portfolio performance

Portfolio Hiccups

© Can Stock Photo / NicoletaIonescu

We have all had the experience of getting interrupted by a hiccup. Do they serve any useful purpose? A momentary dislocation, each spasm passes quickly.

Over the course of our lives as investors, we similarly experience a spasm through our portfolios from time to time. We feel this way about the year so far. Unlike hiccups, which sometimes feel like they come out of nowhere, in this case we can clearly spot some of the causes:

• Your portfolios are generally overweight in select natural resource holdings, a sector that may do better or worse than the major market averages in the short run. So far this year? They haven’t been great.

• We began adding overseas equity exposure a while back, as we saw better bargains emerging after a decade of underperformance. These bargains have become even better bargains, which is another way of saying they haven’t been great either.

• In recent years, cyclical holdings have found a home in our shop. Many of these have been affected by trade war talk and tariffs.

At the start of the year, we were focused on the years and decades ahead, as always. We prefer up years to down years, of course. But the best time frame for effective investing is one measured over many years. That is why we see this year so far as a hiccup—in the grand scheme of things, a momentary dislocation that will pass.

Paradoxically, those things that hold us back in the short run are often the things that provide above-average results in following periods. It has happened before; it will happen again. We counsel patience with our current holdings.

Clients, if you would like to talk about this or anything else, please email us, or call.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.

The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

Because of their narrow focus, sector investing will be subject to greater volatility than investing more broadly across many sectors and companies.

International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets.


Did Your Bucket Grow? The Measurement that Counts

© Can Stock Photo / justinkendra

We have an issue with investment theories that look great on paper but may not help people build wealth. The vagaries of human nature mean that investments which are appealing and popular and those which make money tend to be two different things.

In our opinion, Modern Portfolio Theory or MPT is in the category of ‘looks great on paper.’ MPT attempts to mitigate risk by diversifying a portfolio across different asset classes with different risk profiles. But it can not predict the future–this risk analysis is based on historical performance trends. Backwards looking, it tends to work until it doesn’t. It does, however, generate nice pie charts and beautiful rationalizations.

The apparent precision of MPT, based on measuring things that have little bearing or relevance to long term investors, may be a key factor in its appeal. We concluded that a lot of effort goes into measuring things that can be measured, whether or not the exercise is useful.

Recently we measured something in your accounts. We think it is telling evidence of our work together, your effective investing behavior and our research and portfolio management.

You can see in LPL AccountView or in reports we can run for you where your account balance stands relative to your cumulative net investment over time. In other words, your deposits and withdrawals since the beginning add and subtract to determine your net investment. By looking at your balance, we can tell the cumulative net gain or loss you have made over the years.

Many advisors could tell you the expected standard deviation of your portfolio, or the proportions of each asset class you should own, down to the hundredths of one percent, based on past performance. Some offer reports that compare monthly, quarterly, and annual account performance against a series of benchmarks.

If we had to guess we would say our simple measurement is the one you care about—did your bucket grow? And by how much? Clients, if you would like to tell us differently, or have a longer discussion on this or any other topic, please email us or call.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.

Investing involves risk, including possible loss of principal.

There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.