February 12, 2019
Well we are off to a great start to 2019. Here are the numbers:
Index January 2 Open February 12 Close Difference
DJIA 23,223 25,425 +2,202
S&P 500 2,496 2,744 + 248
NASDAQ 6,622 7,414 + 792
In this morning’s news it appears the Government Shutdown II has been averted. Next up will be a resolution of the China trade disagreement. These two events should remove some uncertainty in the markets and we all know how Markets abhor uncertainty.
But Stein’s[i] law, “if something cannot go on forever, it will stop” gave us confidence this round of the Government shutdown would be resolved. The same with the China Trade dispute. The two largest economies in the world cannot and will not continue to cut each other’s economic throats—there is simply too much to gain by not doing so. It cannot go on forever and it will stop. I for one, think sooner rather than later.
This noise—since that is all it is, Governmental produced noise–is admittedly irritating. Seriously irritating. In the end, there are some small real issues in dispute, but the drama, the hand-wringing drama is self-inflicted reality-TV writ large. There was nothing that could not have been solved over a cup of coffee by two reasonable people. But then points would not have been made—grudges not settled, votes not gained…etc. etc. etc.
Next up we are told that European Luxury Auto Companies are not competing fairly. I’m sure tariffs will not be far off. No perceived slight will go wasted and of course, Government intervention is the only answer.
Since 1776, the American Economy has always moved forward. There are times when it looks dark and scary, but it will (and I think as long as there are profit motives and free-markets) continue its steady march toward prosperity. How else could our country with less than 4.2% of the world’s population have the world’s largest economy? Larger even than the next two, China and Japan combined.
I’ve wandered off the beaten path a bit since we don’t really invest or plan based on macroeconomics. Mr. Warren Buffet once said, “I don’t read economic forecasts. I don’t read the funny papers.”[ii] Basically, it is out of our area of concern, we are worried about how much money we can save, and how best to grow that sum, and how can we help our clients make the best financial decisions for their future. It is not our concern whether the US should impose tariffs on Audis, BMW’s or Mercedes Benzes.
Speaking of Mr. Buffet, in this month’s newsletter to Advisors from Nick Murray, an advisor to financial advisors, he quotes Mr. Warren Buffet from one of his annual Berkshire Hathaway Investor Shareholder letters, “We do not have, never have had, and never will have an opinion about where the stock market, interest rates or business activity will be a year from now.[iii]” That was in the 1989 letter—the S&P 500 stock index closed at 288.26. Today, the S&P is almost 9 times that amount (ignoring the significant dividends during over those 29 years.)
By the way, this year’s Berkshire Investor letter is due out next week or so—if you would like a treat, search for it online around March 1, then set aside 15 minutes of your life for some true common business sense. It’s always a great read. And how has Berkshire Hathaway Inc. done for itself since Feb. 28, 1989? Berkshire was selling for about $4,950 per share in March 1989. As I write it is selling for $311,905. That is not a typo; each share sells for over $311,000. If we just bought 10 shares in 1989 for about $50,000…well, on second thought, let’s not look, there is no value in past investments we did not make.
The bottom line is, we just need to stay invested in the market—even when we are hit by crazy Decembers like we just had. A good maxim about investing goes something like: it’s not timing the market, it is time in the market. It is apropos to our recent market sell-off.
I will be off on winter vacation next week—Monday the 18 through the 22. Jenna and Kristen will be on hand should any emergencies come up. We are closed, as are the markets, on Monday the 18th for the holiday.
1099’s should be out any day now—Jenna can check to see if yours is ready. A new privacy rule has gone into effect this year, if you want us to send your CPA or tax-preparer your 1099(s) we need to have a signed release/consent form. (Or, we can email it to you and you forward it your tax person.)
Speaking of Jenna, she just had her 10th anniversary of working for Chesapeake Investment Advisors.
Thank you for reading.
Marty
[i] Herbert Stein was an American Economist 1916 – 1999. He expressed his law while testifying before Congress on, of all things, Trade Imbalances and Federal Debt compared to GDP.
[ii] https://25iq.com/2013/11/03/a-dozen-investors-talk-about-the-folly-of-macroeconomic-forecasting-and-the-importance-on-focusing-on-valuationmargin-of-safety-today/
[iii] http://www.berkshirehathaway.com/letters/1988.html
