Today and tomorrow, we will be presenting excerpts from the latest client letter by Hewins Financial President Roger Hewins.
Why owning businesses can pay off even in difficult and uncertain times
There are sound reasons for investing in equities even in troubled times. Though the economy may be poor and no relief in sight, in times like this the long-term investor may actually experience one of those sudden, infrequent bursts of large equity returns that make up the bulk of the long-term return on equities. Miss one of those and you will pay for the rest of your life, it’s that simple.
As always, we will not bury you with statistics and technical analysis; there is plenty of that elsewhere (and we will point you to some). Our goal here is to give you useful summary information, and some guidance/wisdom, the best we can find, in order to support your discipline and sound decision-making. We believe these are essential to your success – the rest matters far less.
Is it time to panic yet?
Or at least seek shelter until after the election and the Fiscal Cliff are resolved?
This is our last quarterly letter before the election, and as we come down to the wire in a very close race, with both the Presidency and the Senate very much in play, we can’t help but wonder if disaster looms. The much heralded “Fiscal Cliff” awaits, with massive tax increases and meat axe cuts to government spending in many areas. It will hit January 1 if no action is taken, and there is widespread consensus that it would push our weak economy back into recession.
Even the election is not simple in terms of outcome and results. The President could be reelected with both houses of Congress in Republican hands. Faced with four more years together, will they succeed in crafting a compromise this time? Unclear. Even a Republican house alone can stop the administration from forcing anything through; compromise will be required.
Likewise, even if we have Republicans in control of Congress and the White House, absent the kind of 60-seat Senate majority the Democrats had from 2008-10, compromise would be required to get results. Otherwise we could face more gridlock, the Fiscal Cliff, ballooning national debt, continuing and perhaps worsening unemployment.
So why not wait to invest? Because markets are way ahead of you, ahead of events. They anticipate. By the time we see good results developing the markets will have rallied already, and we will have missed it. We are more likely to finally get back into equities just in time for the correction. Whiplash!
Another Wall of Worry
Wes Wellington of DFA just wrote a short article with this worrisome title, Another Wall of Worry. He notes that over the last 12 months (through the end of the quarter), as we suffered through the steady drumbeat of bad news, the world equity markets rallied nicely, a phenomenon often called “climbing a wall of worry.” The S&P 500 (last decade’s stinker in terms of equity returns) was up over 30%. He then provides two full pages of doom and gloom released during this period by the usual suspects, from Bill Gross to Nouriel Roubini. Giving bad advice as usual. I was tempted to say “as always,” but even a stopped clock is right twice a day, a good thing to keep in mind.
Check back in tomorrow for part 2 of the latest President’s letter.