Quarterly Commentary

Market Update

May 10, 2017

During the first few months of this year, there were a lot of cross currents and shifting themes following the strong stock market finish to 2016 after the Presidential election. Fortunately, the stock market averages have continued to move up, but I do not think there is any investor out there that does not wonder and worry about the prospects of a shock from a random event or when a general stock market correction will occur.

We have always advised that each individual’s asset allocation (exposure to stocks, bonds, etc.) should be determined individually and that timing the stock market is impossible.  Hopefully, you have learned and understand that, but there is always general angst after a long stock market run-up such as we are experiencing now. Overall, the first quarter earnings reports were good and company guidance for 2017 encouraging. In my view, what is critical now is clarity and legislation on tax reform.

The daily press is full of controversy lately on the pros and cons of simply index investing. Putting your money in the S&P500 Index, for example, and forgetting it. I obviously have my own views on that, which will be explored separately. But I want to share with you a recent opportunity that I had to hear John C. Bogle, the 88 year-old father of the concept of index investing through mutual funds.  Jack, as he is called, was the founder of Vanguard Funds in 1975. At that time in history, his idea was highly controversial (heresy, really, in the investment industry) and ironically inspired by a disastrous bear market and his own professional investment debacle that forced him to try something new. Obviously many investors have tried his “something new” for decades. “Index Investing” has mushroomed.

I have long admired and occasionally crossed paths with this gentlemanly luminary. He has always held two strong tenants as an investment professional which I strongly agree with.  First, that every investment firm must place their clients’ interests first and that fees (or the total cost of an investment strategy) are important to long-term returns. Jack Bogle is a highly principled man and one that changed the investment industry. He is quite proud of that, as he should be. When he talks, I listen.

What was most interesting in his talk was his own conviction that active stock advising and management is here to stay, alongside index investing, acknowledging that each individual investor’s risk tolerance and goals should be considered first. Also, that there was too much “Presentism” in the media and press right now as it applies to index investing.  “Presentism” is a term for “group think” where investors assume what is working now will always work. By the way, there is not a definition in the dictionary. “Presentism” has often been a thwart to many investors from reaching their goals. The success of index investing long-term has been cyclical relative to active management. “Presentism” examples in recent years have been hedge funds and even MLPs (Master Limited Partnerships) where individual and institutional investors rushed to overweight various asset types at the least opportune time. In fact, in 2016 there was an all-time high in hedge fund closures due to withdrawals after poor performance and high fees.  This occurred after a period of years when many individuals and institutions far overweighted hedge funds beyond what was appropriate and suffered subpar returns.

My message is: Don’t get caught up in “Presentism.” Today’s investment trends will not necessarily be tomorrow’s. Mr. Bogle is a wise man.  

I encourage you to watch our first quarter webcast, with presentations from me, Dr. Jim Kee, President and Chief Economist; and Christian Ledoux, CFA®, EVP, Director of Equity Research and Senior Portfolio Manager. Click here to view the webcast.

Finally, we’re pleased to share with you our quarterly nonprofit spotlight featuring our client, YMCA of Greater San Antonio.

Thank you for being our client. 

Sincerely,

Jeanie Wyatt, CFA®
Chief Executive Officer & Chief Investment Officer

 

 

Disclosures

This letter is not intended to constitute investment advice. Market and economic views are subject to change without notice and may be untimely when presented here. You are advised not to infer or assume that any securities, sectors, or markets described in this letter were or will be profitable. Securities identified in this letter do not represent all of the securities purchased, sold, or recommended for advisory clients, and you should not assume that the recommendations made in the future will be profitable or will equal the performance of the securities identified above. A complete list of all equity recommendations made by STMM during the past year is available upon request. Past performance is not indicative of future results. There is a risk of loss.

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