As we meet with clients this year, we are continuing to focus on three main issues.
First, understanding how much volatility you can live with. There’s no reason to believe that markets won’t continue to gyrate – we strive to work through how much short-term volatility our clients can live with both from a need for capital and from an emotional point of view.
Second, we concentrate on high quality investments that also offer fair valuations. When deciding on the managers we recommend for your portfolios, we emphasize experienced managers with a conservative approach to buying quality companies at attractive prices. This approach, together with a comprehensive managed portfolio solution that takes advantage of market movements through portfolio rebalancing, has proven to work very well over time.
Finally, we need to remember to take a “rationally optimistic” view of the future; walking the fine line between succumbing to dire pessimism on the one hand and blind optimism on the other. This view does not always pay off in the short term – but history tells us that we’ll ultimately be very well rewarded for investing and maintaining our faith that the future will continue to be a better place for all of us!
Have we Learned Anything in the past 10 Years?
On March 9th, 2009 the S&P 500 in the USA closed at 676.53, its lowest level since 1996, and many observers could see nothing but more pain ahead. But then, without any trigger or shift in sentiment, the index began to rise from its lows.
The news remained grim for some time after stocks began to rebound, just as Warren Buffett said it would in his yearly letter to investors. Within a year though, the S&P 500 was up 68 percent from its lows, even as many exceptionally bright observers questioned the rally’s staying power. Some professionals believed the US economy was heading back into recession based on the yield curve, credit spreads, and other factors. John Hussman, a high-profile US Fund Manager, wrote to clients in 2010 saying “Put Bluntly, I believe that the economy is again turning lower, and that there is a reasonable likelihood that the US stock market will ultimately violate its March 2009 lows before the current adjustment cycle is complete”. A weekly survey of investors showed that bearish sentiment hit a record high on March 5th, 2009 – which, in hindsight, is exactly when investors should have been their most bullish.
For investors who embraced a buy-and-hold approach, who tuned out all the noise, and avoided trying to time the market bottom, the past decade has rewarded them with very good gains and the financial crisis was nothing more than a hiccup along the way. And, for those investors who can’t resist market timing, at least remember one of Warren Buffet’s most famous quotes “Be fearful when others are greedy, and be greedy when others are fearful” and don’t react to events with emotion.
It is a great lesson and one we never try to forget. That is, that nobody, not us, you, or the so-called professionals can consistently determine the best time to invest. Another reason why we say that in order to have a great lifetime return as an investor, you need to have a plan and stick to it. This is why we recommend managers with the same philosophy and place an emphasis on rational thinking over emotion. Keep a long-term perspective and don’t overreact to one bad year, add money when markets are down and avoid panic selling.
Even the most seasoned investor can get caught up in the “financial crisis of the day” while watching the news or focusing on recent trends and performance. It is therefore understandable how it can be difficult for individual investors to maintain a wider perspective and faith in the future. If you have any questions regarding your investment strategy to meet your goals, please don’t hesitate to give us a call and we will be happy to sit down and review it with you!