“Stocks are far more volatile than companies. And investor emotions are the most volatile of all.”
So says our friend, Nick Murray, in a recent post available to our clients.
Periscope Weekly Investment Newsletter.
Here is my prediction for the second half of 2019: the next six months are going to be full of changes, and the pace of these changes will accelerate. I don’t think anyone could predict how quickly equity markets would rebound after the drubbing they took at the end of 2018. We are either at, or near, new all-time highs. And we could—according to some of our researchers—be heading toward temporary lows soon. I believe this is one of our great opportunities, and we must face the changes ahead with optimism.
Three fundamental facts may benefit today’s long-term investor: interest rates, price volatility and technological advancement.
First, interest rates are low—very low—and the futures markets are telling us that rates could be heading lower. When your investment decision is between making nothing, next-to-nothing, or guaranteed losing a little, you’re not going to be very happy. This is the situation fixed income investors find themselves in today.
Equity investors, on the other hand, find low rates beneficial. The companies in which we invest may be able to finance their growth objectives cheaper than ever before. They may be able to take on more ambitious business plans. A long-term investor must tune-out, and perhaps completely avoid, the interest-rate prediction cacophony by focusing on the fundamentals: bond/CD/fixed income returns are poor, so I may need to put my money elsewhere (equities).
The second fact of today’s situation is that inflation remains persistently low. Quality of life continues to improve at an impressive pace, and prices go both up and down. Volatility is more common than price increase. For example, gasoline prices at the pump are affected by countless phenomena and not all of them push upwards—many downwards—and long-term, the technological shift away from fossil fuels is a deflator. Politics are often inflationary—and short-lived—and unpredictable.
Change is everywhere, affecting everyone. And much of this change is affected by the third, absolutely immutable force: technological advancement. Technology (Moore’s Law) lowers costs and improves quality, quickly. The more we depend upon technology, the more quickly we improve our opportunity to improve even more.
In my own home, and possibly yours, the “cable TV” which made so many Denverites so wealthy now seems as outdated as the “rabbit ears” on top of our vacuum tube televisions in the 1980’s and 90’s. Soon, we’ll have subscriptions to only the shows we want—not even the “channels”—entertainment, “content is king,” drives the technology, which drives down the prices, which is all expedited by low interest rates. This positive cycle will not end any time soon.
In the second half of 2019, we’ll continue our efforts to know the companies in which all of us are invested, and give you all the time you need to make sure we know who you are, where you’re going, and what you need to get there. These things, well within our control, have a much greater impact on our financial futures than any news item, or individual equity’s emotion-laden price, ever will.
For these reasons, and a handful of others (including you), I am exceptionally optimistic. I hope you are as well!