Resources/Weekly Insights

Volume 13, Edition 28 | November 2 - November 8, 2024

Patience: Prioritizing the Long-Term

Doug Walters, CFA

As we begin the final stretch to the end of the year, we begin our series looking at our Guiding Principles, beginning with Patience.

Contributed by Doug Walters, David Lemire, Max Berkovich

With the election in the rearview mirror and a nice rally in equities padding portfolios, we shift gears and turn focus toward the investing best practices that make up our Guiding Principles. We’ll spend the waning weeks of 2024 revisiting these and where possible tying them to anecdotes from the year.

Our Guiding Principles which guide our evidence-based approach are derived from a combination of research found in academic literature and real-world experience, and include:

PATIENCE: Focus on the long-term to fully benefit from market returns.
DIVERSIFICATION: Enjoy the best free lunch in finance.
FACTORS: Identify market segments with a propensity for outperformance.
REBALANCING: Systematically and opportunistically, buy low and sell high.
EXPENSES: Avoid the hidden costs that quietly erode performance.
TAXES: Manage the inevitable burden for successful investors.
BEHAVIOR: Learn to get out of the way of your own worst enemy.

As we discussed in, “Take Your Portfolio from Middling to Winning,” the purpose of these principles is for each to tilt the performance scales slightly in our client’s favor. British cycling took this concept of marginal gains and turned an average performing team into gold medalists. They did not take a big speculative swing, but rather systematically instituted a high number of small improvements. None in themselves moved the needle significantly, but together they changed the course of cycling history. That is our hope with these principles .(hope backed by evidence, that is!)

Patience

We’ll start the series with a short comment on Patience and use the election as our anecdote while it is still top of mind. Patience could easily be bucketed within our Behavior principle. But we see it as the foundation upon which good investing is built, so we start there.

Patience (or lack thereof) reared its head before and after the election. Beforehand there were many investors who let their eyes veer from the long-term. We saw them focus on the current week, rather than their ultimate goal, be it retirement or perhaps leaving a legacy for their family. They put money on the sidelines in fear of the election day unknown. Unfortunately, they missed out on a big week for equities.

Others, in the wake of the election, are immediately asking, “What now? How should we change our approach given the election result?” The answer is, “We shouldn’t.” Keep the eye on the long-term. It’s not to say we should not be looking for opportunities as markets move. We certainly are. Rather, investors should avoid trying to guess or speculate what will happen next. Stick to your process.

For our part, we will be sticking to evidence-based investing, seeking those incremental advantages based on what we know to be true today (not what we think might happen tomorrow). Big speculative swings are not in our playbook. That is not investing in our opinion, it is gambling. We’ll start with Patience and avoid some of the more common and costly investing mistakes, such as marketing timing around events like an election.

0.25%

Rate cut by the Fed this week

The latest Fed rate cut takes the Fed funds rate down to a target of 4.50%-4.75%.

Headline of the Week

The Quietest Rate Cut in History

The Fed didn’t exactly use stealth technology but given Tuesday’s election and Wednesday’s stock market rally, the Fed’s decision to cut rates by the expected 0.25% was received relatively quietly. This rate reduction on the back of the more surprising 0.50% cut from September also helped keep things a bit calmer.

The press tried to get the Chairman to comment on the election and implications for Fed policy, but the Chairman did an admirable job staying in his lane and focusing on monetary policy. This focus will be critical as the Fed continues to attempt to steer the economy to the fabled soft landing. While this change in administration has the potential to make things more challenging for the Fed, they seem to be focusing on what they can control rather than what they cannot. Godspeed.

The Week Ahead

The fervor of last week is now behind us, and the upcoming week looks decidedly more quiet. Inflation reports and a round of Gross Domestic Product (GDP) reports overseas will compete with speeches from central bankers.

Inflated Expectations

Going into next week’s Consumer Price Index (CPI) and Producer Price Index (PPI) readings, expectations are for a hotter print than in September.

CPI is expected to hop a little higher on a year-over-year basis in October to 2.6%. This is after a 2.4% print for September.
Core-CPI, which excludes volatile food and energy, is expected to be unchanged at 3.3% year-over-year.
Besides the inflation reports, investors will watch the Retail Sales report on Friday for any hints of the consumer’s spending appetite going into Black Friday.

Production Value

Several major economies will report their latest GDP results. Any notable surprises will make headlines.

Japan is expected to show single digit expansion in the third quarter.
The United Kingdom is expected to expand 0.2%, quarter-over-quarter, which would be a slower rate than the ½ of a percent in the second quarter.
The European Union will have a second estimate of the GDP as well and is expected to confirm the 0.4% quarter-over-quarter initially reported.

A Speaker’s Fee

Post central bank rate moves, the quiet period for bankers ends and rate setters from all over the world make public appearances.

While there are too many to count, the two biggest will be the Federal Reserve Chairman Powell and European Central Bank head Lagarde.
Chairman Powell now has added heat on him as his position under a new administration in the White House is now in the spotlight.
There will also be minutes of the most recent rate setting meetings or equivalent out from Bank of England, Bank of Japan, and European Central Bank to chew on.

A Debt of Gratitude!

The U.S. bond market and banks are closed on Monday in observance of Veterans Day; however, the stock market is open.

We honor those who serve and thank them for their sacrifice.
Happy Veterans Day!

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