Capital markets pressed relentlessly forward during the first quarter of 2013 as the S&P 500 and Dow Jones Industrial Average both set record highs. Stocks continued to climb a wall of worry, recouping all the losses incurred during the financial crisis which began in October, 2007. This remarkable resilience has come at the dismay of skeptics who have been sitting on the sidelines anxiously awaiting another economic meltdown.
The first quarter of 2013 produced blistering equity returns as a tail wind of economic prosperity pushed earnings up and stock prices followed. U.S. markets posted double-digit gains lead by medium-sized (S&P 400) companies 13.45%, followed by small (S&P 600) stocks 11.81% and the largest companies (S&P 500) gained 10.61%. These would be great numbers for an entire year, so to see double-digit gains in a three month period is quite impressive. Investors in developed international markets (MSCI EAFE) booked more modest, but still admirable, gains of 5.15% for the quarter as Cyprus became the latest cause du jour. With fears of a slowing China, North Korean sabre rattling and debt concerns all weighing negatively on shares of emerging international countries, emerging international markets (MSCI EEM) had the worst start to a year since 2008, losing -1.84%.
Bonds produced unimpressive returns of 0.27% for 1Q-13 (Barclay’s 1-5 Year Government/Credit Index). Bond investors should not chase yields but simply hold their noses and wait for higher rates down the road. With interest rates near historical lows, bonds are unlikely to produce even average returns anytime soon. We still think bonds have a place in most investors’ portfolios: that being to reduce the inherent volatility of stocks and to provide a source of liquidity. These two benefits come at the cost of lower total returns over time.
Unfortunately, for the past several years, many investors have allowed the news media’s negatively-biased noise to influence their investment decisions. They became disengaged from prudently planned, pro-active investment programs resulting in a type of “investment paralysis”. Forced into a neutral position in which they earn virtually nothing, they watch the cost of goods and services march ever-upward. This loss of purchasing power is the very antithesis of one goal of investing: that being to grow your assets at a rate equal to or greater than inflation over time. Naysayers are digging a deeper and deeper hole, falling further and further behind.
You can’t use logic to understand the stock market. As John Maynard Keynes said, “The market can stay irrational longer than you can stay solvent.” To succeed in investing, one must possess several important attributes: a belief in the future prosperity of the capital markets, a well-designed financial plan, an unemotional commitment to that plan and a long-term outlook. The 50% selloff we witnessed from 10/2007 through 03/2009 may turn out to be the single greatest buying opportunity in our lives. Yet, many investors sold out or ceased their monthly investment programs. Fear and paralysis is not an appropriate investment strategy. The markets will certainly have many more selloffs over the years to come, but successful investors do not react to such events; instead, they anticipate them and press on with an unemotional commitment knowing they have a rational plan, solidly constructed.
Wealthview Capital’s mission is to make a profound impact in the lives of our clients through the prudent planning, management and utilization of their financial resources. We seek relationships with investors who are serious about achieving their goals, who do not view investing as a game and who are willing to make tough decisions and do the hard work required to succeed. Successful investing is actually quite simple, but nothing about it is easy.