No Time for Clairvoyance
Doug Walters
Well, that was interesting! 2017 has taken its place in the history books, and it is time to look back and see what we learned this year.
Disappointing Year for Fortune Tellers
In our letter last year, we pushed hard against those who were tempted to time the market by cutting exposure to equities. With the S&P 500 up over 20% this year, we hope you listened! We are not claiming to have seen this coming in our crystal ball … in fact, quite the opposite. Yes, we can value companies and markets, and will adjust portfolios based on our analysis, but we are humble enough to know our limits. Markets are inherently unpredictable, and we always recommend a well-diversified portfolio, built on Quality and Value… not fortune telling.
Feeling Stressed Out
But we understand why investors feel angst and a need for defensive action. As we entered 2017, we were facing:
- An untested, impulsive President,
- Above average stock valuations, and
- Rising global populism and unrest.
Uncertainty only grew throughout the year, thanks to:
- Rising tensions with North Korea,
- A disconcerting Russia investigation, and
- Even higher stock valuations.
The American Psychological Association (APA) reported in November that stress levels in the U.S. are unusually high. The top fears are: “The Future of Our Nation” and “Money.” They go on to report that nearly 60% of Americans believe we are at “the lowest point in our nation’s history.” This belief was held even by those that lived through WWII.
The Market Dichotomy
Despite high levels of anxiety and uncertainty, stock markets continued to rise! How do we explain this dichotomy? The market, for the most part, does not share our emotional biases. Stocks are primarily concerned about future corporate profitability. With Congress holding the carrot of drastically lower corporate taxes in front of companies all year, investors were willing to look past the geopolitical noise.
Below we summarize some of the major events of 2017 that impacted portfolio investment performance.
We enter 2018 with the knowledge that earnings are likely to be significantly higher thanks to a generous tax cut for corporations. However, stocks are already reflecting a lot of this good news. Rather than pretend to have a window into the future, we rely on our investment process to continuously identify Quality assets at a reasonable Value, with which we construct a well-diversified portfolio. We see this as the best foundation to enable your portfolio to reach its full potential, and to ensure you sleep well at night.
On behalf of the entire Strategic team, I would like to thank you for entrusting your financial future to Strategic. We wish you a New Year full of happiness, success and restful sleep.
Sincerely,
About Strategic
Founded in 1979, Strategic is a leading investment and wealth management firm managing and advising on client assets of over $2 billion.
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