November 19, 2015
Short-Term Forecasts Best Left for Weathermen
The investment business is full of people who make wild speculations of short-term price movements in the financial world. We choose not to engage in this practice, mostly because we’re terrible at it. Our opinion of these short term forecasts is they’re largely entertainment and useful only to sell TV commercials and newsletters.
Similar to the weatherman struggling to look out 10 days to tell us if our camping trip will be wet, we struggle to predict if the accounts will end this month positive or negative (currently slightly negative).
Instead we prefer to look out 3, 5, and 10 years when we want to consider what to expect from our accounts. This way we can view the long-term trends and make more accurate predictions comparable to the weatherman saying, “it will be warmer in the summer and colder in the winter!” Those are the forecasts we like to make, and to be honest, the only ones worth making.
Reviewing the short-term vs. long-term view is helpful as we hear market forecasts that are either dramatically Up or Down and as we assess end-of-year performance in our accounts. Values of the accounts we manage are down so far this year in large part due to the price declines of the very same companies that gave us the best returns in 2014: energy, real estate, and utility companies.
While we never like to see negatives in value, Josh Peters, CFA from Morningstar believes we don’t have the right to worry. He says this largely because of the good news coming out this month from none other than some of those same companies plaguing our values in 2015.
This month we saw five of our top investments raise their dividends. A few were in line with Peter’s expectations and three were above expectations!
Company name Ann. Div. Growth Forecasted New Yield
Welltower HCN 4.2% 3.5% 5.7%
Spectra Energy SEP 8.7% 7.5% 6.01%
Magellan Midstream MMP 14.2% 10% 4.8%
American Electric AEP 5.7% 4-6% 4%
Emerson Electric EMR 1.1% 1% 4%
For those wondering how long until the values of the investments will rebound, we don’t want to disappoint you, but the answer is we don’t know and we don’t intend to predict. Instead we’d rather forecast longer-term dividend increases, which are much easier to predict and are a better barometer of the health of a company than stock price.
The best news we’ve seen in a while is that these companies continue to raise their dividends through this uncertain time. This helps us remain steadfast in the income-producing portfolio that so many of our clients rely on. We hope this gives you comfort as well.
Thanks for taking the time to read. Please call us with questions about this article or any other issues you’d like to discuss.
Have a wonderful Thanksgiving,
-Bruce Porter & Tim Porter, CFP®