The first three months of the year have proven to be very agreeable for investors, perpetuating the antithesis of Murphy’s law. If you recall, Murphy’s law states that “anything that can go wrong, will go wrong”. The adage has always struck me as a sort of seasoned pessimist’s guideline for properly setting expectations. Don’t get your hopes up and you’ll find that disappointment comes infrequently. The present state of the markets has us considering what happens to markets when everyone seems to be assuming that Murphy’s law will be enacted by executive order at any moment.
Gender equality in the workforce is not a new topic, but one that requires persistent discussion and influence in an effort to close the gap that stubbornly remains. Much of the focus is on compensation differences as well as the lack of equal opportunity in leadership positions. The social aspect can overtake the resulting dilemma that women face in retirement. In a report published last year1, TIAA outlined the many challenges women face in retirement as a result of earning less, working less, taking less investment risk, and living longer.
Everybody loves an underdog, right? In August, 2015, before the season began, the Leicester City Football Club in England faced seemingly insurmountable odds to win the Premier League title. Odds-makers chanced the club’s prospects for the title at an astonishing 5,000-to-1. To give you an idea of how ridiculously absurd those odds are here are some other odds that lend perspective. The U.S. Men’s Hockey Team was given 1,000-to-1 odds of winning the gold medal in the 1980 Olympics. The Minnesota Twins faced 500-to-1 odds of winning the World Series in 1987. The Cleveland Browns were given 200-to-1 odds of winning the Super Bowl this season (they finished the season with one win)1.
With considerably less animosity or entertainment value, there is another major debate raging at the moment that doesn’t involve our choices for the next U.S. president. It is one that is perennial, has been analyzed exhaustively by scholars and has staunch advocates at opposite sides of the debate. The conflicting wisdom of Warren Buffett illustrates why investors can’t seem to make a clear determination on whether passive or active investing is the superior methodology.
Only one thing is certain as we approach the U.S. presidential election in early November, the Twins won’t be world champions this season. Well, maybe there’s one more thing, in January the Obamas will need to turn in their keys to the White House. Occasionally we get asked about how the presidential cycle affects the stock market or whether there’s a trend to market performance around an election. Along with many other theories and spurious happenstances, an unhealthy amount of time and resources has gone into such analysis in that eternal quest to take advantage of the stock market and strike it rich. Some of my personal favorites are that an AFC team winning the Super Bowl predicts bad stock market returns, an American-born model gracing the cover of the Sports Illustrated swimsuit issue predicts big market gains and rainfall totals in New York City are positively correlated to the stock market.
I’ve always had a fascination with the night sky, watching the stars and learning to identify planets and constellations. I remember “camping” in a friend’s backyard when I was young and watching the northern lights, back when they were still visible from Minnetonka. Last fall, I got a rare treat on my way in to the office as I caught a glimpse of a spectacular green meteor streaking through the early dawn sky. It’s difficult to not be in awe of the rarity of what we have on Earth when gazing into the infinite darkness of the night sky. Still yet, to realize that the earliest civilizations of humans have been staring up at the same scattering of brightly twinkling stars for over 5,000 years allows us to briefly relate to our ancient ancestors.
On June 23rd, Britons go to the polls on the issue of whether to remain in the European Union (EU) or dissolve the relationship over the ensuing two years. A vote to remain in the EU may well leave little changed and a return to the current status quo. A vote to leave opens a flood of unknowns that is likely to lead to greater uncertainty and higher volatility in the capital markets. The EU was established to create a more powerful, united region for economic and security reasons. It's difficult to believe that the separation of one of the largest members makes either the UK or the EU stronger. Some signs that the capital markets would be unhappy with a "Brexit" are already emerging. The value of the British pound has dropped versus the U.S. dollar since the referendum was announced in February. Pronouncements by the International Monetary Fund ("IMF"), Organization for Economic Cooperation ("OECD") and the British Treasury cast a shadow of economic despair that would follow a vote to leave the EU. Still, current polls remain too close to call with just a couple weeks before the vote.
I was recently invited to speak to a class of students at Mound-Westonka High School about the stock market. Nothing spells excitement to high school students like a guest speaker about the stock market! These kids were different though, in that they were very good at hiding their boredom as I spoke--only kidding, of course, they were very attentive and asked excellent questions. After all, they were in the middle of playing The Stock Market GameTM (“SMG”)1 and competing against dozens of other teams around the state to invest a virtual $100,000 for about three months. In all honesty, I have mixed feelings about the SMG since it does a wonderful job of introducing young people to investing and provides the opportunity for teachers to instill important lessons about being responsible and prudent with your finances. At the same time though, over such a short period it’s difficult for students to see the value of truly investing rather than just trading or speculating. Graph 1 illustrates how the value of the S&P 500 Index changed during the first quarter.
In keeping a review of 2015 brief, I’m attempting to live by the wise words of Bambi’s bushy-tailed friend Thumper, “if you can’t say somethin’ nice, don’t say nothin’ at all”. While Birchwood enjoyed celebrating its 25th year in business, last year will go down as a disappointing one for investors. With stock and bond indexes ending the year roughly where they started, growth of invested capital was a struggle. Marked by a tepid first half of the year, markets sold off sharply during the third quarter only to recover much of the lost ground over the final two months of the year. Perhaps most memorable about 2015 from an investment standpoint was the wide anticipation that the Federal Reserve would raise the Fed Funds interest rate for the first time in nearly ten years. Since announcing the increase in the short-term interest rate, the S&P 500 Index of U.S. stock prices has lost over 12 percent of its value1 and long-term U.S. interest rates have actually fallen2.