View from the Chair: Windermere's Market Perspectives (September 2018)


"Timing is everything"  This age-old saying can be applied to so many areas of our lives - including investing.  Lately, it seems like timing is on top of a lot of investors' minds.  Questions such as: 

  • Is it time to get out of the market? 
  • Is it time to go all in? 
  • Is it time to rotate out of technology stocks? 
  • Isn't it about time for a recession? 
  • If this the longest bull market, surely it should end soon? 

All of these are fair and valid questions but if any of us knew even one of these answers with 100% certainty, we would be financially set for life, having mastered the markets years ago. 

Timing the market is essentially impossible.   So the question is really not if the time is exactly right - but instead if the asset class(es) considered for investment have the highest likelihood of being the best vehicle for the compounding of your wealth for the foreseeable future. 

While watching a recent Warren Buffett interview, I heard him articulate this concept perfectly:

"I can't tell you when to buy stocks, but I can tell you whether to buy stocks"

His point is exceptionally well taken.  While one can never be sure if today is the precise right moment and best price to buy stocks, one can do analysis to evaluate which asset class presents the greatest probability of compounding your wealth over time.

So let's instead look at that question and some factors worth considering in your analysis:

1.) Risk assessment - How do you define risk?  Is it the volatility in price?  The potential for the price to go down from where you bought it?  Or is it permanent loss of capital?  Evaluate what you are afraid of - and then assess whether a given asset class presents more of that risk than you can handle - and more importantly, whether you are being paid to assume that risk (see next)

2.) Evaluate alternatives -   Assess the risk/return relationship for your available options.  In today's environment, you have cash equivalents providing ~1.5% annual returns, US 10 year bonds providing 3% returns, and the broader US equity market providing an nearly 10% YTD return thru August 31st.  Is the incremental return on equities enough to compensate you for the additional risks?

3.) What do you wish to own - Pay attention to what it is you actually own via your investments.  Do you want to own productive assets (ie: one with earnings power, cash flows, innovation, employees, ability to return both dividends and profits to you).  Or, do you wish to own non-productive assets that are priced solely on a formula or by what others are willing to pay you for them.  Equities are shares of productive assets.  Bonds, gold, and currencies are examples of non-productive assets  

4.) Underlying environment - There is unlimited amounts of economic data one can analyze and assess to determine the status of the underlying environment and economy.   While making this assessment, it's critical to consider whether the environment is supportive of your chosen asset class being able to rise in value.  So in the case of equities, does the environment support growth that will drive further sales, ongoing innovation and productivity gains, stable to growing cash flow, etc.  In the case of fixed income, are interest rates likely to rise (potentially hurting principal values but allowing coupons to rise) or fall (with opposite effects)?  In the case of cash, is inflation likely to erode purchasing power driving real returns negative?

As you can see from the above discussion, timing actually isn't everything.  Instead, time IN (the right place) is what matters.

Invest on - and let time do it's job,





View from the Chair: Windermere's Market Perspectives (July 2018)

Remember Tug of War?  Something tells me you may have played on the playground or at a family reunion.  Split into two groups (ideally of equal strength), pick up your respective ends of the same rope, and pull as hard as you can.  Eventually, one group prevails - whether it be due to momentarily greater strength, uneven strength from the outset, the other side running out of steam, or one teammate simply not pulling their weight. 


I’ve been thinking a lot about this game lately as I watch the daily equity market action.  It seems that we have a classic game of tug of war going on – between Team Positive Factors and Team Negative Factors

Playing for the Positive Factors team is an impressive roster, including: 

1.)    Record earnings growth

2.)    Rising US economic growth

3.)    Rising leading economic indicators (including housing and labor)

4.)    Increasing cap expenditures

5.)    Tepid inflation

6.)    Sufficient liquidity

7.)    High confidence (consumer and businesses)

8.)    Corporate actions (M&A, stock buybacks, dividends)


Lining up on the equally ambitious Team Negative Factors is:

1.)    Trade wars/tariffs

2.)    Strong US dollar

3.)    De-synchornized global growth

4.)    Political events (midterm elections, North Korea)

5.)    Valuations

6.)    Tightening monetary policies

7.)    Flattening yield curve

8.)    Future earnings projections (may have peaked?)


On any given day, at any given minute, the rope gets pulled closer to Team Positive Factors – only to be quickly pulled back the other way and on and on this pattern continues.  Both sides are worth adversaries and have come to this match with the requisite strength and stamina.  Each team member has their strengths and weaknesses – and each have the possibility of swaying the match.

This current game of Tug of War is nothing new.  Markets are constantly involved in these matches.  They vary in duration, players, and equality of teams (2017 was hardly a fair fight) – but they are always present and markets forever swing between two opposing teams.  It’s easy to get distracted by the back and forth – so what’s an investor to do?

Step back – and remind yourself what the rope is made of:  individual stocks. 

These individual stocks aren’t simply blips on a screen or tickers, being jostled around in different directions as the match continues.   Rather, they are ownership interests in actual businesses - a share of a productive asset that is earning revenue, investing in R&D, entering new markets, buying back its own stock, issuing dividends, pursuing acquisitions, and a whole host of other activities designed to benefit shareholders.    At times, the price on the screen will be reflective of what the company and its future cash flows are truly worth.  And at other times, there may very well be a disconnect.  Knowing how to tell those two apart is far more critical than the broader market’s internal grudge match.  Remember what you own and why you own it.  And realize that a price decline is just a piece of information and will not necessarily determine the long-term value of the underlying business (just as a rapid price rise may not truly represent an increased long-term value of the business).   As Warren Buffett always says, he loves when the prices of his stocks go down as it gives him a chance to buy more at a lower price.  

I know what you’re thinking – you still want to know who will prevail in this most recent game of Tug of War.  No one knows that answer – and that answer will vary by the minute until a new match ensues.   But over the long run, I believe the clear winner will be a disciplined investment approach focused on the long-term, structured with overall financial goals in mind, and comprised of ownership in many businesses who are well positioned to win countless of their own Tug of War matches over time.


Invest on,