And what you can do to prepare.
Depending on when you got in, and in what you are invested, you’ve done all right in the past ten years by the US broader equity (stock) markets. The S&P averaged approximately 6.7 percent per year, the Dow Jones Averaged 6.3 percent per year, and the NASDAQ averaged 13.8 percent per year – just look it up they are commonly available statistics. Will stocks continue along their historic path or increased values…or not?
For example, seventy-three percent of companies in the biotech index are losing money. Why this is interesting is this: given the sector’s performance investors are diving into companies that aren’t profitable at extreme valuations (approx. 50x earnings). Does that sound familiar?
Let me be clear that I am optimistic as it relates to my personal outlook; views supported throughout my firm, and further believe if one is not approaching investing with a similar mindset then it is difficult to understand why one is investing at all. It should be done however following a carefully executed strategic platform fully inclusive of all the best classes of investments.
QE (Quantitative Easing) was first done by the BOJ (Bank of Japan) in 2001. They began with 5Y trillion, and subsequently raised this to 35Y trillion by 2004. The effectiveness of this program took longer than expected due to a variety of events, but it did work and Japan exited in 2006.
In 2008 the Fed Reserve began its QE program to target markets most effected by the economic crisis. There have been three rounds: QE1, QE2, and QE3. QE1 targeted the housing market. In 2010, the government initiated QE2 targeting long term interest rates by buying treasuries. 2011 saw the implementation of “Operation Twist” (a program neutral to the Federal balance sheet) by exchanging shorter duration Treasury securities with longer term bonds. QE3 began with 35US billion – later raised to 85US billion. In 2014, the Federal government ended its QE program with a final balance sheet of 4.48 US trillion. The great confidence booster to the markets that has been QE has encouraged both consumption and investments. What happens when the effects cool and the trend changes?
For those of you who crowd into the shadow of the purported safety of fixed income with rates at historically low-levels – you are in for a rude-awaking when rates revert to anything close to the historic mean. Others of you push their way onto the slowing train of equity gains may similarly find discomfort in the ever-present volatility now a common occurrence in the investment climate through which we now travel. There remain others of you holding onto their proverbial cash with the thought of protecting it from overt devaluation or loss – probably not the best idea when being paid almost nothing for that cash and interest rates are historically low.
After the previous paragraph it must be said remain plenty of opportunities to do something about all this. You must be proactive with what you do and with whom you work on your plans. A price-driven model won’t necessarily get you the growth results you seek. On the other hand, the nimble management offered by fully independent investment firms will. Firms not encumbered with large bureaucracies, commitments to represent any one product, with full open-market experience and with a full palette of services from which to draw will. Your only task is to find one.
By their own definition, these boutique-styled firms are not prolific advertisers.
They do not spend their resources in time and money to fund lunches or dinners. And while they may take part in an infrequent measured recognition event for their exclusive clientele, the time available to these firms is most often doing the work for which you pay them; reviewing equity selections for buys/sells, meeting with and reviewing alternative investment platforms for their potential fit with their own strategy, looking after their client’s portfolios to make best efforts to exceed their own expectations, and communicating the same with their clientele on a regular basis so they remember someone cares how things are going.
Two paragraphs above we outlined a few of the challenges facing you, the investor in today’s vibrantly changing world. There is plenty to do in the face of those challenges, and yes, we still believe in the virtues of investing in the broader public markets (stocks and bonds). But, there is so much more as indicated in the words that followed. If you are involved in the broader markets, are they being constantly monitored for a need to change?
If so, how are they monitored and how are the changes (buys and sells) executed? Are you eligible to be involved with private placements and/or private equity investments? If so, are they even available to you through your current investment platform? Do you look to television or Internet for your support of your investment plans? Are you investing where the growth will be – or, where it has been?