Why I’m Always Rationally Optimistic

Happy New Year !  I am writing you to summarize the following:

1. An overview of 2015 Stock Market Performance (All Data from Morningstar)
2. January nose dive (or normal market volatility)
3. Why I’m always rationally optimistic (Stolen from the title of Matt Ridley’s Book– The Rational Optimist) – and why you should be too.

2015 Total US Stock Market – 1^st Qtr. 1.7% 2^nd Qtr. .08% 3^rd Qtr. -7.38% 4^th Qtr. 6.33% –  – 2015 full year .69%

2015 Returns  – S&P 500 – 1.38%   / Barclays US Aggregate Bond Index – .55% /  DFA US Core Equity II  – -3.07% / US Small Cap Value Stocks -8.65%  

2015 Returns  – MSCI Europe Asia Far East Index – -.81%  Emerging Markets -5.5%  

In hindsight, 2015 was the year to be long US Large Growth Stocks up 7.71% and avoid US Small Value down -8.65%.  Driving Large Growth returns were 4 Stocks – Facebook (+36%), Google (+49%), Amazon (+122%) & Netflix (+131%) which everyone has used or know someone who has in 2015. Even with a flat return for 2015 & massive decline in 2008, the 10-year annualized returns for the S&P 500 6.15% / DFA Small Cap Value 4.91% / DFA US Core Equity II  5.86% were still solid.

2016 is off to the worst start ever. S&P 500 is down -5.82%  YTD.  DFA Global Equity is down -6.5%  YTD. Since it’s the start of New Year, it makes things look even worse when actually it’s quite normal market volatility.

The S&P 500 Peak to Bottom average intra-year drop is a whopping 14.2% while still having positive returns in 27 of 36 years going back to 1980. (We have plenty of charts)

Of course, the news is no respite from a poor outlook. China’s economy is too weak when a few years ago its economy was too strong. Oil prices are now too low when a few years ago oil was too high. Now, the US dollar is too strong when a few years ago it was too weak.  Interest rates are too low and after a quarter-point increase everyone asking was it was a mistake to increase?

What does this mean for your portfolio?  In the short term it will be down from its peak value. However, your equity/stock portfolio is built for the long term. Spending and savings will come from short term bonds, cash & money you earn.

Markets Reward Discipline – here are a few headlines from 1980 going forward – Oil Prices Quadruple, US inflation 13.5%, Black Monday, Savings and Loan Crisis, Iraq invades Kuwait, Asian & Russian Currency Crisis, Y2k, 9/11, Dot.com Crash, 2008 Subprime Mortgages, Euro Zone Debt, Fiscal Cliff, Greece, Lowest price of oil since 2003. But hidden underneath are the seeds of tomorrows prosperity.

Why I am always rationally optimistic –

1. Collaboration is happening instantaneously
2. Technology is getting better every second of every day.
3. The 4 best performing growth stocks of 2015 didn’t exist 20 years ago and most folks can’t live without them today. I cannot wait for what is next.
4. What about these new start-up’s – UBER, Airbnb, SpaceX, Palantir, Snapchat, Pintrest, etc.
5. US GDP is over $18 Trillion dollars it grew at 2.1% in the 3^rd quarter of 2015 – 2.1% of $18 Trillion is a pretty big number
6. Oil is low so gas is cheap – not good for the oilman but that should give a big boast to everyone else.
7. Is Oil cheap because alternatives are already in the pipeline? Saudi Arabia wants to sell its oil company. This will solve Climate Change the old fashion way with human ingenuity.
8. It’s easier today than any time in history to invest in our own human capital
9. Kids today can Google all the information that exists in world / Years ago people went to Universities because they owned all the books.
10. There really is less war & poverty – extreme poverty has declined 43% since 1990 – not fast enough but it is accelerating with the advances in Collaboration.

Despite all the turmoil, human evolution & capitalism drives the world forward and it’s never happened at a faster pace than today. Plus, life is more enjoyable looking at the glass half full then half empty.