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President & CEO Dan Kraninger reflects on a challenging 2015 and provides insight moving forward.
2015 was a year of digestion and indigestion. Digestion for those who experienced three straight years of outsized gains from equities, and indigestion for those who made hasty moves, ill-timed investments or tried to speculate in energy and oil. The majority of the world’s major asset classes were flat or down in a tight range. And even though no one felt significant pain, my sense is that investors are losing patience. I’m not sure why. Maybe fear? Technology? Life speeding faster? Your guess is as good as mine. Unfortunately, investment gratification typically only comes to those who wait and in 2016, any lack of patience will most likely accentuate the whipsaw action and volatility that we saw in 2015, specifically the 4th quarter.
We enter the year hedged in our tactical U.S. portfolios with 30% cash and look forward to finding better opportunities during the first quarter to deploy the capital. The U.S. economy is growing and cash still pays 0%. Those are important themes to remember … especially cash, because holding cash is only burning holes in pockets and losing to inflation every day. Cash will find a home in assets and more likely stocks than bonds over the long-term.
2016 also marks my 20th year in the asset management business. I reflected on that time horizon when writing notes this quarter and I wanted share my favorite quotes and lessons learned over the course of my twenty year career:
- “An investment in knowledge pays the best interest.” – Benjamin Franklin. When it comes to investing, nothing will pay off more than educating yourself. Do the necessary research, study and analysis before making any investment decisions.
- “I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful.” – Warren Buffett. Be prepared to invest in a down market and to “get out” in a soaring market.
- “In investing, what is comfortable is rarely profitable.” – Robert Arnott. Know the boundaries of your comfort zone. As much as you need to know the market, you need to know yourself too. There’s no room for pride in this kind of self-analysis. The best investment strategy can turn into the worst if you don’t have the stomach to see it through.
- “The individual investor should act consistently as an investor and not as a speculator.” – Ben Graham. An investor is not someone who can predict the future. Base decisions on real facts and analysis rather than risky, speculative forecasts.
- “The most powerful force in the universe is compound interest” – Albert Einstein. Only time and pressure turns coal into diamonds. There is no such thing as quick or easy money.
- “The four most dangerous words in investing are: ‘this time it’s different.’” – Sir John Templeton. Follow market trends and history. Don’t speculate that this particular time will be any different. For example, a major key to investing in a particular stock or bond fund is its performance over five years. Nothing shorter.
- “The stock market is human nature on parade.” – William O’Neil. Don’t deal with personal opinion. Follow the system.
- “Investing is the business of making mistakes. They only difference between the winners and the losers is that the winners make small mistakes while the losers make big mistakes.” – Ned Davis. 10-20% corrections really don’t matter. Long, deep bear markets are what changes people’s lives.
- “Success is peace of mind which is a direct result of self-satisfaction in knowing you made the effort to become the best which you are capable.” – John Wooden. No comments necessary.