Quarterly Commentary
As we reflect on our Independence Day, it is from a grateful and sincere heart that we say to you, our clients, congratulations! Why, you ask?
You have stayed the course, followed the plan and have not strayed from the evidence-based, time-tested investment strategy. You have not let the media and world events distract you nor let it influence your thoughtfully invested portfolio. This has not been easy.
Since the beginning of the year we have seen a fair amount of tumult. A new presidential administration was ushered in with a slew of uncertainty and many instant executive orders. This was followed by a so-called trade war and the implementation of many global tariffs. A 19% drop in the S&P 500 occurred by April only to be followed by the bombing of Iran. Yet here we are, at essentially all-time highs in the markets and you, our cherished clients, have reaped the benefits of staying the course. So hats off to you!
But, how can this be? How can markets continue to reach all-time highs? Why are the downs temporary and the ups continually higher over the last couple of centuries? At the risk of oversimplification, let us offer one answer – human ingenuity, pure and simple.
As we celebrate our nation’s Independence Day, it’s hard not to reflect on our history. It is rich with creativity, innovation and ingenuity. There have been several military conflicts over the decades including our founding. There is no world peace yet, and around the world, nations have risen up against nations, tribe against tribe and so forth over the course of human history. I guess we can blame it on the worst of human nature.
Yet for as horrible as having enemies in the world can be, there is one benefit … innovation. As nations strive for conquest or struggle for survival, the best minds of the country collaborate to figure out a way to overcome. Not only have nations continued to advance military equipment such as tanks, ships and planes, but the civilian world also benefits from military innovation. Examples include the internet, GPS systems, microwave ovens, blood transfusions, and best of all … duct tape (see an interesting list at www.NATO.int).
The same happens in the corporate world. When we see a downturn in the economy, businesses begin to scramble. Top minds in the best run companies in the world come together to figure out how to become more efficient, more productive and more profitable. Collaboration and creativity kicks into overdrive and innovation thrives as companies chart new courses. Ultimately, there will be companies that fail, but the companies that maximize human ingenuity win the day and deliver superior returns to their shareholders.
Markets decline by 15% about one time per year, or a real bear market of 30% or more happens every five years or so. It's important to remember that not only do we expect these declines, but we welcome them. It’s these temporary interruptions in our economy and market downturns that force businesses to innovate. This is what helps deliver excess returns that benefit investors.
What can we invest in that captures human ingenuity? It’s not real estate or bonds, or commodities or cash. It’s the best run businesses in the world, or as we more commonly know it, publicly traded stocks. Add a few more things like diversification, cash-flow planning, rebalancing and continued monitoring and you are well on your way to creating real wealth for you and your family.
But you already knew that, perhaps intuitively, because you have already done it. So again, even as we acknowledge future chaos in our chaotic world, we say congratulations!
Your friends at Fort Vancouver Investment Management, LLC