|
Before I dive into this iteration of The Vine, Italy was tremendous – so many great experiences…..great way to celebrate an anniversary and birthday…albeit a year late! Pretty sure I have seen more than enough cathedrals, churches, monasteries and ruins to last a few lifetimes - but can never see enough wineries and vineyards!.
Now back to the regularly scheduled broadcast!
On the heels of the past tumultuous 24 months in the public markets, the words above capture the emotional state of most investors. Having seen their portfolios (and emotions) whipsawed up and down for the past few years with little if any overall growth has lead many to question the long-term benefits of investing. Fatigue and skepticism has officially entered the room. There are only so many multi- colored slides one can digest that spins a positive story when their portfolio values seem to be virtually where they were or lower than they were two years ago. And you know what? As a longtime friend from Ireland is fond of saying “Correct and Right”! Add to that a gloating friend or work associate sharing their amazing recent returns in Nvidia or Meta and the feelings are compounded.
The endless media streams remind us that thru Monday November 6, the equity markets (as measured by the tech heavy S&P 500 (+13%) and NASDAQ (+29%) indexes are enjoying a strong 2023. (What’s in the NASDAQ index you ask? - think primarily high growth Technology / Bio Tech stocks). Value investors, using the Putnam Large Cap Value portfolio as a marker, have not experienced the same level of higher than average returns this year – as they are “only” up in the mid-single digits - which has folks “asking” us (Yes, I’m being nice here) “What’s wrong with my stock portfolio – where did we go wrong?” As for bond investors, going into this year we’ve been saying “Bonds are Back” following their horrific 2022 performance which say investors experience a principal loss of roughly 14% (as measured by the Bloomberg AGG index) but frustratingly the headaches continue – with the AGG down ever so slightly year to date.
But as iconic radio personality Paul Harvey used to say……” now for the Rest of the story!”
Grab an adult beverage of choice and allow me to review the past 2 years (November 5, 2021 - November 6, 2023) as you’ll quickly see a much different story is told! A factual tale that supports why investors at their wits end – or more accurately dazed, confused, exhausted, skeptical, frustrated – hell-pick a word!
Apologizing in advance – I’m going to wander into my long avoided “nerdy investor guy weeds” for a moment here. Based on information gathered from reliable industry sources, over the trailing 2-year period outlined above – (November 6, 2021 – November 6, 2023) the following is the approximate (keeping compliance happy now) overall cumulative total return of the indexes we discussed above is :
Nasdaq Index: down 13+%
S & P 500: down 4+%
Dow Jones: down 2+%
US AGG Bond: down 14+%
Putnam LC Value: up 4 + %
Given the strong 2023 for the S&P and Nasdaq, folks are asking us – “Doug - how can this be?”.
It’s that damn math thing again! (Yes, I know you were told there would be no math involved in reading this!) To review, in 2022 the Nasdaq was down approximately 32.5% while the S&P500 was down roughly 18%. In order for an investor in these indexes to get back to “break even” the indexes would need returns significantly higher than their prior year percentage loss. In this case – the Nasdaq will need a 48% return to offset the 2022 loss while the S&P500 will need to grow over 22% to do the same.
Unfortunately many investors sprint to the “Sell window” when markets tumbled – locking in losses and remain reluctant to “get back in” creating a difficult path to profitability in the markets.
Ok Doug - Where is this all going - for crying out loud!
We have preached “risk management, discipline and patience” since founding Piedmont in early 2017 (holy cow – PWA is closing in on 7th anniversary in March of ‘24) stressing the importance of protecting portfolio valuations from the dramatic pullbacks while maintaining liquidity.
It has long been written that investors’ emotions are among the biggest obstacles to experiencing portfolio growth. The desire to frequently reallocate by investing in past “winners” and shedding current “losers” is too strong for many to ignore. Yes, there are times when selling losers have tax benefits etc. but over the long term, constant major allocation shifts rarely have produced better results than sticking with an unemotionally well thought-out personalized long-term allocation. As the prior numbers show – a disciplined approach that incorporates winning by losing less has generally lead to better long term outcomes.
I recently read a quote attributed to respected author, speaker, and educator Seth Godin:
“Patience is worth the most when it’s the most difficult to find.”
Finding the last ounces of our patience while digesting the adverse market experiences of the past two years will be an investors friend. We appear to be at or very near the end of the Feds interest rate hiking which historically been beneficial for both bond and equity investors.
I frequently remind clients - "we don't have a crystal ball, there is no memo or insider letter service that will accurately predict where markets are going" - but I strongly believe discipline and patience will continue to work over the long term.
As always – thank you for reading and please do not hesitate to reach out with questions and thoughts.
Cheers to all!
Doug
| 
