Dear Clients and Friends of Insight,
Once again, we are celebrating our country’s Independence Day and, once again, most of us are
stunned when we realize that the year is already more than half over! The days are zipping along
more quickly than ever, and for those of us who regularly follow economic, political and business
commentaries, it seems we are being told that crucial events are unfolding even more rapidly than
that.
This environment presents investors with quite a challenge. Stock prices, which reflect investor
expectations, have reacted quite dramatically as a result, often moving so quickly that they have our
heads spinning.
Here is the brief synopsis of what has happened with investor sentiment in just a few short months
this year:
- Stocks have advanced to new highs due to the continued enthusiasm for the benefits of productivity-enhancing investments and a relief that the economy is returning to normal.
- Then, in dramatic fashion, the “tariff tantrum” sparked fears of imminent inflation and recession, so stocks promptly reversed course and declined sharply.
- Just as suddenly, investors calmed their fears and regained their optimism, propelling stocks upward to once again set new highs.
Here is the brief numerical translation of what these wild swings in sentiment meant for stock prices,
as represented by the S&P 500 Index:
- On February 19th, the Index reached a new high, after advancing 72% from its prior low reached 852 days earlier, on October 22, 2022. This as a well-earned reward for patient investors.
- Then, in dramatic fashion, stock prices declined sharply (nearly daily) resulting in the Index falling 20% to its intra-day low reached on April 8th. incredibly, this occurred in only 48 days – a record! On average, a 20% or greater decline in the S&P 500 has lasted for a grueling 335 days.
- Just as suddenly, stock prices began marching upward and incredibly, the Index reached a new high on June 27th, a mere 80 days later! This is stunning compared to the several years it usually takes for the S&P 500 to re-establish a new high after a 20% or greater decline.
When investor opinions, and hence stock prices are changing dramatically and rapidly, as they are lately, I find it is more important than ever to SLOW DOWN and collect my thoughts. Thinking clearly and independently from the daily commotion of the market’s trading behavior is critical to
investment success. In search of guidance, I will often review my library of timeless investment literature and material to remind myself of the important fundamental investing principles I’ve learned and practied over my 40-plus years of investing.
Upon my recent review, I rediscovered “The Golden Rules of Equity Investing” published by Aberdeen Asset Management, a long-standing Scottish investment firm I hold in high regard. I believe this advice, which was published many years ago, to be particularly timely for today’s investment challenges. Here are some of their “insightful investment gems”:
- Balance sheet strength is critical: It tells investors about the character of a company and how it invests its assets.
- Understand what you are buying: Walk away if there is something about a business that doesn’t make sense.
- Be wary of over-ambition: It is often tempting for companies to invest in areas outside their core expertise.
- Think long term: Avoid getting caught up in the daily noise of markets. Instead, you should worry about permanent loss of capital.
- Benchmarks are just measuring devices: The worst reason to buy something is because somebody else did.
- Take advantage of irrational behavior: Occasionally something happens and investors panic or they get overexcited with irrational exuberance.
- Do your own research: Come to your own conclusions and be accountable for your decisions.
Many of today’s market participants are trying to keep pace with this fast-moving target. By necessity they have become more similar to short-term traders than long-term investors. To the contrary, Insight’s underlying investment goal for our client’s portfolios is not centered on speed but rather on preserving their invested capital coupled with steady growth. As such, we will continue to exercise our disciplined investment process which has delivered outstanding success for our clients in the past.
Thank you for your continued confidence. We wish all of you a Happy and Healthy 4th!
