Let me be clear, the economy is not the market! You can have slow economies and wonderful market returns or great economic times and sub par investment returns. Investments in the long run reflect the expected future cash flows, the certainty of the cash flows and then discount to present value price. As managers, we construct portfolios that allow your investments to provide a solid cash flow stream with a high level of certainty for today and tomorrow. Our energy is spent validating the future cash flow stream remains at a high level of certainty and always searching for alternative choices that may offer a more compelling cash flow.
Mr. Market sometimes gets crazy and provides us with compelling entry points for increasing future cash flows, trading out of some good investments and entering into others with higher cash flows. We saw this in January as markets dropped over -9% in just 20 days. Since then we have recovered to see the Wilshire 5000 up over 6.66% since the start of the year with many accounts in line or above this number. Historically we see large volatility as the fuel that allows us to not only meet, but often exceed your cash flow goals. Quarter 3 provided us with more upside against a backdrop of continued uncertainty. The saying, “markets climb a wall of worry” continues to ring true.
While 2016 has certainly been a banner year for our management, we understand the backdrop of uncertainty clouding our future.
Economic growth remains sluggish providing recession uncertainty
Oil price declines are still working through the system providing some uncertainty
Interest rate uncertainty
Brexit and Euro uncertainty
Government regulation remains a drag and uncertainty with election coming
Presidential / Congressional Uncertainty
Mr. Market dislikes “uncertainty”. After such a wonderful start to the year, will we have a second large run up or will this year give up the gains and make us experience the feeling of 2 steps forward and 2 steps back? In the short run we will see the uncertainty of the political elections removed which might provide a tail wind for market growth. Oil prices look likely to continue stabilizing, which would provide more certainty. As these events become more clear and drop of the radar, newer events will enter the equation that may concern or empower the markets. Funny how it jumps from one concern to the next, but has moved up 112,952% since January 1950! (return of S&P 500 with dividends reinvested from 1-1-1950 to 9-30-2016 )
It is impossible to time the short run, but we know by staying focused on building strong and consistent future cash flows, eventually Mr. Market will reflect and we will continue our move upward. We just never know exactly how or when.
We remain pleasantly surprised with how well the market and accounts have done this year considering the slow economic growth, election and rate uncertainty. Times like these reinforce the proven wisdom of diversification and not trying to time or predict the market.
*Results mentioned were taken using client accounts at Folio Institutional. You should login to your own account to view actual results specific to your accounts.
Evergreen Wealth Management, LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.
Index results do not reflect management fees and expenses and you cannot typically invest in an index.