It is easy to be emotionally overwhelmed with fear and anxiety from the financial markets’ negative swings. In this letter, we want to explain to you why we are not overwhelmed. In our view, disruptive markets are natural when significant changes occur within the world’s economies. We want to give you an overview of the transitions that we think are occurring.
Even when confronted with disorderly investment markets, our overriding pursuit for the long term is to preserve your capital from permanent loss and to give you a rate of return above inflation so you may maintain your lifestyle. Often, in the absence of true economic crisis, the best way to avoid permanent loss of capital involves staying invested through a downturn. We hope this explanation will alleviate any anxiety you may feel right now.
After the financial panic of 2008, the world is slowly healing its underlying financial system. We believe the world is still confronted with high levels of debt, and each country’s’ central bank is developing their own program to deal with paying this debt down to a manageable size. The monetary policies and the reaction of the bond markets in each country are creating dramatic swings in worldwide stock, bond, and commodity markets. As a result, last year, we saw the stock market withstand large swings and substantial punishment, with almost nothing to show for it.
Remember, however, that most economies are stable and slowly growing, including China and the USA, while the financial markets heal and transition to new realities. With the drop in commodity pricing, most particularly gas and energy, and the rise of disruptive new companies such as Amazon and Uber, we are also seeing a transition of global power from sellers of resources and products to buyers. This creates new winners and losers that are different from the past twenty years. This massive shift in economic and geopolitical power also contributes to disruptive swings in investment markets. It will take time to reach a new equilibrium, which will be necessary before we can see strong economic growth.
We are hopeful that this letter may allow you to appreciate the difference between displeasure with short-term dips and fear of the unknown. We are constantly quantifying probabilities of outcomes and constructing portfolios that try to anticipate different outcomes. Even when we see a trend, we never bet on only one result.
In short, we do not see these short term fluctuations as dangerously unpredictable events but rather as natural steps of the change process and reflection of these new realities.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
All performance referenced is historical and is no guarantee of future results.
No strategy assures success or protects against loss.
