Thoughts on Investing

Schwab's IMPACT Conference: Top Five Takeaways

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I recently attended Schwab’s IMPACT conference in Washington DC. IMPACT is a conference for independent advisors that custody assets at Schwab (like Windermere). The three day agenda is filled with education sessions on the markets, economy, and our practices as well as high profile keynote addresses and opportunities to connect with money managers, Schwab personnel, and other service providers. It’s an excellent conference and I thought it was only fair to share some key takeaways from my time in our nation’s capital

1.) Polarized government - Greg Valliere has been following DC politics for over three decades and shares his input at IMPACT every year. His main point this year was that the center of politics has vanished. Both parties are more polarized than ever and there is increasingly less desire for any cross party negotiations. He anticipates the house will turn to democrats in the midterm elections but that the senate will stay with republicans, resulting in more gridlock and polarization in DC for the next two years. (Greg sends a daily email sharing his insights. You can subscribe here)

2.) Trade concerns abound - but China moves forward - Many speakers expressed concerns over the ongoing trade negotiations with China. Concerns are centered around the uncertainty it is causing in the markets, as well as the possibility that it will slow US growth and potentially lead to a recession sooner than would otherwise occur. Money managers focused on China expressed similar concerns over trade. However they presented a strong case for investment in China - largely driven by the consumer story. Chinese citizens are experiencing record earnings (up 120%), high savings (average 35% of income), and low levels of leverage. Chinese government is also still willing to be very accomodative and stimulative

3.) Words of Advice from Former White House Chief of Staff - Andrew Card (Cheif to George HW Bush) was joined on stage by Dennis McDonough (Chief to Obama) and the two shared stories and advice from their time in the White House - as well as gave their perspective on the current administration. Card offered some advice his grandma had given him that could arguably benefit most of us: “Taste your words before you spit them out - and don’t leave the room before you go out the door.”

4.) Fed on track - According to Former Chair of the Federal Reserve Janet Yellen, the Fed is on a reasonable track. Yellen’s tone was measured and thoughtful. She noted that in her view, the economy is doing very well and that a recession doesn’t appear imminent. However, she stressed that the Fed is seeking to keep economy from overheating (read - higher inflation) and will continue to raise rates gradually. Rates at the short-end, adjusted for inflation, are still effectively at zero and the Fed will likely target a real rate closer to 1% (which has historically been closer to 2%). Her main concerns include trade and the pressing need for entitlement reform

5.) Equity & Fixed Income Outlook - Schwab’s equity outlook was cautious. Concerns over trade and inflection points in certain economic data lead to a market weight to equity asset class in their view. Anticipation is that we have some runway left (especially post mid-terms which tends to be a strong cyclical period) but that we are late cycle. Over moderate term (6-18 months), prediction was that value, international, and large caps will lead. On Fixed Income side, Schwab anticipates ongoing volatility and spread widening. They stress that it’s time to add some duration (as long rates are close to near-term peak), focus on quality, and remain close to home (ie: US debt)

As always, it was a very worthwhile conference and we appreciate the ongoing guidance and support from Schwab in helping us better serve our clients

Berkshire Hathaway Annual Meeting: Top 5 Takeaways

 

Attend the Berkshire Annual meeting and you'll quickly realize it's a bit like drinking from a fire hose.  There is an astounding amount of content covered during this event and every word spoken carries an immense amount of meaning and content.  Summarizing six hours worth of wisdom is no easy task but here's my best attempt.  

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1.)    Focus on the big picture and stay the course – Warren acknowledged the “noise” in the markets, whether it be interest rates, trade, or politics.  He overlayed that with countless observations and statements proving that there’s always been noise.  He has lived under 14 of 44 presidents (7 republican, 7 democratic), he’s lived thru wars and terrorist attacks, he’s witnessed all levels of interest rates – and yet, throughout it all, GDP per capita has increased 6 times and the stock market has gone from Dow 100 to Dow 24,000.  We’ll never get rid of the noise – but we can put in some earplugs and continue to invest in businesses

2.)    Productive vs Non-productive assets  - when asked about Bitcoin, Warren and Charlie focused squarely on the distinction between productive and non-productive assets.  With a productive asset (like a stock or a farm), you benefit from ongoing cash flow and appreciation in the price of the asset.  With non-productive assets (like bitcoin or gold), all you are counting on is that the next person will pay you more (based upon their belief that someone else will pay them more).  You are speculating on price – not owning an asset that has the ability to produce something on your behalf.  Always know what you own and why you own it

3.)    Trade – As they simply stated, everyone wins when there is free trade.  US and China are the dominant economies in the world and Warren & Charlie don’t anticipate either will do anything foolish when it comes to trade.  Warren did remind us that some citizens (ie: US factory workers) may be personally harmed by trade negotiations  and that America must not leave them behind

4.)    Perfection is unattainable – Even Warren and Charlie make mistakes.  They openly admitted to having missed the opportunity in Google and Amazon.  They acknowledged the damage that has been done at Wells Fargo.  They expressed challenges in putting cash to work for new deals.  They reminded the audience to always keep learning (from mistakes and successes) 

5.)    If you are in a position to try, you should–  Health care costs have risen to 18% of GDP (from 5% of GDP in 1960).  No one would disagree that the system is in need of major improvement.  Berkshire has joined forces with JP Morgan and Amazon to explore solutions and refinements to the health care system.  Warren and Charlie both acknowledged it wouldn't be easy - but as Warren said "We are in a better positioned than most to try - and so we should do just that"

181 years of combined wisdom (between Warren and Charlie) was a privilege to experience.  I have at least 50 more takeaways that will make me a better student, investor, learner, and human being.  Thanks again for having us.  Until next year!