The contents of this quarter’s newsletter may be a bit different than I imagine you are expecting. I believe it could even be categorized as “unconventional” by most investment advice standards. But extraordinary circumstances gives license to drift from the norm.
I am amazed by the hard work, commitment, and sacrifice individuals make during times of crisis. And I’m not only talking about natural disasters. It happens every day. It is around us constantly. It is up to us to take notice. Now, how it is possible to relate unpredictable natural disasters with being a prepared investor?
Let me explain.
We began 2016 with the worst start ever for US markets. The willingness and commitment to stay the course is not easy. Unpredictable market volatility is what disciplined investors expect, and for which they prepare during the good times. It is not whether it will or will not happen. It is how one responds that can make a big difference in the long run. This may be a common cliché, but it is cliché for good reason- it is entirely accurate. We have seen good performance across most markets; in fact- across most of the world. Both bonds and stock have done well. Who would have predicted?!
Unpredictable events are always occurring around us. We continue to track the direction of interest rates. Early in the year we would have guessed rates would be higher by now. Last quarter our focus was truly contemplating the longer term impacts of Great Britain leaving the European Union (AKA: Brexit). Did anyone really expect Britons to vote to leave the E.U.?
History tells us there exist very few bargains in the investment world. Current valuations are not at record highs, but they are not cheap by any means either. It is my opinion that while interest rates remain low, these valuations appear to be reasonable. We see this reflected by the number of hedge funds which are closing or losing their investors a lot of money. Many of these investments geared towards avoiding significant losses in volatile markets aren’t doing just that. We will happily stick with our fundamental belief in diversification, proper and individualized risk levels, and allowing the markets to work over longer periods of time!
I’m sure you’re wondering how we can possibly relate the markets to what we are experiencing in Eastern Iowa this week. Indeed, it is much easier to be a climatologist than it is to be a meteorologist. One focuses on long-term trends, the other is forced to make educated guesses over the short term. One says it will be cold in Iowa during the winters and warm in the summers. The other has to deal with unexpected and sudden (read: unpredictable) changes. It is not that either one is more important than the other. They simply have different roles. We have all been tuned in lately to the weather reports and watching more closely when a natural disaster becomes reality. The last week has certainly been… unpredictable.
A similar situation presents itself when the markets experience turmoil. More turn to the media when things are bad that when they are good. It is natural to do this. But if you notice, when things are most volatile, successful investors often respond in a consistent way.