Any Given Year

From Leonard's Desk

Our 4th annual conference will be held in one week and it’s not too late to register although time is quickly running out - you can do so below. We have a full day planned to discuss the current market environment, I’ll make a presentation I’m calling Visualizing Change, and we’ll have updates on many new initiatives at the company. I’m also excited to release a new company website and video at the conference. Hopefully you can make it, I’d love to see you and catch up.

The 2017 New Capital Annual Conference

The 2017 New Capital Annual Conference

I am, quite understandably, getting asked by clients: “Why is my portfolio lagging so much behind the S&P 500 this year?” And the answer is simple: this year US stocks (and in particular a handful of large growth stocks) are having a good year in comparison to many other assets. Such years do occur: think back to around 1999 when a handful of stocks like Dell, Cisco, Worldcom, and Enron were far outperforming everything else, causing many investors to pile even further into those stocks. What came next was not pretty.

US stocks in the aggregate have done well this year, and all of us have benefited from it because US stocks are often the largest (but not the only) part of our portfolios. But US stocks are also highly valued now, and as they go higher their future returns are highly likely to be reduced. The very same S&P 500 that is causing everyone to swoon with envy now trades at 21 times its trailing 12 month earnings and 17 times its projected forward 12 month earnings. These levels imply ten year average annual returns of around 5%. As Warren Buffett says, “You pay a high price for a cheery consensus.”

As an advisor who has gone through two decades of market ups and market downs, I know very well that investors get very antsy in their portfolios when US stocks markets strongly outperform everything else. Often, this dynamic creates a feedback loop where news and rumor cause the investor “greed” instinct to trample the investor “fear” instinct. Suddenly, everyone who hated stocks over the past decade now can’t get enough of stocks. Often this can signal the beginning of the end of a bull market, though the current bull can certainly go on longer and even stronger.

We are investing your money for the long term, not for calendar year 2018. We are investing your money with reference to your financial position, goals, age, needs, risk tolerance, and more. Todd’s letter in this newsletter adds more detail to my discussion, and at our conference we will have further extensive comments on the market and investment environment.

As always, thank you for your trust and confidence.

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