Almost two months into the new year now and we’re still waiting for the stock market to pullback off its highs. This is important because we sold a few stocks that had run up last month. Now, we’re hoping to invest those proceeds in some undervalued stocks during a market slide of 5-10%. Most accounts are still 90% invested because we never know WHEN this will happen, but we do know it WILL happen.
So why wouldn’t we have more in cash if we think there’s a pullback coming? It’s difficult to make predictions, especially about the future… as we’ll learn from Harvard.
We can give you all kinds of reasons to be negative about the stock market: an eight year up market, ten straight market highs the last ten days in the Dow, less than stellar earnings reports from companies, rising interest rates, a polarizing president… but the market doesn’t care about our list and occasionally does the opposite of what we think.
This is a good thing. If we become overconfident and make big moves in the accounts, we risk investing like Harvard does. We wouldn’t want that, would we?
Last month The Wall Street Journal reported Harvard used to be the envy of all money managers, getting returns for their endowment above everyone else. That all changed when they decided to save the fee they paid their outside investment managers and brought it in-house attempting better performance.
The result was so bad they’re laying off 230 investment personnel in 2017. Last year’s performance in their $35.7 billion endowment was a grand total of -2%.
Now, I’m no Harvard grad, but I think the ivy on the buildings had better growth than that! Maybe this Portland Sate University grad should’ve offered to help with their investments?
Not to worry though, 2016 was a banner year for charitable gifts to Harvard totaling $1.19 billion, the most of any US university. That should help offset the loss last year and ensure the overgrown ivy continues to be trimmed around campus.
The lesson here is to be careful not to become overconfident after a good year and wander beyond the income and growth strategies that have worked for so long. Patience is key while we wait for the next drama to play out and turn the stock market negative. Until then, the accounts are off on the right foot with positive returns in the low single digits this year.
Thank you for taking the time to read,
-Bruce Porter & Tim Porter, CFP®