3Q 2017 Quarterly Letter

Quarterly Report for July through September 2017
In the years since the Great Recession of 2008-2009, it has been our view that clients should have a stock allocation at the high-end of the equity range as outlined in their individual investment policy statements.  In some instances, we even recommended increasing the high-end of the range.  In the first few years following the recession, a higher allocation to equities was not a popular view.  However, as we outlined in many of our quarterly letters, we felt confident in our recommendation based on a few overriding factors.

  1. The Federal Reserve was lowering rates and injecting liquidity (i.e. money) into the economy.
  2. Individual stock valuations were at historically low levels for many companies.
  3. Investor sentiment was at historic lows.
  4. Managements were returning value to shareholders through large share buybacks and increased dividends.
  5. Historically low rates made bonds an unattractive alternative.

As the stock market continues to hit new all-time highs, we have seen a noticeable change in many of the factors listed above.  The Federal Reserve is beginning to remove their monetary stimulus, stock valuations for many companies are at historically high levels, investor sentiment is high and share buybacks are decreasing.  The change in these factors leads us to believe that taking some profits and lowering the equity risk of a portfolio is a prudent step to take at this time.

There are times in market cycles where it is prudent to take some profits and lower the overall risk exposure of a portfolio even if it means foregoing some future gains.

However, one significant factor that has not substantially changed is interest rates.  Interest rates are still at historically low levels which make stocks attractive.  It also continues to make bond investing very risky.  As we decrease our stock exposure, we are investing the proceeds in short-term CD’s or Treasury Bills.  This will safeguard the balances and give us flexibility to reinvest in the coming months if conditions in markets change.
Please note that we are not sounding the alarm or expecting a sharp decline in the market.  We continue to think there is great value in the stocks we own.  There are also many factors that can keep the stock market moving higher such as a pickup in economic growth or a massive tax policy change out of Washington.  We still own a healthy allocation to stocks and would benefit if the market continues to move higher.
As our long-term clients know, we are not market timers.  We believe in buying quality companies at reasonable prices and holding them over a number of years.  However, that does not mean we want to blindly buy stocks with no discipline on price and value.  There are times in market cycles where it is prudent to take some profits and lower the overall risk exposure of a portfolio even if it means foregoing some future gains.  We believe that based on the factors listed above, now is the time to do just that.
Please feel free to give us a call with any questions.

Share on facebook
Share on twitter
Share on linkedin
Share on email
Share on print

Connect your finances to what matters most

Experience our personal approach to investing