Market prognosticators were all too happy to tell us what their models foretold would happen to the markets after Election Day. They were wrong! Analysts can count the number of seeds in an apple but they cannot count the number of apples in a seed. American entrepreneurial spirit bounced back unbridled and resilient, once it recovered from its election hangover. If you recall, three months ago I wrote “…regardless of who is elected, our objective will be to make the necessary adjustments to your portfolio and seek success.” This is exactly where we are today.
Where are we now?
When I review 2016, I note that many previously super-performing pharmaceutical companies and other of our core holdings, such as Nike and Under Armour, did NOT participate in the 2016 headline market fiesta. Actually, they declined more than 20% in 2016. We have a long-term average holding period and perspective of 10 years or more on our core holdings, and some companies we own, like Berkshire Hathaway, are close-to-forever not for sale. I see a great opportunity for the American economy when the agenda of lower regulatory regime and economic policies that support more job creation is implemented.
Where do we go from here?
Three months ago, I wrote that pharmaceuticals, banks, and energy infrastructure companies were not participating in the 2016 upswing. Well, for the last 2 months of 2016, banks were on a tear—but pharmaceuticals and energy infrastructure companies are still feeling the year’s malaise. I think banks and material companies will lead growth in 2017 because of higher interest rates and the infrastructure rebuild of America. Pharmaceuticals and biotech should finally join the party later in 2017 or 2018. Of course, I would be very glad to be wrong and have the healthcare sector also start 2017 strong.
On fixed income and alternatives:
Three months ago, I wrote that I expected the Federal Reserve to raise rates in December. Well, they did—and the whole world yawned. The Feds also indicated that they may raise rates three more times in 2017. If that comes to pass, my friends, that is a good thing—it simply means the economy is going strong. Going forward, I think the main economic drivers will be policies such as repatriation of profits and reigniting domestic manufacturing. The Federal Reserve Bank will take a backseat unless there is a large terrorism event or global economic crisis.
We sold off half of the gold position that I had reluctantly bought in the summer of 2016 after many years of zero exposure. As you know, I, your humble financial advisor, do not like gold; but I will occasionally buy some because conventional investment theory says it makes sense. Gold still does nothing and makes very little sense to me. Gold as an investment reminds of what the eminent philosopher Forrest Gump once said “Stupid is as stupid does.”
What should we look out for?
Very simple: Is the pro-growth agenda of less regulation, more domestic manufacturing, and reinvestment in America going to be implemented, and, if so, how quickly? If these things are implemented, American businesses and entrepreneurs will take care of the rest. More important, everyone will benefit.
To me, investing is not a stock market headline numbers game; these numbers cannot capture the future potential of companies or industries. My primary function and solemn duty is to find and invest in great companies that will excel over 3, 5, and 10 years so that my clients can achieve their long-term objectives. No historical data can predict the number of new drugs or technological breakthroughs or new shoe designs by Nike or Under Armour that might capture the hearts and minds of teenagers all over the world.
Femi T. Shote, MSF, ChFC, CFP®
Accredited Investment Fiduciary®