We Have Liftoff!
Kevin Welu, Managing Partner, TrueNorth Wealth Management 01/04/2016
The long-awaited increase in interest rates by the Federal Reserve has finally arrived! It has been over nine years since the last rate hike in the United States. This time is different. After multiple central bank interventions and years of very low levels, in some respects we are in unchartered territory.
Interest rates and economic conditions are divergent across the globe. While the United States has started increasing their rates, parts of the Far East (China in particular) have been lowering their rates. The European Central Bank is still in the midst of their own Quantitative Easing cycle and negative rates are still prevalent across many European nations.
Our investment philosophy is to diversify an investment portfolio across many opportunities worldwide. This global diversification has put pressure on returns over recent years because of the volatility of these markets. Perhaps more importantly, we believe investors are best served when they focus on the long-term and maintain a disciplined approach. This is often quite difficult (to say the least!), but if you think about the opposite approach of panic and overwhelming emotion, you may find comfort when riding through these challenging times.
If you don’t believe in diversification, you concentrate your investments into fewer opportunities. If you don’t think we should think over longer time frames, you will probably make a lot of short-term moves. Both of these philosophies entail a great deal of risk and, quite frankly, we have no intention of ever implementing such practices. Now is the time to be reminded that successful investors need to think like owners --not renters-- of investments.
Cliff Asness, co-founder of AQR Capital, recently gave an interview with Bloomberg about this very subject. He shared: “I used to think being great at investing long-term was about genius. Genius is still good, but more and more I think it is about doing something reasonable, that makes sense, and then sticking to it with incredible fortitude through the tough times.”[i]
He also went on to discuss the long-term performance of one of the greatest investors of our time. You guessed it, Warren Buffet! Mr. Buffet is known for his unwavering commitment to buying investments at the right price (a.k.a.: value). He has recently been out of favor due to a period of poor performance. This is nothing new to Mr. Buffet, as he has experienced temporarily poor returns many times in his career. Yet he is still considered one of the greatest (…and wisest…and most successful) investors in history. In the long run we think it does matter what you pay to own an investment and we have implemented this important consideration into the investments we select for our clients. What has allowed Berkshire Hathaway investors to be successful over the years is not having bought and sold stock with precise market timing strategies, but rather- holding their investment! Mr. Asness says it better: “What is beyond human is him (Warren Buffett) sticking with it for 35 years and rarely, if ever, really retreating from it. That was a nice little lesson that you have to be good, even very good, but sticking with it and not getting distracted is much more the job.” 1
I do not know with any certainty what lies ahead for us in 2016. However, I do know and believe that investing is never easy. There will always be tempting strategies and allocations to consider along with commentary from pundits and forecasters who sound very convincing. I have said in the past and still strongly believe: trying to get rich quickly is a dangerous business and so is giving up too easily. In good times and bad times investing is really about managing risk as well as your emotions. To be a really good investor you have to do a decent job at both of these tasks. But don’t worry! We are here to help with both of these often challenging obstacles.
We are very thankful and humble to have the privilege to assist our clients navigate this difficult world of investing and continue to give it our very best each and every day. As we look forward to the coming year, I hope you will remember our mission: A commitment to placing first the interests of our clients.
[i] Bloomberg Business Insider. Cliff Asness: Investing success isn’t about genius-it is about staying power. 11/16/2015.
The material in this publication is based on data sources we consider to be reliable, but it is not guaranteed as to accuracy and does not purport to be complete. The interpretation and organization of these ideas are the views of Kevin Welu and do not represent the opinions of TrueNorth Wealth Management. This information is not intended to be used as the primary basis of investment decisions nor because of particular individual client requirements, should it be construed as advice designed to meet the investment needs of one investor.
Investing involves risk including loss of principal. No strategy assures success or protects against loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk. International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets.
Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through Private Advisor Group, a registered investment advisor. Private Advisor Group and TrueNorth Wealth Management are separate entities from LPL Financial.