Happy New Year ! I am writing you to summarize the following:
- An overview of 2015 Stock Market Performance (All Data from Morningstar)
- January nose dive (or normal market volatility)
- 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 – 1st Qtr. 1.7% 2nd Qtr. .08% 3rd Qtr. -7.38% 4th 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 –
- Collaboration is happening instantaneously
- Technology is getting better every second of every day.
- 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.
- What about these new start-up’s – UBER, Airbnb, SpaceX, Palantir, Snapchat, Pintrest, etc.
- US GDP is over $18 Trillion dollars it grew at 2.1% in the 3rd quarter of 2015 – 2.1% of $18 Trillion is a pretty big number
- Oil is low so gas is cheap – not good for the oilman but that should give a big boast to everyone else.
- 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.
- It’s easier today than any time in history to invest in our own human capital
- Kids today can Google all the information that exists in world / Years ago people went to Universities because they owned all the books.
- 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.