The Start Of 2016 - Thoughts On Where We Are Headed

Hello and Happy New Year.  In light of the uncertainty in the investment markets recently I felt it was important to include some thoughts on last year and what I expect to come in 2016.

2015 was a tough year to gain any ground on the equity (stock) front.  Most of us are used to gauging the market as reported on the nightly news as the Dow Jones Industrial Average.  The Dow was actually down for the year 2015, -2.28%.  The Dow dropped as much as -9.70% in August of 2015 before clawing its way back by year-end.  So far this year the Dow is down -8.48%. 

Here is the good news:  at the time of this writing the far and away majority of you were net positive for 2016 even though the major indexes have lost over -8.00% already this year.  I believe this is because we are finally breaking out of this tight up and down trading band that we saw for most all of 2015.  My strategies work best when the market is moving decidedly up or down.  When things stay the same for months at a time (think January through August 2015) it is hard to grow the portfolio.

Some key items I am watching in 2016:

The presidential election.  The decline of US corporate earnings as their reports start to come out starting this week.  The pressure to increase interest rates because lenders (bond buyers) are demanding more return for the perceived risk they are taking.  The plummet in the Chinese economy and how it relates to opportunities for US companies.  The continued fall in world oil prices.

Much of what I have read since Christmas time regarding the 2016 market is negative.  There are several schools of thought on how to interpret that.

One would be to believe what they say, we are in for more losses before it gets better.

Two would be to ignore it and do our own thing.

Three would be to take a contrarian view and say that when everyone else is doom and gloom, this is the time to “buy”.

Four would be to build strategies that take the emotion out of the decision making, that have been  back tested over ten years or more, that manage for up and down markets and strive to limit losses no matter the overall economy.

I choose option number Four every time.  The difficult thing about number Four is that it is not like the weather radar app on our phone.  Radar is fun and easy – we can see the storm coming, we can see how strong it is, we can move out of the way, and we can predict when it will be sunny again.  Unfortunately, with investing, we only know how our strategies have fared after we come out the other side.

I will close by reminding you to keep your goals in perspective.  I have been in this business since 1997.  That seems like just yesterday to me still, but next year will be 20 years.  It has been very satisfying to work with all of you for so long, and to see the wealth we have been able to create by slow and steady intelligent management.  If I had done a better job of writing down all the times we thought the world was going to end I could write pages and pages about how it has not come true.  We have a plan, we are sticking to it, and we will get through it together.

Thank you sincerely for your trust in my advice and your business all these years.