Complacency, whether in the stock market, your job, your life, etc., is never a good thing.  With the geopolitical news – Ukraine, Isis, European slowdown (Italy is in recession) – making headlines, it begs the question: Are investors too complacent about risk?  One way to determine if investors are complacent is to look at the facts.  There are three metrics we look at that indicates to us investors have become complacent about risk.  The first is the ratio of equity fund assets to money market fund assets.  Today, there is over four times the amount of money in equity funds than in money market funds.  The prior two peaks going back to 1984 were 3.09x at the beginning of 2000 and 3.39x at the beginning of 2008.  The second is margin interest – where investors borrow money to buy stocks.  Today’s margin interest is much higher than it was during the last two peaks in 2000 and 2007.  The last metric is the number of money-losing IPO’s.  Below we have included a chart that shows that there have been 105 more money-losing IPO’s in the past year than there have been money-making IPO’s.  This level has only been surpassed in 1999 with a large number of tech losing companies going public.

What does this mean for investors?

To us, the least risky time to be invested is when you feel sick to your stomach and there is fear in the streets – 1987, 2002 and 2009 for example.   When complacency is high, the risk in the market is usually high.  This is why we continue to have a well-diversified portfolio that includes alternative investments that are not correlated to moves in the stock market.  Diversification and risk management remain a priority for us at this time.

Interesting fact – According to the Urban Institute, 35% of Americans have debt in collections.

Book of the Month –  Smart Money Smart Kids, Dave Ramsey and Rachel Cruze

This is a book written by Dave Ramsey and his daughter Rachel Cruze.  As you can see by our interesting fact above, there is a debt crisis in America.  This book gives advice on how to teach children to avoid a life in debt and collections.  The book is very insightful regarding the Ramsey’s lives and provides great advice for any parent – regardless of the age of your children.  To me, one of the most interesting things in the book was to read that both Dave and Rachel are natural born spenders.  It is an easy read and contains tools you (and your children) can use throughout your children’s (and your grandchildren’s) lives.

Sincerely,

Your THOR Team

THOR Investment Management, Inc. is a registered Investment Adviser with its principal place of business in the State of Ohio.  The commentary contained in this market update is limited to the dissemination of general information pertaining to THOR’s wealth management services.