Junk Boating and Investing

Ahh, Hong Kong summer…hot, sweaty and gross, just the way we hate it. But at least we can all find refuge on a junk boat. Well, sort of. There are many factors that contribute to your experience at sea on one of these 6-hour(!) outings. Some factors you can control (e.g., who you invite, how much you drink), some you try to control (who other people invite, how much your spouse drinks), and some you can’t possibly control – notably the weather. It’s how you handle the uncontrollable factors that makes all the difference. Case in point: my most recent junk boat trip one rainy, rocky, T1 Saturday in July.

As a co-host of the junk boat, I wanted everyone to have a fabulous time, despite the Gilligan’s Island/S.S. Minnow conditions. But what I observed – in my cheap prosecco haze – is that it really wasn’t the weather that mattered. It was an individual’s attitude towards the weather that was make-or-break…much like an investor’s reaction to a bout of market volatility. Two archetypes unfolded:

1) The Panic Seller: Riddled with nausea, this guest wants off the boat NOW. He/she is fixated on the waves and is antisocial at best. As far as he/she is concerned, it is a day lost at sea.

2) The Big Picture Thinker: This more seasoned junk boater knows the key to avoiding motion sickness is to focus his/her gaze on the horizon. 15-foot waves? Pff – this too shall pass.

And so it did. By the afternoon, the floaties were floating and the free flow was flowing. Even the Panic Sellers found something to talk about other than the shortcomings of the Hong Kong Observatory.

As investors, we should all aspire to be Big Picture Thinkers. When markets are choppy, it’s my job as a wealth manager to convince you to stay invested and avoid selling at the wrong time. This means shifting your gaze from daily market fluctuations (waves) to a much longer-term perspective (horizon).

Take the performance of the global equity market since January 2000 for example¹ . If you focus solely on the monthly fluctuations (waves), you would be hard-pressed to stay invested during the rough times, as seen in the chart on the top.

The other (better) way, is to focus on how much your wealth can grow if you stay invested, as shown in the ‘horizon’ chart on the bottom. Ten thousand dollars invested in global equities since January 2000 would have more than doubled by the end of July 2018. Better yet, if you stick with this discipline, you will have a guaranteed source of bragging rights for many junk boat seasons to come!


The Waves

The Horizon


¹ MSCI All Country World Index (USD, net div). Source: Dimensional Fund Advisors.

Winter is Coming?

It’s hard to imagine that there is much value left in US and other developed nations’ equities.  The Global Financial Crisis (GFC) ended in March 2009 and with it, the last bear market.  The current bull market is about to enter it’s ninth year.  According to the National Bureau of Economic Research, since 1945 there have been eleven business cycles as measured from peak to trough.  The average cycle has lasted 5 ½ years.  Furthermore, the average bull market has been 97 months (8 years).  While the average duration for a bear market since the 1930s has been 18 months.  With that backdrop, it’s an interesting time to be investing in equities.

Drown Out The Noise – You Are Smarter Than You Think

I spent a couple days earlier this week at an investment conference. Whilst there, I was reminded of the volumes of empirical evidence supporting our investment philosophy. It was reassuring and affirming.  Even though I’m “in the business,” I’m not immune to the noise that is everywhere.  Talking heads on TV telling us which stocks are winners; newspapers telling us the sky is falling; co-workers telling us how great their investments are the greatest thing since sliced bread. These distractions are ever-present, and it takes true resolve to not be swayed by these externalities. Clients will often ask what we think of a particular event (How will Brexit impact me?) or security (Should I buy some Apple?) or perceived future risk (But what if Trump is elected?).  These questions are relevant and valid, but they shouldn’t cause you to deviate from your long-term strategy.

Should I Stay or Should I Go?

The title is from the British punk rock group, The Clash. However, it feels very relevant in today’s stock market environment. We have investors constantly enquiring as to when and if they should sell out of the market. It’s easy to understand this question, especially as this year is off to a horrible start. But, before doing anything, first try to understand what’s happening in the world. First and foremost, the global economy is still growing, even if its rate of growth is less than the “experts” believe. Take for instance the US, Banks and individuals are supposedly carrying a lot less debt now than they were. Therefore, if that’s the case, they should have more “rainy day” funds on hand if the downturn worsens.