The Market Looks Forward

“When you put a fire under a pot, you learn what’s in it.” — Malcolm X

If a deadly pandemic overtakes the world, but the market looks past it, did the pandemic really happen?

The equity markets staged a dramatic rebound during the quarter as local economies opened across the country.  The question for investors is, how can the market turn so positive when data points to rough months ahead?

The short answer is “because the market is forward looking.” Investors are peering many months into the future to a point when Covid-19 fades away, the population gains herd immunity, or researchers find an appropriate treatment or cure. Investors are looking past current data towards a recovery. 

Should the Market be so confident? 

Defying Gravity

Overall, 2019 was quite a year with most indexes increasing by roughly a third.  From a historical perspective, the period from 2010 through 2019 was the first contiguous decade in the history of the market without a recession[1].  During this period, we had only one (2018) negative year.

The gains of 2019 were phenomenal in light of the many headwinds facing investors heading into, and throughout, the year:

A Return to Rationality

In July, the current U.S. expansion became the longest on record. Gross Domestic Product (GDP) in the second quarter increased at an annual rate of 2.1% and there are still new jobs being created. While these and other government figures suggest that U.S. and global economies are continuing to expand, there is growing evidence of weakening economies internationally and signs that the current U.S. expansion is losing momentum.

Knowing When to Sell

 “Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves.” – Peter Lynch

We are almost 10 years into a bull market birthed out of The Financial Crisis, throughout which, economists have described the stock market as climbing a “wall of worry”. The market continues to rise, but no one believes that it can continue. I am confident that at some point we will experience a correction. I am also confident that, many years from now, the companies we own will be much more valuable than they are today.

Process Makes Perfect

In my last post, I discussed the macro issues and narratives driving the economy. Market volatility has continued and, in addition to an extended trade war, US markets are now also concerned with rising interest rates, creeping inflation, and an inverting yield curve. There will always be news that creates market concern, but it is usually something unforeseen that impacts investors the most. And for that reason, it makes sense to dedicate this post to detailing our investment strategy and process, which emphasizes understanding the individual companies rather than the broader economy. The investment process focuses on investing in outstanding companies at reasonable prices and reasonable companies at outstanding prices. If we are invested in great companies and buy at great prices, then these investments will inevitably withstand any storms, and our investments will prove profitable.

Investment Opportunities in Every Market

“In the struggle for survival, the fittest win out at the expense of their rivals because they succeed in adapting themselves best to their environment” – Charles Darwin

 

2016 ended exactly how we predicted…..or perhaps the opposite of that. Election results contradicted most polls, and the market’s reaction to the Republican win was not the Armageddon that I expected. In fact, the Dow, Nasdaq and S&P indexes all improved more than 2.5% from the election to year-end.  Benjamin Graham, the man considered to be the father of value investing, taught that “stocks aren’t pieces of paper or lottery tickets; they are units of ownership in real businesses whose underlying value does not change

Year 1 – What We Have Learned

As we enter the fall, we are approaching the one-year anniversary of launching Richie Capital Group. We have spent much of the past year navigating regulatory requirements, launching early clients and preparing our platform to support larger institutions. We have also spent some time researching the market to better understand client needs, competitor offerings, and how RCG can be best positioned to provide solutions.

We have found that the problems facing clients both big and small are largely the same. In terms of retirement, most individuals have not saved adequately and are not on track for a comfortable and timely retirement. Many of the public pension funds set up for teachers, first responders and government employees are significantly underfunded.

The National Institute on Retirement Security completed a study[1] on retirement savings and found: