Welcome to Our Blog!
With the start of 2020, we are using this communication as our first blog as FourFront Advisors. It also allows us to recap the year just passed and peek into the one upon us now. The main purpose of the blog is to provide readers with straightforward, useful, and sometimes simple advice or commentary to help maintain perspective about your financial world. Nothing too deep, nothing too opinionated, just clear thoughts on the markets, the economy, financial planning, financial misbehavior, and plenty of other topics related to our life’s work.
Our life’s work? Put simply, our emphasis is goal-focused and planning-driven, as sharply distinguished from an approach that is market-focused and current-events-driven. Long-term investment success comes from continuously acting on a plan. Investment failure often starts by continually reacting to current events in the economy and the markets.
We (you and I) are long-term equity investors, working steadily toward the achievement of your most cherished lifetime goals. We make no real attempt to forecast, much less time, the equity market; indeed, we believe these to be fool’s errands. Since we accept that the equity market cannot be consistently timed by us or anyone, we believe that the only way to be sure of capturing the full premium return of equities is to ride out their frequent but ultimately temporary declines.
To make this point clear, by our count, there have been 15 “bear markets” in equities – using the S&P 500 Index - since the end of World War II—an average of one every five years or so. The average depth of these declines was something on the order of 30%. But in September 1945 the forerunner of the S&P 500-Stock Index was about 161; the Index ended this past year at 3,231. Thus, at least historically, the permanent advance has triumphed over the temporary declines.
Looking back, the year 2019 was, in important ways, the mirror opposite image of the previous year. The year 2018 was a dramatically outstanding one for the American economy—and for corporate earnings and dividends—despite which the equity market – using the S&P 500 Index - couldn’t get out of its own way and ended on a downbeat note. (To wit: a 19.8% peak-to-trough decline through Christmas Eve.) This past year was the exact opposite: an exceptionally good year for the market—up 29%, —even though the economy slowed somewhat, manufacturing appeared to be stalling out, and the S&P 500’s full-year earnings almost certainly trailed those of 2018.
Set aside momentarily, if you can, the headline issues of the day: the trade situation, an aging economic expansion, impeachment/election uncertainty, and the like. These are not merely imponderable; they’re essentially irrelevant to long-term, goal-focused investors like us (you and me).
Instead, we would invite you to focus on what seems to be the default setting of the investing public, which we would describe as pessimism verging occasionally into sheer panic. All our reading and all experiences suggest that very meaningful market setbacks have not historically occurred during huge waves of public pessimism and fear. Quite the contrary. We are more optimistic. We are confident.
Not because we’ve reached market high after market high. Not because we think it’s going straight up from here. For sure, this is not to be taken as any sort of market forecast. (As we’ve always said to you, we are planners, not prognosticators.) It is simply an invitation, as we investigate the new year, to take some comfort from the rampant fear abroad in the land, even after a decade and more of stellar returns. There will be plenty of time to begin worrying when the stock market once again becomes cocktail party conversation, and everyone around us is excitedly bullish.
Be of good cheer. Be optimistic and let us help reinforce your confidence in your future. It begins with your plan and reviewing your goals, dreams and “bucket lists.” Let’s make sure we’ve got those targets in sight. Those are benchmarks worthy of holding us accountable.
Most of the market “prognosticators” call for a 2020 that will not match the returns of the past year. Few years ever do; that is both manifestly true, and mostly irrelevant. The fact—or, more properly, the truth—is that together we as goals-focused, planning driven investors had an exceptional year in 2019. We did so not by forecasting the year’s returns—nor by jumping into the market just in time to get them—but by patiently hewing to our long-term equity discipline. That, to us, is the great lesson of this genuinely great year.
Charlie, Pete and Jim
1 Source: “S&P 500 at your fingertips” tab of www.politicalcalculations.com. The data are Nobel laureate Robert Shiller’s.