During the first quarter of 2018, the stock market reminded us once again that it can and does go down from time to time. Unfortunately, in practice the ability to accurately predict when corrections may occur (and act on them), better known as “market timing,” is extremely difficult and potentially very costly for both professional and retail investors.
Some of the most successful investors have shared their views on market timing:
“I have never known anyone who could consistently time the market. And in fact I’ve never known anyone who knows anyone, who was able to consistently time the market.” Jack Bogle
“The only value of stock forecasters is to make fortune-tellers look good.” Warren Buffett
“Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves.” Peter Lynch

As these investors suggest, timing the markets successfully and consistently is virtually impossible. Furthermore, empirical evidence illustrates that market timing has negative implications for long-term investment performance. Many academic studies have analyzed this topic by comparing the time-weighted and dollar-weighted returns of investment funds. Time-weighted returns measure a funds’ actual performance, whereas the dollar-weighted returns measure the performance received by the investors. On average, investors underperformed the time-weighted returns of their investment funds by roughly 1.5%. That underperformance, or “behavioral gap” as it is often referred to, reflects investors failed attempts to time the market by investing or redeeming capital at the wrong times. This is confirmed by studies that show the largest equity inflows have occurred at the tops of markets and the largest outflows at the bottoms – the epitome of poor market timing.

Identity theft has been a serious threat to consumers for many years. The recent Equifax data breach has raised awareness due to the sheer magnitude of the incident which affected 143 million consumers nationwide. Other notable incidents with recognized consumer brands have included Yahoo (2013), Target (2013), eBay (2014), Home Depot (2014) and Anthem (2015).

As tensions and rhetoric around North Korea have escalated over the past few months, many clients have asked us how we believe this translates to market risk. This question and similar ones about geopolitics are presently more common than at any time since the financial crisis. With the backdrop of elevated international tensions, we find this an opportune time to share our perspective on the market risks presented by macro and geopolitical incidents.

A common storyline in the financial press has been the leadership provided by the FANG stocks – Facebook, Amazon, Netflix, Google (now Alphabet). More recently Apple has been included with that group (FAANGs) which we will do as we review their contribution to the market’s gains and explore the potential for continued outperformance.

Diversification, as a fundamental component of prudent investment management, has tested the patience of investors over the most recent bull market in US equities. International equities have trailed by a significant margin in relative performance since late 2011, weighing on the returns of a globally diversified portfolio versus a US only investment strategy. In this piece, we take a longer view of global diversification and compare the current valuations of US and international markets.

Consumer purchasing is responsible for about two-thirds of the American economy. Whether it is spending on durable goods, such as cars or housing, or on services, such as education and health care, consumption drives economic growth and performance. The financial health of the consumer is a critical factor in the stability of our domestic economy for our prospects for growth.
This paper explores the state of the consumer in the post-Financial Crisis era and some of the conditions that could be influencing changes in behavior.

Brexit, a contraction of the words “British exit,” refers to the June 23, 2016 referendum by voters in the United Kingdom to leave the European Union (“EU”). The surprising outcome has injected uncertainty into financial markets, and triggered some major moves in currencies, bonds, and equity prices. In this paper we review and comment on the economic and political implications to this separation and financial markets.