To: All FMI clients
From: Jack, Mike and Kayla
September News Letter
For those who attended our last “Lunch and Learn”, presented by Bryan McClune, on September 11th this may serve as a review; and for those who could not attend this will be a worthwhile primer for his topic of Alternative Investment Advice:
Because the stock and bond markets consist of more than 20,000 Companies striving to attract investors or lenders, based on the most recent financial results and news, these markets are by definition very efficient – the market price reflects the public’s current value of each Company. Because securities markets the world over are speaking to the same audience of investors, the value does reflect what those investors believe to be the correct market price – otherwise if investors believe the price is too high the market would react by lowering the price as owners rush to sell; conversely, if investors believe the price is too low the market will react by raising the price as more investors execute buy orders.
Because of the 2008 stock market correction many investors liquidated equity holdings and went into cash or bonds; and some may still be holding low-interest rate bonds waiting for the next correction to provide market price discounts. Instead of retreating, the equity markets have appreciated from (as measured by the Dow Jones Industrial Average) $6,500 in March 2009 to more than $17,000 by August 2014, up almost three times from that painful low. Bryan’s example of investors waiting for the market to correct and offer securities at a lower price may cause him/her to hold cash in a rising market and miss the appreciation opportunity, was a painful reminder for some of just how difficult it is to “time the market”.
Among the other takeaway topics from Bryan’s presentation, in addition to the picture of the monkey reading the Wall Street Journal, is the understanding that no one knows what is going to happen with stock prices. Projections of inflation, interest rates, employment, elections, and the weather are simply estimations or GUESSES – no one knows for sure what will occur. So, when the headlines or the magazine cover boldly spotlights the “BEST STOCKS TO OWN NOW” or “BEWARE of LOOMING INFLATION” – it is probably best to spend your reading time with a good book.
Therefore, to put it in technical terms – the best investment strategy is based on extensive academic homework to select the appropriate allocation of financial resources, among a diversified portfolio of equity and debt positions, considering the individual’s risk and time horizon. All of which is a complex way of saying – “That is just what we do at FMI – customize portfolios based upon our client goals and needs.”
We look forward to hearing from you if you have any questions or comments.
Jack, Mike and Kayla