Each January, a well-known financial publication invites a group of experienced investment professionals to New York for a lengthy roundtable discussion of the investment outlook for the year ahead. The nine panelists have spent their careers studying companies and poring over economic statistics to find the most rewarding investment opportunities around the globe. This article was composed in January 2018 but the concepts within still hold true today.
Whether you're feeling elated, deflated or mostly just jaded about what just happened in the U.S. elections, we wanted to reach out to you with a few thoughts related to the "What's next?" that may be on your mind. It's possible that even President-elect Trump himself didn't see this one coming.
With respect to your investments, here's a quick reminder of how we feel about that: Ample evidence informs us that it is unwise to alter your long-term investment strategy in reaction to breaking news, no matter how exciting or grim that news may seem, or how the markets are immediately responding.
The New Year is a customary time to speculate. In a digital age, when past forecasts are available online, market and media professionals find it harder to hide their blushes when their financial predictions go awry. But there are ways around that.
It may seem like a question from left field, but if you were to sit down and really think a bout the types of decisions you make every day about your money, would they
be logically based and unaffected by emotions?
ADMITTING IS THE FIRST STEP
At first you may think to yourself, "No, I am definitely objective about my financial planning. Really, I am." But scientific study reveals an opposing camp of theorists
whose entire careers focus on the study of how and more importantly, why investors behave illogically with regard to their financial future. The study of Behavioral Finance was brought to the forefront by 2002 Nobel Prize winning psychology professor Daniel Kahneman's observations exploring the emotional biases that govern our financial decision making. The research "reveals repeated patterns of irrationality, inconsistency, and incompetence in the ways human beings arrive at decisions and choices when faced with uncertainty," says Peter Bernstein in his book Against the Gods. If you agree that sometimes you make financial decisions that are not in your best interest, what can you do as a serious investor? "Seek the advice of an unbiased advisor," says Sam Hull, CFP, former principal at Northstar Financial Planning, Inc. "The only way to be sure that you're making sound decisions is to work in concert with a n unbiased third party who ca n point out when your choices a re m ore emotionally based than you may want to believe."
Value stocks under-performed growth stocks by a material margin in the US last year. However,the magnitude and duration of the recent negative value premium are not unprecedented. This column reviews a previous period when challenging performance caused many to question the benefits of value investing. The subsequent results serve as a reminder about the importance of discipline.
Back in the days of John D. Rockefeller and his Standard Oil trust, the cutting edge of trade with China was petroleum products. Stanvac –the precursor of Mobil - was producing oil and refining products in Java and Sumatra, the heart of what is now Indonesia. Since most Chinese couldn’t read, the famous “Flying Red Horse” (Pegasus) image was affixed to both the lamps and Stanvac products so they could be easily identified as belonging together. In a brilliant marketing move, millions of kerosene lamps were given away free in the hinterlands of China and East Asia and John D made his money made selling the fuel. Pegasus still flies today for ExxonMobil, forever proving the marketing power of an easily recognizable symbol.