Friday, April 7, 2017

This Week's Message: Ironically Ironic

Here's an article I wrote back on August 27, 2013. Ironically, the stuff the market was weighing then is essentially the same stuff it's weighing today. What's ironically ironic is that my 2013 article pointed out that the issues then happened to be the issues of 2011 as well.

The red type is me simply updating where needed for 2017. The numbers/returns in red reflect the move from 2013 to current. Feel free to do the math from 2011 to current if you like.

As for the excerpt from our December 2012 letter, I wouldn't change a word (please read it in its entirety)!

Have a great weekend!

P.s. Last week's events deserve a more technical assessment, which I'll follow up with shortly...


Deja vu? Maybe... 08/27/2013

After a very nice first half (quarter) of the year, the stock market is beginning to buckle under the weight of Middle East unrest (Syria then as well) and, what else(!), politics here at home -- i.e., fear over the ending of QE (today it's the Fed not reinvesting principal payments [the "rolling off" disclosed in Wednesday's release of their last meeting's minutes that ostensibly took the Dow from up 170 to down 40]), plus, the budget along with the debt ceiling (the debt ceiling will need raising again by the end of this month) are clearly beginning to do a number on stocks. With all that presently looms, shouldn't we rethink our strategy going forward?

Well, what if I told you that what I just described precisely describes August 27, 2011 (and April 7, 2017)? That's right, the world was fretting over uprisings across the Middle East and North Africa, QE2 was over (QE3 hadn't been decided yet), and we were running headlong into a most grotesque political spectacle over the budget and the debt. Oh, and add in all of the then panic over the European debt crisis. In essence, we're right back where we were 2 (2.75 and 4.75) years ago; except for the market that is: On this day 2011, the Dow closed exactly 3,491 points lower than it did today (on 8/27/2013 the Dow closed exactly 5,721 lower than where it sits as I type) -- that would be a 31% (38%) increase over the past 2 years (2.75 years).

So, does the fact that it would have been a very bad idea to abandon our strategy 2 (2.75 and 4.75) years ago -- amid virtually the same concerns we're experiencing today -- mean that things will be hunky-dory 2 (2.75 and 4.75) years from now? Of course not.(!!) The next real bear market may very well be upon us. The thing about investment strategies that involve the stock market, however, is that you have no strategy if your strategy can't withstand the inevitable shocks the world forever delivers.

As for how we approach the business of investing, read again Our View Going Forward from December of last year. Here are the closing paragraphs:
The Bottom Line – investment-wise: The unpredictability of markets, while unnerving to some, forever offers opportunity for the disciplined investor. In fact, long-term investment success is indeed all about discipline. Investment mistakes are typically emotionally-driven. Fear can drive an investor out of equities long before his/her financial plan would have called for. Typically, and ironically, the times of extreme panic have tended to be extreme buying opportunities. Conversely, greed can inspire an investor to overweight—relative to his/her time horizon and tolerance for risk—a given sector, or stocks in general. Typically, and ironically, times of investor euphoria (think tech in the late 90s and real estate in the mid 00s) have tended to be ideal times to rebalance out of equities.

Maintaining an asset allocation/rebalancing strategy keeps one from succumbing to the herd mentality. And, as we’ve discovered, following the herd is generally not your recipe for long-term success—think tech in the late 90s (irrational exuberance), the subsequent market bottom in March 2003 (extreme panic), and real estate in the mid 00s (irrational exuberance), and the subsequent market bottom of March 2009 (extreme panic). I suspect the holders of long-dated bonds have yet to learn that painful lesson.

The Bottom Line – economically, and societally, speaking: While there’s plenty in terms of geo-political risk to concern ourselves with at present, the future holds as much promise today as it has at any time in history. Yes, mistakes, particularly mistakes of policy, will be made. And yes, such mistakes will deliver hurdles and setbacks in the years to come. And yet future generations will witness the advancement of the human condition in ways we can’t even begin to imagine. The ultimate pace of that advancement will be determined by the extent to which we possess the freedom to pursue our individual objectives, and the freedom to conduct business in the global marketplace going forward.

Near-term, I remain cautious. Long-term—bumpy roads notwithstanding—I remain wildly optimistic. That (long-term wild optimism) said, your portfolio must, at all times, reflect your time horizon and your temperament.

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