Another year is in the record books, and we are fresh into 2018. So before we go too far, let’s take a brief look back over the past couple of years. 2016 started off with what was termed “the worst first six weeks in the equity market’s history.” The S&P 500 fell more than 11% at the beginning of 2016. In June 2016, the stock market fell 6% in a trading day and a half following the Brexit vote. By the end of 2016, the market rallied and ended up nearly 12% for the year. Safe to say that 2016 saw more than its fair share of ups and downs.
Now for 2017 (cue the crickets…). Nothing. No volatility. In 2017, the S&P 500 broke the record for the fewest days with a move up or down of greater than 1%. The last time the market was this calm was 53 years ago in 1964.
The last two years clearly indicate what I have said all along – you simply cannot predict what the stock market is going to do over a short period of time.
At the end of 2017, Jill and I were at a holiday party full of friends and acquaintances, and as is often the case, I got the icebreaking question, “So, what do you do?” “Well”, I replied, “My wife and I own a wealth management company, and we work closely with clients to help them achieve their long-term goals through proper planning and investing.” Our new friend then led our conversation immediately to the stock market – both domestic and international – and he wanted to know what we thought the market would do in 2018. I shared with him that “frankly, I can’t begin to even guess what the market will do in 2018.” I had no opinion at all about the direction over a one year period, and I think he found this odd. He intimated that since I was a “wealth manager” I should have an informed opinion about the direction of the markets. I cannot be sure, but the only “opinion” I was forming was that this gentleman was likely a frequent viewer of CNBC. I explained that our clients have varied goals, including providing for a child’s college education, generating an income stream in retirement that they cannot outlive, and providing a legacy for generations to come, just to name a few.
Why do I share this story with you? On occasion I think it is worth reiterating the nature of my philosophy of advice. Generally speaking, my experience has been that successful investing is goal-focused and planning-driven, while most of the failed investing I have observed has been market-focused and performance-driven.
Another way of making the same point is to tell you that the really successful investors I have known were acting continuously on a plan—tuning out the fads and fears of the moment—while the failing investors I’ve encountered were continually (and randomly) reacting to economic and market “news.”
Most of my clients—and I certainly include you in this generalization—are working on multi-decade and even multi-generational plans, for such great goals as education, retirement and legacy. Current events in the economy and the markets are, in that sense, distractions of one sort or another. For this reason, I make no attempt to infer an investment policy from today’s or tomorrow’s headlines, but rather to align clients’ portfolios with their most cherished long-term goals.
I don’t forecast the economy; I make no attempt to time markets; and, I cannot—nor, I am convinced, can anyone else— consistently project future relative performance of specific investments based on past performance. In a nutshell, I am a planner rather than a prognosticator. I believe my highest-value services are planning and behavioral coaching—helping clients avoid overreacting to market events both negative and positive.
My essential principles of portfolio management in pursuit of my clients’ most important goals are fourfold: (1) The performance of a portfolio relative to a benchmark is largely irrelevant to financial success; (2) The only benchmark we should care about is the one that indicates whether you are on track to accomplish your financial goals; (3) Risk should be measured as the probability that you will not achieve your financial goals; and (4) Investing should have the exclusive objective of minimizing that risk to the greatest extent practicable.
As for my holiday party friend, I will repeat what I wrote in this letter one year ago: What can we expect in the coming year? High levels of uncertainty punctuated by periods of doubt, panic, euphoria and exuberance. Therefore, we will continue to practice the principles of long-term investing that have most reliably yielded favorable long-term results over time for our clients: patience, discipline, preservation of principal, planning and a rational optimism based on experience and fundamentals.
From all of us at Doyle Wealth Management, we wish you a healthy and happy year in 2018.