Jonathan M Satovsky discusses return attribution in the domestic financial markets, explains the middle way for investors, and adds context to recent emerging market performance.
Good afternoon. This is Jonathan Satovsky of Satovsky Asset Management. The end of August 2018 with a video blog update.
And with labor day weekend coming about, the college football season is going to start with my Michigan Wolverines playing against the Notre Dame Fighting Irish at 7:30 Saturday night so I have the letter M on my mind.
And the M could represent markets, momentum, money flows, the middle way mindset.
So I’ll start there with the middle way mindset and we’ll bring it around to the other topics.
Because the goal of financial planning and investment management, the intersection of the two, is helping understand someone’s situation well enough to be able to design a path that they can achieve their goals over a lifetime.
And even multi-generational lifetimes for their children, and their grandchildren for a sustainable situation.
And if you’ve done a very good job at that, there’s a concept called Wei-Wu-Wei.
Conscious non-action, the deliberate and principled decision to do nothing for a reason.
So that’s a hard thing to do because the headlines are pulling in a lot of directions and as markets are leading to new highs.
People may be altering their paths.
What’s fascinating is that markets have hit new highs in the United States.
Money flows have been going towards stable investments and bonds which aren’t going to compound over a longer period of time at the growth rates that likely will exceed someone’s spending plus inflation and taxes over time.
But people prefer more stability at the moment.
And just going back to the history lesson, if you have a structure and you own businesses and own assets, there’s tremendous momentum that over time you should be rewarded quite well in diversified way whether it’s this is a chart of US small and large companies.
So some mind blowing statistics about the US just for a moment.
71% of the gains through July came from 3 companies: Amazon, Netflix and Microsoft.
If you add 3 more companies: Apple, Google and Facebook, you’ve got 98% of the gains reflected in the S&P 500 through mid July.
Mind blowing statistics and it’s important because leadership does change.
10 years ago, some of the greatest companies in the world were Exxon, IBM, Coca-cola, General Electric, you know some of these companies have fallen from favor.
So even though all of those companies today are dominating the world are so obvious because everyone’s using their cell phones and technology.
It’s not a predetermined fact that 10 years from now they’ll still continue to be the leaders.
So taking the middle way is not going to an extreme.
You know, in speaking to people about finances and about planning and investing in developing habits for the long term, clearly people need to save for their future.
And in saving, if you’re taking the middle way, you’re investing not all for one specific outcome.
But if people are worried about something going wrong, you plan to have enough liquidity and you have investments that are long term in nature.
Then you do not have to react, day to day, quarter to quarter, a month a month.
So that’s an important concept and to highlight the significance of that, the US markets have hit highs, the emerging markets are down 20% from January to August.
And have had a very difficult decade in the last decade.
But putting it in perspective even though year to date, the emerging markets are down over any period of time, 20 years, 30 years, 50 years, 100 years.
Emerging markets have exceeded the returns generated in the US.
So just giving a little perspective.
If you buy into or re-balance into dislocations in the world and are taking sort of a more middle path which you don’t have to do.
But if you do, is it risky or is it not risky?
If you look out 1, 3, 5 years, the odds are stacked in your favor that buying into dislocations generally works pretty well.
And in fact it was validating with Warren Buffet buying into an Indian company just last week.
So whenever you’re going back to school I’ll leave you with a final thought by the wonderful Dr. Seuss.
Be who you are and say what you feel because those who mind don’t matter and those who matter don’t mind.