View from the Chair: Windermere's Market Outlook (March 2017)

All-time highs.  Multi-day winning steaks.  300+ point gains.  Record profits, Strong beat on top and bottom line.  All of these have become commonplace headlines within the US markets in 2017.  The Dow has now crossed 21,000, from a 6,000 level in 2009, marking an 8th year of this bull market.  Despite this remarkable growth, the question we are asked most often lately is - "when is this going to end?"

This is an honest and natural reaction for many investors.  As humans, we are hard-wired to identify fear and seek to protect ourselves against it.  Add in how fast markets have risen, how much uncertainty there is in so many aspects of our world, and how relatively recent the last market collapse was, and we certainly can empathize with this emotional response to today's markets.  The truth is, you'll never be able to take the emotion out of investing and no one knows for sure what the future will bring.  What we do know is that focusing on the following key four factors will help realign your focus and allow you to invest on with confidence.

1.) What do I own? - (for simplicity sake, let's just focus on equity securities, or stocks).  By investing in a stock, you own a portion of the underlying business.  You are an owner and are entitled to your portion of it profits and losses, dividends, growth, innovation, assets and liabilities, etc., - right alongside all other investors.   Take a look at your portfolios.  You will see that you own a portion of some remarkable businesses.  Focus on the sheer horsepower and strength of those operations - not the talking heads on the tv or the scrolling ticker tape

2.) Why do I own it? - We are all investing for a variety of reasons, including saving for retirement, outpacing inflation, providing for family, etc.  But at the heart of it, we are seeking to grow our hard-earned capital.  To do so, there are countless investments you could choose.  So why do you own what you do?  You (perhaps with our assistance and guidance), have chosen to invest in companies that are likely to make the best use of your capital over time, thereby giving you the highest return.  Again, focus on the companies you own and consider what it is about them and the current environment that makes them likely winners over time

3.) Do daily price moves really matter?  Say what you will about the present state of our country, the fact remains that America has proven to be an incredible engine of growth and innovation.  And we believe this trend will continue and that it is virtually certain that America (and its businesses) will be more valuable in the future than they are today.  With that said, it follows that the shares in those businesses will also be worth more.  So while it is tempting to watch your portfolio and observe the minute-to-minute price movements, it is not especially productive.  Consider other assets you own, such as your house.  Odds are that its price moves day to day - but you don't observe it and therefore don't react to it.   Growth is never linear and you should expect both upward and downward movements over time.  However, if you are growing your invested wealth for years vs. days or months, you should be far more focused on the long-term prospects of the companies you own than you are on the daily movement in the market

4.) What are my alternatives?  When emotions take over and you're tempted to react,  be sure to carefully evaluate the associated opportunity costs.  Cash may feel better emotionally, but consider the fact that it is a 0% to negative earning asset as inflation picks up. Fixed income (or bonds) are also regarded as "safer," but as interest rates rise, they stand to lose principal value and their yields (mid 2% on a 10 year US Treasury) are below many dividends paid on equities.  And the choice to leave the markets and get back in at a later date requires you to be right twice (on the way out and on the way back in) - a feat we believe is impossible.  Markets do experience volatility and uncertainty (commonly referred to as risk), but you should expect to be compensated for this over time and you should know the alternatives are certainly not risk free.

Sir John Templeton likely described the role emotions play in a rising market best when he said “Bull markets are born on pessimism, grown on skepticism, mature on optimism and die on euphoria”  We encourage you to carefully reflect on the four points above and settle into your optimism.  The opportunity to invest alongside exception companies and grow your wealth is an exciting journey.  Enjoy it and invest on!