Let’s pretend you are a 16th century treasure hunter. You have invested your entire life’s savings into a fleet of ships whose sole purpose is to find treasure in the new world. You send your ships in different directions so that you increase your odds of finding treasure. After a slow start, ALL of your ships find treasure in the first year. In the second year, ALL of your ships find treasure again – even more than the previous year. Your treasure finding business is going great!
Unfortunately, there is a finite amount of treasure in each location. Once you have all of the treasure in that location, you have to move on to a new location to search for more treasure. Its now six months into year three of your journey. You have been searching all year but have found very little.
Actually, your whole fleet ran into a hurricane along the way. It was a scary time, but luckily you did not lose any of your ships or treasure. You are now sailing on to find more treasure but all of your ships are stuck in The Doldrums (The Doldrums refer to sailing waters near the equator where the winds can be calm or even absent for weeks – leaving ships unable to sail). You are stuck, with no recent gains to show for your efforts.
Your significant other, back in the old country, wants a progress report on how the voyage is going. How do you reply?
Back To Reality…
2016 and 2017 were very good years for most asset classes – diversified portfolios should have done well. 2018, on the other hand, has been tough. Gains in US based stocks have been offset by losses overseas and bonds are not helping – many diversified portfolios have gone nowhere. But is this really that bad? Lets look at what we have been through so far in 2018:
- Threat of global trade wars – $100’s of billions in tariffs and retaliatory tariffs proposed
- Devaluation of the Yuan (Chinese currency)
- Rapid devaluation of many emerging market currencies
- US Federal Reserve has hiked interest rates two times, with two more hikes intended in 2018
- European banking problems (again!) brought on by the Italian election
If I gave you these headlines on January 1st 2018 and asked you predict where global stocks would be following those headlines, I bet you would have said down 10% or more. Yet here we are, close to unchanged on the year (as of July 5th, 2018).
The analogy is obvious. Sure, we are having a tough year as treasure hunters – no question. But if we take into consideration the gains from 2016 and 2017, combined with how bad this year could have been so far, I think I would be pretty happy with my overall endeavor. But that’s just me.
What about you? How do you respond to your significant other asking for an update? Can you view the fact that previous treasure finds have not been destroyed in the hurricane as a positive? Or will you let The Doldrums break you so that when the winds pickup, you simply sail home?
The facts are the facts. It’s how you view those facts that can make all the difference.
Charles Brown is a Portfolio Manager and Financial Advisor at M. Brown and Associates in Naperville, Illinois
***The above article is informational in nature only and is not a recommendation to buy or sell securities. All information is gathered from sources believed to be reliable, but neither Charles Brown nor Ausdal Financial Partners, Inc guarantees the accuracy of the information. All investments carry a degree of risk. Individuals should consult with their tax and investment professionals before making changes to their investment portfolios.
****Securities and Investment Advisory services offered through Ausdal Financial Partners, Inc, 5187 Utica Ridge Road, Davenport, IA 52807 (563)326-2064. Member: FINRA/SIPC. M.Brown and Associates and Ausdal Financial Partners are independently owned and operated