NEWS
INDUSTRY NEWS
Wait . . . Inflation – what is that?
“For a piece of information to be desirable, it has to satisfy two criteria: it has to be important, and it has to be knowable.” – Warren Buffett
When we reference Long Term or LT investing at Precision Wealth Strategies we are specifically speaking of investment strategies and models that are intended to be used for the portion of a Client’s overall portfolio that they don’t anticipate needing to draw upon for 10 years or longer. Using history as a reference, generally speaking when you have 10 years or longer to remain invested, then investing primarily in equities (ownership of company stock directly, or funds containing the stock of a diversified basket of companies) has resulted in a larger return. Restated more concisely, LT investing within our philosophies generally refers to funds that aren’t needed for 10-years or longer, and therefore have time to take advantage of the potential upside that is expected from equity investments over a long time horizon.
There is no precedent, at least not in modern times, for what is happening. Beyond the enormous human toll, the abrupt cessation of significant chunks of economic activity, not to mention daily life, these experiences have likely not occurred in our living memory. Adding to the sense of doom: for an industry built on data and forecasts, there are few if any historical examples to provide context. That said, as fiduciaries we need to use what information we do have, while acknowledging what is unknowable, to help investors as best we can. Internally we have been overlaying past significant market downturns to see what we can disseminate.
Investment Markets and the Economy at large typically follow a cyclical business pattern that moves up and down like a sine wave as it trends upward over time. This is a cycle that has weaved its way through many expansions, peaks, recessions, and troughs that can be clearly seen in the numerous booms and busts of the 20th century. In fact, some experts estimate that since 1929 there have been 28 distinct market cycles. Expansionary periods generate substantial optimism, while recessionary periods play into our fearful side. This range of emotions can work to an investor’s detriment if a long-term perspective is not maintained. This outlines the need for two specific disciplines to be applied to your investment approach. First, a stay the course discipline that includes a long-term view with an understanding that downturns will occur as part of the natural cycle. And second, a disciplined review of where we sit today within the market cycle. Said another way, our investment approach should be informed by a continual review of where we believe we are within the cycle, leading to a grounded perspective regarding where we should potentially be overweight and underweight. It is important to note that an opinion as to where we are in the cycle should not drive whether or not to be invested, but rather how to prudently be invested given our perceived location on the curve.
Q3
Are You Planning for Quarter 2?
Action Items to Address in July, August & September
- Is everyone on the same page for the strategic plan?
- What specific tactics need to be scheduled?
- Have recent events caused the need for changes in your financial plan?