You don't really want to keep doing this to yourself, do you? You know the feeling, as those tinges of anxiety turn into unbridled enthusiasm, only to be dashed again by unseen forces onto the rocks of despair and doom. Too dramatic?
No, I'm not referring to your
Super Bowl predictions, or your Senior Prom, but to those inexorable fates of
investing in the financial markets.
It's happening again, and it's
going to continue to happen because such is the cyclicality of life and the
world of finance. Honestly, to think otherwise, hopeful as it might be,
would be foolish.
To be sure, we're all very glad for the January surge that elevated S&P valuations by almost five percent. In fact our balanced accounts, which presently consist of less than thirty percent exposure to stocks, were up nearly two percent for the month. But let's also be realistic. You don't really believe that you could go twelve full months appreciating five percent per month, do you? As a portfolio manager this is tough sledding. I know that if I can mitigate downside volatility and complement that with competitive growth rates, I am succeeding on behalf of a greater mission for most of my clients. Let others play the "home run derby," which so often ends in unexpected negative consequences.
Hold your breath.
There is solace to be
taken in getting the year off to a good start. Remarkably, we have been
able to sustain the rally in equity prices that began more than four months
ago. Rather than starting the year with realized "angst"
(the unrealized kind is always more debilitating) we can cheer a half year of
untethered momentum.
But we all know that nothing
moves in a straight line. It is conceivable that 2013 could be the year
of redemption we all hope for. It's also possible, and most likely, that
it won't set precedent and rise sixty percent by year's end.
One of the reasons we might
expect slower growth this year is the content of political and corporate
dialogue. More and more, the conversation hinges upon austerity and
belt-tightening. We're not yet back to the go-go 1980's, a period of
enormous risk-taking and profligate spending. That era, both fiscally and
psychologically, may never be repeated, in part because the moral code and
conscience of the markets took advantage of a laissez-faire enforcement policy,
and partly due to the cultural mores of that time.
Minute by minute.
Indeed, the climate of our
time might be more opportunistic for equity and portfolio valuation
increases. The sheriffs have returned and promised to make a concerted
effort to clean up the landscape. Most importantly, we are starting to
believe that it might be so.
Demand for stocks is
increasing. As the fixed income markets recede, albeit temporarily, the
need for suitable, sustainable options builds. Factors in
the economy are germinating slowly, but moving from generic to specific
conclusions. As the year goes on, hopefully more of the solutions to
these problems (taxes, unemployment, housing, corporate earnings) will take root.
As I have written before, the last, and most significant, of these
quantifiables will be consumer confidence. Once that returns, seedlings
of economic growth can turn into mighty oaks.
The outlook for year-end is
considerably brighter than we might have expected during the depths of the
credit/economic recession. But be forewarned that January's progress was
an aberration, not the norm, and that we want to avoid that "hangover
effect" one experiences after a night of unbridled celebrating. For
those reasons, and more, I hope your team won the Super Bowl, and that you
enter February with a more realistic set of portfolio
expectations.
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