market view May 2014
Investing Is NOT Rocket Science! By Jude V. Gleason, CFP®, AIF®, MBA - Chief Investment Officer Another quarter has come and gone with investors still sitting on the edge of their seats waiting for the big bond market crash that seems so inevitable, yet never really seems to gather enough steam to become the huge threat it has been made out to be. In our quarterly Market View we have continued to adhere to fundamentals and basic investing principles to guide our readers through the tough times. In this edition we will revisit the major indexes returns and listen to words of wisdom from the Wizard of Wall Street, Warren Buffett, who applies the same common sense principles to investing that we at REDW Stanley try to follow. MARKET INDEXES POSTED VERY GOOD RETURNS The markets got off to a slow start at the beginning of the year and we saw most of the major equity indexes trend lower. Some equity indexes were down as much as 8% or more at one point during the quarter, but most rebounded by the end of March. The S&P 500 ended the quarter up 1.30%, followed by the NASDAQ Composite, which was up 0.54% for the quarter, while the Dow Jones finished down 0.72% for the first quarter.
Many Wall Street pundits are calling for increased volatility and a market correction here in the U.S. sometime in the first half of the year. Most investment experts consider a market pullback of 10% or more to be a correction. On the bond front, the yield on the 10-year treasury came down from 3.04% at the beginning of the year to 2.73% at the end of March. Most investors and investment professionals thought the 10-year Treasury yield would continue rising, but that was not the case. Also, much to everyone’s surprise, the Barclays U.S. Aggregate Bond Index was up 1.84% for the first quarter. These bond yields and returns support REDW Stanley’s position, that while we are in the midst of a bond bear market, we do not believe we will see severe declines in bond prices and severe increases in bond yields. We believe adjustments and reversion to mean bond returns and yields will be gradual and without extreme repercussions.
Below is an anecdote borrowed from Dimensional Funds
“Owners of stocks . . . too often let the capricious and irrational
Advisors where Warren Buffett advises the average investor
behavior of their fellow owners cause them to behave irrationally,”
on successful investing. As complicated as investing seems
Buffett wrote. “Because there is so much chatter about markets,
sometimes, it is also very basic.
the economy, interest rates, price behavior of stocks, etc., some investors believe it is important to listen to pundits—and, worse
When the media raises the subject of beating the market through astute stock picking, the name Warren Buffett is usually cited. But what does this legendary investor actually say about the smart way to invest?
yet, important to consider acting upon their comments.” The Buffett prescription isn’t rocket science, as one might expect from an unassuming, plainspoken octogenarian from Nebraska. He rightly points out that an advanced intellect and success in
Buffett is considered to have such a track record of picking stock
long-term investment don’t necessarily go together.
winners and avoiding losers that his annual letter to shareholders
“You don’t need to be a rocket scientist,” he has said. “Investing
in his Berkshire Hathaway conglomerate is treated as a major event by the financial media.1
is not a game where the guy with the 160 IQ beats the guy with the 130 IQ.”3
What does he think about the Federal Reserve taper? What could
be the implications for emerging markets of a Russian military
Adapted from “Not Rocket Science” by Jim Parker, March 14,
advance into Ukraine? What does an economic slowdown in China mean for developed markets? Buffett has a neat way of parrying these questions from journalists and analysts. Instead of offering instant opinions about the crisis of the day, he recounts in his most recent annual letter a folksy story about a farm he has owned for nearly 30 years.2 Has he lain awake at night worrying about fluctuations in the farm’s market price? No, says Buffett, he has focused on its longterm value. And he counsels investors to take the same sanguine, relaxed approach to liquid investments such as stocks as they do to the value of their family home.
from his Outside the Flags column on Dimensional Fund Advisors’ website. Dimensional Fund Advisors LP is an investment advisor registered with the Securities and Exchange Commission. Diversification neither assures a profit nor guarantees against loss in a declining market. Investing involves risks including potential loss of principal and fluctuating value. All expressions of opinion are subject to change without notice in reaction to shifting market conditions. This content is provided for informational purposes and is not to be construed as an offer, solicitation, recommendation or endorsement of any particular security, products or services.
“Those people who can sit quietly for decades when they own a farm or apartment house too often become frenetic when they are exposed to a stream of stock quotations,” Buffett wrote. “For these investors, liquidity is transformed from the unqualified benefit it should be to a curse.” While many individuals seek to ape Buffett in analyzing individual companies in minute detail in the hope of finding a bargain, he advocates that the right approach for most people is to let the market do all the work and worrying for them. “The goal of the non-professional should not be to pick winners,” Buffett wrote. “The ‘know-nothing’ investor who both diversifies and keeps his costs minimal is virtually certain to get satisfactory results.” As to all the predictions out there about interest rates, emerging markets, or geopolitics, there will always be a range of opinions, he says. But we are under no obligation to listen to the media commentators, however distracting they may be.
1. Tracer, Zachary and Buhayar, Noah. February 25, 2014. “Buffett Warns of Liquidity Curse, Celebrates Property Bet.” Bloomberg. Available at http://www. bloomberg.com/news/2014-02-24/buffett-warns-of-liquidity-curse-celebratesproperty-bet.html. 2. Berkshire Hathaway, Inc. Letter to Shareholders. 2013. Available at http:// www.berkshirehathaway.com/letters/2013ltr.pdf, p. 17. 3. Loomis, Carol J. November 19, 2012. “The wit and wisdom of Warren Buffett.” Fortune. Available at http://management.fortune.cnn.com/2012/11/19/ warren-buffett-wit-wisdom/.
REDW Stanley is a highly respected investment advisory firm with a primary focus on serving clients in the Southwest. As fee-only advisors, we do not receive commissions or sell investment products, so you can be confident that our recommendations and advice are based solely on your needs and with only your success in mind. In Arizona, the firm operates under REDW Stanley Wealth Advisors, LLC, an SEC registered affiliate of REDW LLC. In New Mexico, it operates under REDW Stanley Financial Advisors, an SEC registered firm subsidiary of REDW LLC. Copyright 2013 REDW Stanley Financial Advisors, LLC. All Rights Reserved. This publication is intended for general informational purposes only. The information provided herein is for informational purposes only and should not be construed as investment, financial, tax, or legal advice.
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