From Andy's *Home* Office - A Look Back
A Look Back – Reviewing Our Written Thoughts from the Last Five Years
Living in the moment of current markets and events can feel like a never before seen tug of war between panic and euphoria, leaving investors questioning what to do next. Our goal at Sailer Financial is to balance the emotional reactions to these events. We think and act objectively based on multi-decade financial plans and portfolios that account for the predictably unpredictable events of the future. This approach leaves the vast majority of our thought pieces written years ago still ringing true today. Here are some excerpts from those thought pieces and the how the results have played out through today. Please visit our website https://www.sailerfinancial.com/news/ to view the full articles referenced.
1. June 24, 2016 – Brexit
What we said: With Britain only 4% of global GDP and global trade with the UK not disappearing, we see the Brexit having a small impact on the US and global growth for the long term. …We believe the sell-off has created opportunities in US investments such as higher yielding corporate bonds, US real estate, and high quality dividend growing companies as investors trade on short term emotions rather than long term fundamentals.
Result: It took another 3 years for Britain to actually separate from the EU and even today negotiations are still ongoing. This note was sent out on Friday June 24, 2016 when the S&P 500 closed at 2000. The market has not traded below that price since.
2. November 9, 2016 – The Markets Reaction to the Election
What we said: As we have said many times before, the markets hate uncertainty! We believe today's large price swings are a reaction to the surprise of a Trump victory, rather than a statement on the long-term direction of the markets and economy. …With the benefit of hindsight, the largely politically-induced selloffs during these last 8 years have presented excellent buying opportunities. …But we will always remain optimistic about a nation that celebrates the individualism and efforts of its citizenry. Politics are a distraction from what drives the economy, and certainly a distraction from the future we build for ourselves.
Result: The large sell-off overnight after the Trump election win never materialized the next trading day as markets began a 15 month rally.
3. January 24, 2018 – 2017 Markets: Unusual. Unusually Good!
What we said: Yet in 2017, the U.S. stock market produced strong returns with unusually low volatility. For the first time in history, the S&P 500 Index posted a positive return every single month of the year. As Jeremy described in the, "Captain's Quarters," of our latest newsletter, market volatility returning in 2018 wouldn't be unusual, it would represent normalization. The bottom line: As we look ahead to 2018, history has taught us that it's normal for any given year to look unusual. This is why we believe the best approach to investing is to start with a comprehensive financial plan first, then construct a diversified, goals-based portfolio built to weather the unusual years.
Result: Markets had a correction two weeks later with an unprecedented spike in volatility. That was followed by a 20% selloff in December of that year. Then came a big market rally in 2019, the pandemic in 2020, and now a full market recovery once more. Both the volatility call and any given year looking unusual in the market are truer today than ever.
4. November 2, 2018 – Is the Bull Market Over?
What we said: Black Swan Event: Author Nassim Taleb famously developed the black swan theory to describe events that are unforeseen, hard to predict, yet are rationalized with hindsight bias after the fact. ...These types of events are virtually impossible for a rational investor to predict or account for, though after the fact some investors claim to have "seen it coming." ...even if someone does predict a black swan event, it's even less likely they will also correctly predict what follows. So how can an investor prepare for unpredictable events? Build up cash reserves or an emergency fund that can be easily accessed in times of market stress. Adequate reserves could allow your portfolio to 'ride-out' the volatility should a black swan event occur.
Result: Sixteen months after writing this paragraph, the black swan event happened: COVID-19. Both the predictions of COVID coming and what would happen with the disease, economies, and markets over the ensuing six months were completely impossible to predict, reaffirming the age-old statement to have adequate reserves to ride out market volatility.
Andy Michael, CFA
Portfolio Manager
