We are moving into a period of uncertainty with mounting tensions over trade wars, and continued surprises via Tweets from the U.S. President. I thought this a good time to share what the effects may be on your investments.
2017 was the year of calm, with little volatility in the markets; surprising – given the almost constant flow of tweets and government chaos south of the border. In fact, business enjoyed lower taxes and improved earnings in the U.S. throughout the year. This was reflected in their stock market. Lesson: the noise and silliness from Trump has largely been ignored by business and investors alike. Don’t forget that the rest of the world has much to contribute to economic growth too. Japan, Europe and select Emerging Markets are providing opportunities also. The U.S, although large, is not the only market in the world.
This year, 2018 by contrast has been and likely will continue to be volatile. Whenever there are unknowns that may affect business, the markets move from fear to greed to fear again pretty regularly. This is a more normal market and, you’ve heard me say this before, it provides opportunities to buy good companies at lower prices. Your portfolio managers prefer volatility over calm any day.
You likely own both stocks and bonds of various types within your portfolio. The percentage of each fluctuates according to market and economic conditions. Currently managers are over-weight in stocks and under-weight in bonds in most investment funds that hold both asset classes, like balanced funds. The general consensus is that this economic cycle still has a year or eighteen months to roll on and provide profits in the stock market. Corporations are in good shape and sales are brisk. In addition, bonds often struggle during times of interest rate rises – this is why they are under-weight that asset class at present. We still need bonds however, because in times of crisis, this is where money goes to hide. They provide an insurance policy, just in case.
What Amanda and I look for in the investment managers we choose are:
- Long term track records that beat their peers over most time periods
- Active management that does not look like an index (this is called higher active share)
- That they have most of their own wealth in the funds they manage
- That they compliment your other holdings (little overlap of stocks in the portfolio)
- A focussed and complete understanding of the companies they own in every aspect
- A disciplined method of security selection and disposition
- A passion for their jobs
We continue to visit with and teleconference with the investment professionals we have selected for you, to keep up with economic trends and to ensure we are aware of any changes that might need to be made for you. Whatever happens with our largest trading partner to the south, be assured that the companies you own will still be in business and making money – or they will have been removed from your holdings already. For now though, sit tight, enjoy the ride, and focus on your end goal – financial security.