December 21, 2015
2015 Recap: Better Than Buffet?
As a persistently turbulent, frequently disappointing, but by no means disastrous 2015 comes to a close, we’d like to recap some of the topics we’ve been addressing this year:
- Energy – Oil prices dropping to 11-year lows today, approximately $34/barrel. We’re thankful for Morningstar CFA Josh Peter’s recommended sale of energy company Kinder Morgan KMP earlier this year, which resulted in missing the subsequent 75% dividend cut last month. That being said, all energy investments are down and will likely stay low until the price of oil moves back up to a normal price, hopefully in 2016. Peter’s has reemphasized his support for the dividends of energy companies Spectra SEP, Magellan MMP, Amerigas APU, and Enterprise EPD.
- Interest Rates – FINALLY! Janet Yellen and the Federal Reserve posted the first 0.25% increase in the overnight rate in 9 years. While this is likely to be the first of many, the pace of the increase looks to be incredibly slow. Projections for most of our interest-rate-sensitive positions already factor in a substantially higher rate, meaning, the effect on those positions should be minimal.
- High Yield – This is the category that represents the lower grade, higher paying bonds. This represents ~10% of our portfolios and has been under pressure this year. Reasons include uncertainty of energy companies’ abilities to pay their debts and lingering concerns of the global economy in general.
- Lackluster Recovery – 7 years into the recovery from the Financial Crisis and the rebound has been a little underwhelming. While we’re eternally grateful to be out of the crisis, the pace of growth has been far short of typical recoveries. The BlackRock graphic to the right shows the last 50+ years of recoveries and how this last one measured up.
- Income/Value Investors – Top money managers using similar investing philosophies to us, including famed value investor Warren Buffet, will end the year lower (Buffet down -12%). Income managers invest money predominantly for an income stream that many retirees live on in retirement. This has been a great strategy for the last 10 years outpacing the stock market with less volatility, however, this year has not been the case. While disappointed with the results this year some of the largest funds in this space, Franklin Funds ($80B), John Hancock ($4.5B), JP Morgan ($12.5B), Morningstar, and our firm still believe this remains a solid strategy for retirees to generate income in retirement, regardless of one disappointing year.
With the volatility continuing we think it’s wise to take a cautious attitude toward the year ahead. Most of Morningstar’s estimates for growth have been scaled back, but projections of dividend increases in 2016 are still approximately 5%. That’s great news for the income stream being paid from our portfolios and we’re hopeful the principal value (stock price) will follow suit.
The strategy for 2016 is one we’ve used since 2002: Look to the best analysts in the industry to help us buy good companies growing their dividends, and be disciplined enough to stay invested even when things get tough. This strategy worked well in substantially worse periods like 2008-9 and we are confident it will pay off once again.
On another note, we’ve found a fantastic estate-planning tool we’d like to offer you! The “Go-To Book” is something very practical that you can use to gather together your most important documents: wills, trusts, bank statements, life insurance policies, medical directives… Putting something like this together will allow surviving loved ones to know exactly where to find the details that need to be addressed at the end of life. More information can be viewed on their website www.go-to-book.com
We’re using these in our own planning and hope this can help with your planning as well. We’ve bought a supply of these to pass out during meetings, so if you are a current client, or would like to discuss the possibility of becoming a client and have at least $200,000 of investable assets, let us know so that we can have one ready for you.
Have a wonderful Holiday and we look forward to posting here again soon.
-Bruce Porter & Tim Porter, CFP®