Jan 17, 2019
Our last letter discussed how US stocks had diverged from international stocks by continuing upwards as the rest of the world drifted downward during the middle part of 2018. US stocks went on to decline sharply after that, ending up with a peak-to-trough decline of almost 20% in just 3 months. This closed much of the gap with international stocks, which fell less than US stocks over that period:
 

Source: stockcharts.com

This sudden convergence shows how quickly things can turn in financial markets. And it's not the only recent instance...
(read more)
Oct 15, 2018
As we've emphasized over the years, our global, value-based investment approach demands a multi-year timeframe. We often cite 7-10 years as the appropriate period to think about when planning or assessing returns. Such a strategy requires patience, and there are a couple of main risks that can challenge one's ability to stay the course.

1 - Volatility Risk

This describes how much an account's value changes over shorter periods. If volatility is too high for comfort, one might abandon the long-term approach due to a short-term market decline. We know that there will be inevitable and sizable swings in the markets. (Over the last few days we've been tested on that front too). But by placing our clients into portfolios designed to experience a personally acceptable range of volatility risk, we've done our best to minimize the chance that our clients will experience an intolerable swing. This is something that we've been careful to address and are happy to re-address with you anytime.

2 - Risk of "Tracking Difference"

Another and much less discussed risk that has been noticeable lately is what we're going to call "Tracking Difference" — the potential difference in returns between your portfolio and the US stock market.

The US media mainly focuses on the domestic stock market, so that's what most US investors tend to be most aware of. The returns of the bond markets and international stock markets are often just an afterthought, if that. This is kind of strange, as the GDP of the rest of the world is twice the size of the US, and the international stock and global bond markets together are many times the size of the US stock market. But that's the way it is.

The result is that if a US-based investor's portfolio returns track too differently from the US markets, it can come as a surprise. That can lead to a lack of confidence and even the abandonment of a long-term approach.

(read more)
Apr 29, 2018
In our last quarterly update, we focused on the extreme stock market optimism that prevailed at that time in late January. At that point, the market was up almost 7% for the year and, as we discussed, investors were by some measures more bullish on stocks than they had ever been.

Before getting to the punch line, we want to further point out that the optimism had been boosted by the fact that volatility in the market had been at multi-decade lows throughout 2017.

From that moment of historical optimism and extended low volatility, the market has given up all its gains for the year, and we are now seeing headlines like this:
 
Here are some numbers to show just how huge the jump in volatility has been:

  • The S&P 500 has experienced 14 days so far this year with at least a 1% loss after only 4 such days in all of 2017.
  • There have been 7 days this year with over a 2% decline after no such days in 2017. (Source: Albridge Wealth Reporting)
As we noted in that prior letter, "investors on the whole always get optimistic after markets have done well, and they become pessimistic after markets have done poorly. This gets it backwards." So the experience of the markets since that last letter shouldn't really come as much of a surprise.

(read more)
Jan 31, 2018
The world economy has continued to strengthen. Growth in both emerging and advanced countries has been on the rise, with the latter showing a particularly rapid comeback:
 
This is actually the first time since the global financial crisis that all the world's major economies are growing at the same time:
 

Source: New York Times (original here )

(read more)
Nov 2, 2017
Renewed optimism about economies and markets has led to an unusual calm. Global stock markets have gone up in practically a straight line since the post-Brexit vote correction ended in mid-2016, and here in the US, markets are by many measures the calmest they've been in decades.

As a result, right now many people are feeling like investing is easy and without risk. This is, of course, not the case: at some point, markets will fall and fear will come to the forefront again. (read more)
Aug 8, 2017
We discussed why we're leery of US stocks in the last article: they just aren't priced for very good long-term returns, especially when compared to much less expensive markets outside the US.

Here's another way of looking at it:
 
“"
Source: Global Financial Data, AMP Capital

(read more)
Jun 19, 2017
The median price of a San Diego home recently surpassed its all-time peak, as noted by the San Diego Union-Tribune (with a cameo appearance from Rich). We thought this made for a good opportunity to share some thoughts on the local housing market, addressing common questions such as…

  • How expensive is San Diego housing?
  • How do low interest rates impact home prices?
  • Are we in another housing bubble?
  • Does it make sense to buy a home right now?
We'll give some quick thoughts on each of these below, along with links to more detailed articles Rich wrote for Voice of San Diego. (read more)
May 13, 2017
With so much news and commentary these days focused on politics, some people might not realize that there's been a noticeable strengthening of the global economy.

Below are a couple of charts to support this point. The first shows global manufacturing Purchasing Managers' Index (PMI), an economic indicator which you can see from the chart correlates well with economic growth. Global PMI has increased pretty steadily over the past year, and now sits at a 6-year high:
 

(read more)
Jan 26, 2017
We wanted to quickly highlight some cool research from StarCapital, a German investment firm, showing how well global value investing worked in 2016.

What the folks at StarCapital did was to sort 40 countries by their beginning-of-2016 stock market valuation, and then to average out how the cheapest and most expensive markets went on to perform for the year. We recommend checking out their report, which has some great visualizations, but here’s a summary.

Source StarCapital (returns measured in US dollars)

So the least expensive stuff, despite being generally hated and shunned at the beginning of the year, went on to consistently and significantly outperform the much more beloved expensive markets. (read more)
Jan 18, 2017
We've often argued that trying to invest based on economic and political current events what we call "headline investing" — is unlikely to work well. (The reasons are many; a good refresher can be found here).

2016 was a disaster for headline investing. Here are some of the more prominent examples... (read more)