How Much Does Trump Weigh?
Posted: Farrah Gandhi
“In the short run, the market is a voting machine but in the long run, it is a weighing machine”
Voting is based on emotion, is subjective and driven by opinions and sentiment. Weighing is objective, based on facts, and the outcome is irrefutable. Consider the following statements:
We can assume there would be some disagreement with the first statement, but there can’t be disagreement with the second. In the short-term investors vote every day on every stock that trades. Sometimes they hate stocks (end of last year). Sometimes they love them (beginning of this year). Their voting has very little to do with real changes in the underlying value of the company issuing the stock. The only way to determine the actual value of a company is to “weigh” it, which is what happens over the long run. The stocks of company’s creating real value go up, while the stocks of company’s destroying value go down. We work hard to “weigh” investments we place in portfolios and try to ignore all the noise associated with constant voting.
We could spend the next eight paragraphs explaining all the reasons the market sold off last year and then spend eight more explaining why it went up. The arguments would be something like this, “The market went down because of concerns the economy was slowing…The market went up because apparently the economy was not slowing.” This seems pointless. Basically, if you went to sleep in October and woke up a few days ago your stock investments are pretty much in the same place. Sentiment and emotion drove the market down and then straight back up. Over this period the long-term value of companies changed little, while their stock prices moved dramatically. Lesson: Ignore the voting and focus on the weighing.
We continue to be positioned conservatively because we believe long-term stock and bond returns will be low as they have been for several years. As we discussed at our recent luncheon, all asset classes we include in portfolios have made less than 3% per year over the past five years except for US Stocks which were up around 9%. Recent performance has also been poor for all stocks. In fact, no stock investment has made money over the past 13 months. It would require a large change in prices for our views to change on most investments.
You may have seen or will see some trades in your portfolio. We are currently rebalancing portfolios to maintain an appropriate risk level. As we have discussed in the past, we closely monitor the risk of your portfolio versus its benchmark and with the extreme move in markets recently are making necessary adjustments.
It is tax time again. The primary tax document from Charles Schwab called a 1099 is available on their website. Please note, unlike in past years, our management fees are not deductible under the new tax law. Regardless, if you would like to see fees paid you can find them in your portal and summarized in your 1099. Additionally, if you receive K-1’s, most of them will be received and posted to your portal by the first week in April. If we can help you or your CPA with your taxes, please let us know.