The Next Ten Years Are Likely To Be Different

Wow! Patience and diversification may win in the long run, but for the last few years, it’s cost a lot of investment managers their jobs. What has worked has been to be ‘all in’ the good ole U.S.A! Just take a look at the 10-year performance numbers shown and you will see that cash, foreign stocks and commodities have been huge underperformers. For those of you that are clients, you know this all too well; you have owned some of all three! Being early can be very frustrating, but we know the United States markets are richly priced and better results are likely to come from other geographies, asset classes or just lower prices.

As you can see from the consumer confidence numbers released last week, by the time investors are comfortable stock prices are usually much higher. Last week’s number was the highest we’ve seen since April 2007 – seven months prior to the last market peak.

You might have also seen in the news last week that the $ U.S. dollar is approaching a 20-year high against a basket of foreign currencies.

As a rule, when the dollar goes up commodities, foreign currencies and earnings abroad tend to go down. For investors, the logical thing to do then would be to take advantage of our near record high $U.S dollar to purchase much cheaper international currencies, commodities and foreign or multinational stocks (similar to what you would do if contemplating a trip overseas).  In reality, for some reason investors like to do the opposite – buy what’s getting more expensive – the S&P 500!  The reason I am highlighting this is things tend to go in cycles and after 10 years of the S&P 500 outperforming the probability of things changing is pretty good.

It is normal to look in the rearview mirror at past performance when investing, it’s just that I would prefer to start my research near the bottom of the list rather than the top. Sitting on cash or buying what’s out of favor is boring, but history has shown good things tend to come to those who wait.

Ten-year annualized performance thru October 31st 2016
Long US Gov’t Bonds +7.42%
S&P 500 +6.70
Emerging Foreign Stocks +3.49%
Developed Foreign Stocks +1.22%
Cash + 0.80%
Commodities – 5.81%
The information contained herein does not suggest or imply and should not be construed, in any manner, a guarantee of future performance and/or investment advice. Past performance does not guarantee future results. Therefore, no current or prospective client should assume that the future performance of any specific investment, investment strategy (including the investments and/or investment strategies recommended and/or purchased by Burgess Investments), or product made reference to directly or indirectly on this newsletter or company website, or indirectly via link to any unaffiliated third-party website, will be profitable or equal to corresponding indicated performance levels. Returns are historical and based on data believed to be accurate and reliable. We believe the above information is reliable and true but cannot guarantee its accuracy.
David Burgess