Courtesy of Kiechel Fine Art and Chazen Museum of Art*
Dear Friends and Clients,
As we pivot from summer to fall, many eyes turn to the gridiron. As the heat subsides, energy levels and animal spirits return. Great expectations abound. Cousin Curt and good buddy Jim no doubt relish the thought of watching their Packers play seventeen games into late December, and hopefully beyond. Phyllis, looking down from heaven, will be excited to see Jason Witten back with her Cowboys. And I am sure that my good friend Larry looks forward to seeing his Longhorns thrash traditional rivals Oklahoma and Texas A&M. While the excitement level is high at the start of the season, as we progress towards December, the enthusiasm wanes for fans whose teams fail to meet their expectations.
In similar fashion, the stock market is also about hopes and expectations. Animal spirits are always battling it out with numbers. The home team, with its emotions and psychological biases, lines up against the visiting team of mathematics and statistics. Field position ebbs and flows, winners and losers are decided, and the process repeats itself.
Just like football fans, investors of all stripes have recently had high expectations. The recent Schroders Global Investor Study for 2019 stated that 47% of investors expect to receive annual returns of over 10% during the next five years. And according to a recent survey of 180 public pension plans by Boston College’s Center for Retirement Research, plan administrators expect returns of 7.4% annually going forward. These two groups justify their ‘great expectations’ in part by looking at historical performance numbers. I believe these folks have decided to ignore RULE #1 in investing … “past performance is no guarantee of future results”. As Rob Arnott of Research Affiliates so eloquently puts it, “Human nature conditions us to want more of whatever has given us pleasure, joy and profit. We want less of what gives us pain and loss. This is why we buy yesterday’s winners and chase performance.”
Mathematically, stock returns are driven by various factors, among which are declining interest rates, increasing earnings, increasing profit margins, increasing dividends, and increasing price multiples. To my mind, these factors appear to be stretched, with headwinds forecasted. While anything is possible, that doesn’t mean it’s probable. If I were betting on stocks racking up a lot of points, I would take the under at this time.
Happy September. I see the Christmas trees are now available at Calloway’s!
If you enjoy my monthly missives, please share them with a friend. If you don’t, please tell me. My office hours are typically 7:30 AM - 4:00 PM. Pick up the phone and let me know what’s on your mind. In the meantime, I greatly appreciate your trust and friendship, and thank you for the opportunity to be of service.
*John Steuart Curry / An All-American (Forward Pass), 1941 Mixed media on canvas
Chazen Museum of Art, University of Wisconsin – Madison, 2013.8
*https://kiechelart.com/
Any opinions are those of James Aldendifer and not necessarily those of RJFS or Raymond James. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. Investing involves risk and you may incur a profit or loss regardless of strategy selected. The above situation is a hypothetical example for illustration purpose only and does not represent an actual investment.
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