play out. And in my experience, the thing in this world that markets hate and fear the most is uncertainty. We have no control over the uncertainty; we can and should have perfect control over how we respond to it.

Or, ideally, how we don’t respond. Because the last thing in the world that long-term, goal-focused investors like us do when the whole world is selling is — you guessed it again — sell. Indeed, I welcome your inquiries around the issue of putting cash to work along in here.

On March 3, the erudite billionaire investor Howard Marks wrote, “It would be a lot to accept that the US business world — and the cash flows it will produce in the future — are worth 13% less today than they were on February 19.” How much more true this observation must be a week later, when they’re down 18%.

Be of good cheer. This too shall pass.

Roth conversion in 2020?

Can you take advantage of 2020’s bear market to generate tax-free income through a Roth conversion?

You’ve probably heard that Roth IRAs are great for generating tax-free income and avoiding Required Minimum Distributions in retirement.

and…

2020’s market losses make it a good year to consider a conversion so you minimize the taxes you pay on the money you convert.

But the details matter a lot. And new laws mean conversions are permanent.

We made a short video showing you how to decide if you should consider a Roth conversion this year.

Check it out here!

 

If you’ve got a question or concern you’d like us to talk about in a future video, email info@nstarcapital.com and let us know! We’d love to hear your feedback.

Financial Order of Operations

One of the pillars of financial success is doing the right things in the right order.  My informal term for this is F.O.O. — Financial Order of Operations.

That phrase may sound slightly cumbersome, but the conceptual framework is a life changer!

I’ve recorded this special video for you that lays out a roadmap for deploying your army of dollar bills.  Watch now to learn exactly what you should do with each successive dollar you have.

You can watch it here.


Following the F.O.O. will strengthen your financial success and allow you to live your best life.

If you have any questions about the particulars of your Financial Order of Operations, please don’t hesitate to reach out.

Thank you and be well,

Chris Mullis, Ph.D., CDFA®
Founding Partner
What Issues Should I Consider For My Aging Parents?

Becoming a caregiver for aging parents can be a drain emotionally and can carry financial ramifications both for parents and for the caregiver children. Helping understand and manage the financial issues involved can make the situation a bit easier all.

In this guide, we cover a number of financial issues that you need to consider when faced with helping and potentially caring for aging parents, including:

  • Be sure you examine your parents’ finances to determine if they are able to manage their own expenses. There may be sources of income available to your parents of which they are unaware.
  • It’s important that you be sure you have access to their parents’ important documents such as any estate planning documents. You should have the names and contact information for any advisors your parents use such as an attorney, financial advisor or accountant.
  • If your parents need long-term care, they will need to investigate ways to cover the cost. Medicaid planning or a reverse mortgage might be options.
  • If the estate of your parents is over a certain amount, then they may have an estate tax issue. It’s also important for you to ensure that your parents’ beneficiary designations on insurance policies and retirement plans are up to date, and that they reflect their wishes.
  • It’s important for you to ensure that your parents’ tax situation is in order, managing any capital gains or losses, as well as fully utilizing any deductible medical expenses.
  • Overall, it’s helpful to stress the benefit of having a handle on all of your parents’ assets, liabilities and all related financial issues as a time may come when your parents are unable to manage their own affairs.

This is a comprehensive guide to the types of financial issues that you consider when helping your aging parents.

 

3 cognitive biases that cheat most investors (and how to beat them)

“The investor’s chief problem – and even his worst enemy – is likely to be himself.” — Benjamin Graham

If you’re looking at headlines or feeling the pressure of the downturn, it’s easy to think you’re not in control.

And it’s true—you have limited control over external circumstances (like the pandemic). But you have complete control over yourself and your behavior.

Times like these are when it’s most important to dig deep, root out bad habits, and come out on the other side mentally stronger than before.

We made a short video showing you exactly how you can overcome the hardwired biases that can cheat you, including the huge mental trap that even Warren Buffett has to fight.

(You’ll have to watch the video to find out what it is!)

You can watch it here.

So what if the market does go down again?

Over the past several weeks, the stock market has experienced both the fastest crash and the most robust bounce ever seen. Right now, while things are relatively calm, I want to underscore the following points that are profoundly important to your investing success.

  • When stock prices are going down, the enduring value of the underlying companies is going up. A market decline is therefore always to be experienced as a sale, and the very nature of sales is that they are temporary. The lower prices go, the more value is to be had at those prices. You instinctively know this about virtually everything else in your economic life. If you can’t apply that same correct instinct to the stocks of America’s and the world’s great companies, it’s not probable that you can ever become a successful investor.
  • Staying fully invested during temporary market declines is the only sure way to capture the entirety of the market’s permanent advance. It is not possible consistently to sell out of falling markets, and later buy back into already advancing markets, thereby capturing the long-term returns of equities. Those returns are your reward for staying calm.
  • You never try to make long-term investment strategy out of short- to intermediate-term disruptions. We have a plan for getting you to the goal you need to reach, in order to secure a successful retirement. To achieve that goal, you need to invest consistently. And to stay invested, not just when the sun is shining.
  • Perhaps more today than ever, bonds, CDs and the like are not an alternative. At the moment, the cash dividend of the S&P 500 is close to three times the yield on the 10-year Treasury note. Even if dividends were to halve in the current crisis, and interest rates stayed where they are, stocks would still yield more than the 10-year Treasury. I’ve never seen that before, and when this crisis passes, I don’t ever expect to see it again. Bonds are simply not, in my judgment, a rational alternative to stocks for the long-term investor.
  • How low the stock market ultimately goes in response to the economy’s cardiac arrest is both unknowable and — to the long-term, goal-focused, planning-driven investor — irrelevant. (Unless, of course, he/she is still in accumulation mode, in which case a renewed decline would be a genuine godsend.)

I hope sharing our enduring principles helps both steady you in the present and focuses you on your long-term success. As always, if you have any questions don’t hesitate to give me a call.

When the world goes as haywire as it’s done lately, you may have occasion to question your investment strategy — and even your overall financial planning. If so, you may wish you could get an objective second opinion you can trust, from a friend. I hope you’ll know me to be that friend.

Wishing great success,
Chris

Chris Mullis, Ph.D.
Founding Partner
Financial Planning.
Wealth Management.
Since 2006

AskNorthStar.com
(704) 350-5028

 

Paradigm shifts (and how to keep up)

Life has changed; how do we adapt without losing sight of what we want to achieve?

As you’ve heard me say before, no one knows how the future will play out, but we should still look ahead and think through the consequences of what’s happening. (More about this kind of second-order thinking ahead.)

I believe that our society and our economy are experiencing a massive paradigm shift.

We will never go back to the world we had before COVID-19, and the lens that we used to evaluate ideas, markets, economies, and personal choices over the last decade may not be sufficient for the next decade.

Here are just a few things that I see changing as a result of what’s going on now:

Social Support: 36.5 million Americans have become unemployed in two months, and the effects are rippling through families, communities, and the economy.1 The government has responded with trillions of stimulus dollars to individuals and businesses. More relief is likely to come. What does this mean for our society? Who should get a helping hand in tough times? Will we permanently expand the social safety net?

Work: Thrown into the largest work-from-home experiment in history, more workers and employers will transition to remote work post-pandemic. This shift in work has major implications. Which places will be a draw if workers can live anywhere and employers can have their pick of a nationwide (or global) workforce? Will those who must physically show up demand different compensation?

Education: Students, parents, schools, and universities are being forced to re-evaluate the definition of education now that the on-campus experience has gone online. What’s missing if you attend from home? What alternatives to a traditional four-year degree will arise?

Shopping & Entertainment: Brick-and-mortar retailers may never recover from the body blow dealt by pandemic lockdowns. Online shopping, grocery delivery, and digital services may finally overtake offline channels. What will the retail landscape look like when it’s easier (and maybe safer) to eat, shop, and watch at home?

What do you think? What do you see changing in the world? Please email me at chrismullis@nstarcapital.com and share your thoughts.

No one has all the answers about the new world and things are not always what they seem.

Though it appears that the stock market has moved past the pandemic, we shouldn’t celebrate just yet.

Why?

Much has changed in the world and we’re still playing out first-order effects. More consequences are coming.

“What are the second- and third-order consequences of this?” is a question big thinkers like Ray Dalio (manager of the largest hedge fund in the world) ask about complex scenarios.

Here’s what they mean:

First-order thinking is fast and simple: B is the logical outcome of event A.

But then what? What happens as a consequence of B?

And what happens as a result of that? And what is the follow-on effect of that?

Second-order thinking is about interactions and complex systems. It’s slow and hard (but mastering it can put us steps ahead of the crowd).

Understanding the new world that’s growing out of the pandemic requires thinking through these higher-order consequences and developing a new lens to navigate the uncertain waters ahead.

How can we adapt? How can we still pursue our goals in a totally different world?

We think it through with humility and an open mind.

We hone our second-order thinking skills by asking: what could happen? And then what? How likely is it that I’m right? What could happen if I’m wrong? How do I position myself?

We’ll do it together.

COVID-19 is going to be with us for the rest of 2020 and possibly into 2021. So we’re adapting.

At NorthStar Capital Advisors, it means we will remain entirely online for the time being.

It also means big changes in our personal lives. Our children are learning online through the end of the school year and perhaps back again this fall. My wife continues to be Super Woman managing our home and our department of education.

We’re taking it day by day and thinking through those higher-order effects.

How about you? What changes are you making to your plans this summer and fall?

Be well,
Chris

Chris Mullis, Ph.D.
Founding Partner
Financial Planning.
Wealth Management.
Since 2006

AskNorthStar.com
(704) 350-5028

P.S. A number of clients and friends have reached out to talk through options around a potential lay-off, buy-out offer, or early retirement. If this is on your mind, please let me know. We can work through it together.

P.P.S If you’ve got a kid in college this fall, I have a question for you: is virtual university still a compelling offer? Are you and your student considering a gap year or some alternative? Please email me at chrismullis@nstarcapital.com and let me know. I’m interested in learning from your experience.

1https://www.washingtonpost.com/business/2020/05/14/unemployment-jobless-claims-coronavirus/

Chart source: https://www.artsci.com/studentpoll-covid-19-edition-2 

Do this to plan for a recession (2-minute video)
Current data tells us that the economy is in a steep contraction due to the coronavirus.

We don’t know how long it will last or how long the economy will take to recover.

How can we protect ourselves when we can’t predict the future?

We made a short video showing you exactly how the most successful companies in the world prepare when the future is unknown.

You can watch it here.

Click here to watch!

Warmly,

Chris Mullis, Ph.D.
Founding Partner
What the “new” normal could look like…
I hope you’re safe and well.

It’s been weeks since we shuttered the office and started working from home and, like many, I’m feeling the strain of upended life.

How about you? Are you ready to venture out again?

In this post, I thought I’d give you a rundown of some of the latest economic projections as well as a sneak peek of what post-lockdown life could look like for us soon.

(Ready for a break from COVID-19? No worries. Scroll down to the P.S. for some wonderful distractions.)

On to the economy.

You may have seen a headline showing that U.S. economic growth dropped -4.8% in the first quarter after posting 2.1% growth in Q4 2019. That’s not a surprise.1

Unfortunately, worse news is ahead since widespread layoffs and shutdowns didn’t hit until late March. Here’s a projection of what the next few quarters could look like for the economy.2

You can see in this chart that the coronavirus hit the economy like a tsunami. Q2 could be the worst quarter since the Great Depression.3

The arithmetic of recovering from a 30%+ drop in economic growth means that it could take many months (maybe even years) to return to pre-pandemic GDP levels, especially if we face multiple waves of infection.

Let’s mentally prepare for that.

April 2020 is likely to be one of the worst months for the economy in history; contradictorily, it was also a blockbuster month for stocks.4

Why are stocks so disconnected from the economic data?

Fundamentally, a stock’s price is an attempt to put a value on the underlying company’s earnings now and in the future. Complicating the calculation are factors like fear, greed, uncertainty, and movements in the overall market.

While economic data looks back at what has already happened (or is happening now), the stock market looks forward at the trajectory of the business environment. Framed that way, the rally isn’t so unusual since investors are expecting things to get better, not worse.

Will the rally continue? Hard to say. Volatility is very likely to be the name of the game for months.

Economists are predicting a rebound in Q3 2020. Are they right?

You know by now that we can’t perfectly predict what the recovery will look like; all economic estimates are based on educated guesses about spending, business investment, trade, and other factors. The biggest unknown is “personal consumption” by folks like you and me. Our spending drives 70% of economic growth.

The pace of the recovery depends on how quickly businesses reopen and consumers go out to shop, eat, travel, and spend money. If people don’t feel safe going out or don’t feel confident enough to open their wallets, growth could take longer to come back.

What do you think? Will you go back to your pre-coronavirus routine? Email me at chrismullis@nstarcapital.com  and let me know. I’m interested in hearing your perspective.

What could life look like as North Carolina reopens? While America is just now taking the first tentative steps toward reopening, many countries around the world are farther along, offering us a glimpse of what daily life might look like in a world where the coronavirus still remains a threat.5

Hong Kong: Restaurants are open but tables must be spaced farther apart.

South Korea: Pro sports are back but athletes play to empty stadiums. Temperature screening is in place in many buildings.

Taiwan: Schools are in session but assemblies are canceled and students wear face masks in class.

Australia: Beaches are open but sunbathing, picnicking, and large gatherings are verboten.

How long will coronavirus precautions overshadow our daily life? Realistically, some restrictions are likely to drag on until a vaccine or breakthrough treatment becomes widely available.

What do you think? What will our “new normal” look like?

Warmly,

Chris Mullis, Ph.D.
Founding Partner


P.S. I promised you some distractions from the coronavirus, and here they are:
Watch jellyfish float at the Monterey Bay Aquarium (includes relaxing music!).
Dream of a Caribbean vacation with the beach cam at the Soggy Dollar Bar on Jost Van Dyke.
SCUBA dive vicariously in a kelp forest off Anacapa Island.
Watch the live cam at Tembe Elephant Park.
Take an hour-long walking tour around Paris.

Enjoy!

—

Sources
1https://www.bea.gov/news/2020/gross-domestic-product-1st-quarter-2020-advance-estimate
2https://www.cbo.gov/publication/56335
3https://www.marketwatch.com/story/echoes-of-the-great-depression-us-economy-could-post-biggest-contraction-ever-2020-03-19
4https://www.marketwatch.com/story/after-a-blockbuster-april-for-the-dow-and-sp-500-is-sell-in-may-in-the-coronavirus-era-a-smart-strategy-2020-04-30
5https://www.nytimes.com/2020/05/02/world/asia/coronavirus-china-hong-kong-south-korea-australia.html

 
Your action plan for uncertainty (2-minute watch)
COVID-19 is coursing through America and there’s no doubt that we’re in for a tough time.

The weeks and months to come are going to be hard for all of us.

What actions can we take to protect ourselves when things look so uncertain? How can we build resiliency?

We made a short video showing three key actions you can take to help protect yourself and use this crisis to grow stronger.

Click to watch it here.

Warmly,

Chris Mullis, Ph.D.
Founding Partner
What lessons will you take from this?

So much is unknown.

Do we reopen or wait?

Are we past the peak? Or just over the first summit of a mountain range?

Are we safe yet?

After weeks of restrictions, it’s easy to feel that we’re swirling in a maelstrom of uncertainty, helpless to make decisions when so much remains unknown and out of our control.

The uncertainty, the personal losses many have experienced, and the everyday challenges of socially distant life can shake our foundation and cause us to lose touch with what’s most important.

I think that’s normal. We’ve traded a trip on the highway for an off-roading adventure. And we don’t know where it’s going to take us this year.

So let’s lean into the uncertainty. Let’s embrace it and use it as a wake-up call to explore and appreciate what really matters.

Our health. Our family, friends, and loved ones. Our home. Our community. Our compassion and creativity. Our resilience as human beings.

As for me, I have some moments of frustration, but I’m staying grounded by playing outside with our kids and working in the yard.

I’m also learning a lot about myself. I’ve learned that I really enjoy sitting face-to-face in the same room with clients, friends, and colleagues. I’ve learned that I’m not “camera ready” for Zoom meetings nor remote TV interviews, but I’m humbly trying to get better.

I’m working on gratitude and enjoying simple things like dinner-time conversations, our weekly visit with my parents, and fresh air.

I’m grateful to have a wonderful family, a comfortable home (aka The Bunker) and deeply meaningful work.

I’m grateful to have you.

On the professional side, I’m focused on what we can control on our clients’ behalf and staying abreast of what might come next. Our mantra right now is: “one day at a time.”

How are you? I’d love to hear how you are coping. What lessons are you learning about yourself? What have you had the courage to try for the first time? Hit “reply” and let me know.

This pandemic is scary. But it’s also a once-in-a-lifetime chance to hit the “reset” button and connect with the creativity, joy, and good old human ingenuity that can flourish within the limitations of pandemic life.

Eventually, we’ll recover from the pandemic. It’s not clear yet what that will look like, and we’ll likely see more hard days before we get there. Businesses will reopen, people will go back to work, the recession will pass, and the country will rebuild.

We will heal. But some marks will remain as reminders of our experience.

The Great Depression taught people to clip coupons and “make do or go without.” 9/11 upended our travel rituals and awareness of terrorism.

Some lessons from the pandemic will stay with us long after the immediate crisis fades. Some will be unconscious; maybe we’ll become a society of dutiful hand washers and social distancers.

Others will be lessons we consciously take with us about our values and ability to adapt to circumstances far beyond our control.

I’m hopeful and excited to see what we learn. Let’s make it good.

How has the pandemic changed your perspective? What new values and priorities will you bring out of your experiences?  Email me at chrismullis@nstarcapital.com and let me know.

Be well,
Chris

 

Chris Mullis, Ph.D.
Founding Partner
NorthStar Capital AdvisorsFinancial Planning.
Wealth Management.
Since 2006

AskNorthStar.com
(704) 350-5028


P.S. Do you know someone who is having a hard time and could use some financial advice? We’re holding a few spots open for folks who could use a professional’s help. If you can think of someone, please reply to this email or call (704) 350-5028 to let me know.

P.P.S. And don’t forget about our special COVID-19 pro bono planning we created to support individuals and families who can’t afford fiduciary advice and financial planning.

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