Patience is not my middle name. I was not born with patience, trained to be patient or ever been told that having patience is one of my top character strengths. Just ask my children. If I were to take a career exam today, it probably would conclude that I would have more success as a traditional “stock broker” analyzing stock movements and trading patterns hoping to be a professional day trader rather than be a patient financial advisor. Fortunately, through years of experience, there is no question; I have learned that patience pays huge dividends.
When I was 16 and working at Hacienda Golf Club, I needed to buy a car so that I could get to work. Not any car would do. I found myself attracted to a classic 1967 Datsun Roadster because it was within reach of my measly budget. Since it was a classic sitting in the Datsun showroom, surely it was going to be sold quickly, so impulsively, I needed to have it immediately to call it my own. While it was the dream car of every 16-year-old at the time, it was nothing but a problem from day one. In the two years that I owned it, the starter never worked, which caused me to be cognizant of always parking the car on a slope to be push started every time I got in the car. For a 16-year-old, this was really no big deal, but from a practicality perspective, it was not always easy to find a proper place to park.
Countless hours were also spent with the car in the driveway with the hood open tinkering with various auto parts trying to make them work. (Remember, it was a classic and the internet with overnight delivery was not an option.) Had I thought through the actual impact of owning a classic and the financial budget it would take to own the car, when all I truly needed was basic transportation, my purchase would have been radically different. When I got into college the car was unsuitable for basic transportation and a change was needed. Fortunately, I was able to scrape enough money together to purchase a more reasonable mode of transportation that got me through college without issue. Sure, one could chalk that up to a teenager. But I look back and see how my impulse cost me dearly in time, energy and financial resources that I really didn’t have.
2016 was the year for patience. In January, the market declined 10% if for no other reason than oil prices collapsing from then $40 a barrel to $30 a barrel. The market decided to move in direct correlation to oil prices, which generally is an anomaly. Lower fuel costs tend to be a good thing for consumers and industries that use large amounts of energy. It is normally the oil industry that suffers as a whole and the rest of the market benefits from lower energy costs. However, the market decided to make “oil” the excuse and it did. Patience is what was called for during the first 30 days of 2016.
By summer, oil prices had rebounded and as such, so did the market. No, it did not reach new highs, but it fully recovered from January. But as you remember, a very pivotal election took place in Great Britain known as “Brexit”. The vote in June by British citizens was to determine whether or not to remain in the European Union. The experts predicted the vote would be “no”. But since predictions were rarely correct in 2016, the voters approved an exit. The markets once again decided to take a turn for the worse in the final trading days of the quarter, once again creating the need for patience.
While “Brexit” was short lived, the market only declined for 3 days, the focus quickly turned to the Presidential election. Like all of you, I’m so happy this election is behind us. Not a minute went by without predictions of who was going to win and why. Leading up to the election, the market seemed to know and price in the results of the election with the market advancing nicely leading up to the election.
Truthfully, I have never watched the election results so closely. I left the office at 4:30 listening to CNBC on the way home only to hear an early prediction that just didn’t seem possible. It caused me to immediately turn on the television as soon as I got home. What fascinated me just as much as the election results was the reaction in the financial markets after hours trading (known as futures). By the time I went to bed, the futures market indicated the market would open down over 950 points. While market declines following the election is “normal”, the negativity of the elections results from the market certainly peaked well above the experts opinions.
Fortunately, I was able to get some sleep. By the time I woke to go for my early morning bike ride, the market at that time was down only 350 points. “I can handle that,” I said to myself. When I returned from my ride, the market was basically flat, showing no decline or gain in the financial markets at the opening bell at 6:30am. “I can definitely live with that.” Either way the market had opened following the election would not have changed my assessment of what do to next. Just like the oil correction, Brexit and now the election, it was a time for remaining calm and patient. Little did the experts know, the markets would finish stronger than ever predicted by just about everyone. Predictions that were made about the financial markets at the beginning of the year, during Brexit and the election failed miserably.
It is not just 2016 where patience mattered. 2013 was a great year for most investors. 2014 was less than mediocre, while 2015 gave back whatever mediocrity was gained in 2014. Everyone was still living off the gains of 2013, with a sideways moving market environment for the 2 years that followed. Prior to the election, I found myself trying to figure out what would be the next reason for the market to advance. Would it be rising interest rates? Would it be continued GDP growth or corporate earnings beating analyst expectations? Would it be a flight from safety (bonds) to risk (stocks)? What will be the next impetus? Candidly, I did not have an answer. Who would have thought that after 10 months of campaigning it would actually be the results of the election?
Clearly, it is much too early to claim victory in the financial markets due to the election. But what is certainly clear, asset allocation is alive and well. The turnaround in US small company stocks and value stocks in the final quarter was impressive and staggering. Both significantly outpaced US Large company stocks by years end. Again, a prediction very few saw coming to fruition.
As we enter the New Year, all progress to accomplish our goals of getting healthier, more sleep, losing weight or more travel will require a plan and diligence to see it through. While these are all admirable goals, they do not happen overnight. It takes focus, diligence and patience to get the results we are looking for. Fortunately for all of us, patience paid off in 2016. I’m not a gambler and fortunately not a professional day trader, but I am betting patience will continue to pay off for us in the future.
Things to look forward to at Kemp Financial Management in 2017
- Technology – We have enhanced our technology capabilities in a variety of ways. One of our primary goals for 2017 is to take more advantage of what technology can do for all of us. For clients outside the Southern California area, we plan to take advantage of video conferences. Don’t be surprised if we attempt to do that with those that have that capability and desire.
- New office – Our office has a new look and a new feel to better reflect the way we provide advice. We are hopeful you will enjoy and appreciate the new look when you come in for your update meetings. For video conferences, you will also be able to see the new look and feel.
- Communication – You will be invited to participate in a few brief online questionnaires this year. With each questionnaire, you will be provided with a report, where you will find helpful information to understanding your personal communication style. The results will better enhance our ongoing communication with you. This is the simplistic overview as we will share more in the upcoming update meetings.
- New Book – Throughout the majority of 2016, I made a commitment to rewrite the book I co-authored with John Cooke in 1998. While the principles of the original book are still being instituted today, I have taken a deeper dive into how to achieve financial success and happiness, advancing the discipline of advice well beyond just the basics of investing. More information about the book will be made available upon its completion.