As we tiptoe past January into mid-first quarter, economic uncertainty and market volatility continue apace. Markets, while recovered some from the Christmas lows, still ride the roller-coaster, and probably will for a while, maybe a long while. Surprising to some (but not really to us) non-US stocks have actually been performing better of late, for more on which please see the AIMS™ Strategy Update.
What’s causing all the turmoil? Interest rates. US stocks that have been overvalued for years. The world economic desolation that increasingly beckons from US trade “policy.” And, mostly lately, fallout from the big Trump blink on the government shutdown, causing increasing numbers of Americans to wonder about leadership as Washington heads smack dab into gridlock – and the Presidential election season – again.
Since we have covered these market instability factors for months now, let’s talk a bit about what it may mean for investors.
Markets – and especially the US markets, as exemplified by the S&P 500 index – have risen fairly smoothly since the March 2009 bottom. Moreover, many stocks – as again exemplified by the index – have done fairly well, often regardless of individual merit on items like company profitability or the relation of stock price to profits. This situation has lulled many, we think, into what we call the Index Trap, the thinking that unmanaged indexing is smarter than employing smart people (and computers) sweating to find superior companies and investment opportunities. The latter is called “stock picking,” and has become very unfashionable of late, mostly because the index approach has done very well over the recent period. But if investment history has taught us anything, it is that 1) things constantly change, and what worked lately is likely to not work soon, and 2) value matters, and buying good companies at fair prices in the end is far smarter and more profitable than buying just anything, at any price, which the indexes are wont to do.
For many reasons, we think the air is fast leaking out of the index balloon, with dire consequences for the untold legions of investors and advisors who cleave to this dogma. As Warren Buffett has famously said, “only when the tide goes out do you discover who has been swimming naked.” In other words, only in stressful times do we discover who’s been making foolish investments.
Now, more than ever, Camarda believes it is critical to make very careful portfolio and investment decisions. We truly think the importance of stockpicking skill is coming back with a vengeance, and we have been and remain laser focused on that mandate, and assure you we will remain fully clothed as the financial waters recede. Even more, we are quite excited about the opportunities for profit in the markets we foresee, and think the Camarda portfolios will do very well, indeed.