Every year well known industry commentator Larry Swedroe, Principal at US wealth management firm Buckingham Strategic Wealth, assesses the hits and misses of market pundits who predict the year’s “sure things”. He scores +1 for a true forecast, -1 for a wrong prediction and 0 for a draw. Below are the “sure things” that were heard from investors and stock market experts in 2017. We use the US, the world’s largest economy and stock market, as the measure of successful predictions.
For many investors it can be tempting to focus only on equity prices when thinking about the returns from their portfolios, particularly during turbulent periods such as the one we have witnessed since the start of February this year. The media often fosters this behaviour through the use of dramatic headlines that are designed to grab the attention of the viewer. Recent headlines in this vein that I have seen include, “The Stock Market is Having its Worst Second Quarter Since the Great Depression”. This sounds scary but the reality was more prosaic. As you can see here, this story was written two days into the new quarter and all because of just over 2% move in the S&P 500 index!
The recent Time’s Up and #MeToo movements have given me reason to reflect on the role of gender in the financial industry. When it comes to investing, common stereotypes plague women. For example, we’re too conservative or don’t understand enough about investments. We don’t save enough. We start too late. We lack confidence. I often (though not universally) see this in my own interactions with clients, especially married couples. Wives tend to defer to their husbands when it comes to making investment decisions and trust in the husband’s experience and decision-making. This is not a judgment, just an observation.
Recently, President Trump unilaterally decided that the US is going to institute tariffs on both steel and aluminium. Tariffs have been used in the past by previous administrations and, indeed, other countries around the world. Tariffs, or customs duties, are taxes on imported products, usually in an ad valorem form, levied as a percentage increase on the price of the imported product. Tariffs are one of the oldest and most pervasive forms of protection and barriers to trade.
This is a good question to ask oneself either in a sustained bull run or during a market correction. MASECO is not suggesting there is a market downturn on the horizon but this question is at the forefront of a lot of investors’ minds.
Economic Overview: Solid economic data gave markets little to be concerned about
As we reflect on the year gone by, 2017 proved to be another year of surprisingly strong investment returns across the board. The last quarter provided positive returns and equity markets are now in their ninth year of a bull market. No major risks materialised in 2017, so market volatility continued to be low throughout the year.
As with every new generation, attitudes and preferences change, and millennials are no exception to this rule. Some of this undoubtedly comes from the natural instinct for independence. However, factors such as higher university education rates and access to the wealth of information available for free online have certainly had an effect on the tech-savvy millennials who have grown up with this technology. This is especially obvious when you contrast their lives with the baby-boomers who are currently in the process of transferring their estates to them, many of whom have wholly different penchants when it comes to investing.
Following on from Tor’s article last week, Mark shares his thoughts on the topic of behavioural finance with a focus on investor characteristics and psychology.
Professor Richard H. Thaler of the School of Business at the University of Chicago has been awarded the Nobel Prize in Economics for his work within behavioural finance. This is the second time a behavioural finance economist has won the prize since Daniel Kahneman in 2002.
In June this year, Warren Buffett made a deal to provide financing to Canada’s Home Capital Group (HCG) and also purchased a stake in the company. While other investors were selling out of Home Capital because of a run on deposits in Canada’s number one lender of residential mortgages to borrowers with poor credit ratings, Buffett was buying in. He secured generous terms on his loan and purchased his stake at a steep discount of 33% on the stock’s previous closing share price. Time will tell if Buffett’s investment will be successful, for now, this appears to be a good example of Buffett buying cheaply or in other words, a good “value” investment.