So, a buddy comes in. This buddy is an outrageously frugal 36-year-old single woman who, amazingly, Manages to Save 30% Of Her Gross Compensation! I asked her how she did this and she said she had a motto – ABS – Always Be Saving! (Kinda reminds me of the ABC motto – Always Be Closing – from the movie Glengary Glen Ross…but…that’s a whole different story.)
We embarked on a discussion about Saving/Investing in the current market environment and discovered common ground as regards our perspective on Market Forecasters.
As a market observer for over 45 years I’ve observed that every January the same thing happens. Lots of folks – many are so-called ‘experts’– look back at last year’s performance to draw comparisons and conclusions they can use to predict what markets will do in the year to come.
At Warburton Capital we don’t make predictions, however, let’s answer this question:
- ‘What lesson from 2019 can we apply to 2020?’
Wind back the clock to twelve months ago. The words running across CNBC’s home page were, “US stocks post worst year in a decade as the S&P 500 falls more than 6% in 2018.” The Wall Street Journal summarized the
state of market affairs with this headline: “U.S. Indexes Close with Worst Yearly Losses Since 2008.” Depression and Gloomy Predictions proliferated.
Some folks decided to ‘time the market’, sell to cash and wait for prices to go down. They thought that after 11 years, the bull market was finally on its way out. So how did those gloomy predictions and rainy-day forecasts work out:
- Global equity markets finished 2019 up more than 25% – MSCI World Index
- Fixed income gained more than 8% – Bloomberg Barclays Global Agg Bond Index
Let’s now answer the question about ‘What lesson from 2019 can we apply to 2020’?
- It’s blindingly obvious: Don’t Bet on Forecasts and Predictions.
We need to remember that missing out on growth does as much damage to a portfolio as losing that amount. How long does it take to make any loss back? How does someone who got out know when to get back in? Market
Timing is seductive, however, to be effective one is required to be right twice– at the top and at the bottom – over and over again. In the words of Warren Buffett, “I’ve never observed a Market Timer to be right more than once in a row!”
Forget the Forecasters. Don’t time the market in 2020 or ever. Don’t gamble on getting in and getting out. Rather, figure out how much of your portfolio you need allocated to Safe Assets and allocate the remainder to Risky Assets so you can capture the ups and ride out the downs.
At Warburton Capital we work with our clients to achieve the foregoing by engaging in Top Down Planning to derive a Purposeful Strategy for current holdings, incremental saving or even withdrawals. Not enough “experts” subscribe to our point of view. They’re still trying to time the markets by predicting short-term market movements…risk on…risk off…blah blah.
You’ve heard the conventional wisdom, “The definition of insanity is doing the same thing over and over again and expecting a different result.” I see Jim Cramer and his brethren speculators demonstrating this market timing insanity daily as part of the Financial Pornography on CNBC – which I so love simply for the entertainment value!
It seems impossible to know when the best time to get into the market is because we can’t predict the future. And if you think about it, that makes sense. If the market’s doing its job, prices ought to be set at a level where you experience anxiety. It’s unrealistic to think the market would ever offer an obvious time to “get in.” If it did, there would be no risk and no reward.
So, what should you do in 2020? Keep in mind 2019’s most important lesson (which is the same lesson from every year before): Don’t bet on Forecasts or Predictions. Be a long-term investor in a well-reasoned broadly diversified Purposeful portfolio. Reduce your anxiety by having a Purposeful amount of ‘Safe Assets,’ Make sure the people advising you align with your perspective. Never attempt to time the markets. You’ll have more time to enjoy life!
Closing by returning to the beginning of this missive – in case you worried that our ‘Always Saving’ buddy is so frugal that she is a miser, not to worry. She travels the world routinely and recently paid cash for a brand-new Tesla. I observe and applaud substantial life/ work balance!
Trusting this will find you well, enjoying the New Year and practicing the ‘Always Be Saving’ habit of our ultra-frugal buddy, we remain
Warburton Capital Management