At Westminster Consulting, we tend to stay focused on the long-term results. When times are good, we try to temper the enthusiasm. When times are bad, we try to encourage disheartened investors. In the long run – 10 to 20 years from now – we’ll forget many of the daily stock actions and just appreciate the overall trend. So, given the incredible run in all major asset classes in 2019, our natural inclination is to stifle unchecked euphoria common to today’s investors. And who knows? Perhaps the markets will run up another 30 percent this year. We find that an unlikely base case, but markets are simply the result of combined buyers-and-sellers… and there are millions of irrational players to influence the outcome.
Instead, we encourage this: bank this moment in your memory. A sharp downturn is inevitable, but nobody knows when it will occur. It could happen today, this year, or in another decade. Saving this moment in time in your mind will be a useful touchstone during the bad times, whenever it occurs.
An informal, and completely unscientific, discussion around the office led to a brief discussion of whether the market felt like it had more short-term upside to achieve or downside to realize. While we are long-term optimists, several of us felt like we’d reached the top of the hill for the short term. In short, the markets have been appreciating all through 2019 primarily on three factors: consumer confidence, deeply accommodative monetary policy, and a reworked tax-code that changes the calculus of corporate profitability. None of the potential threats – wage inflation, a populist revolt causing revisions to the tax code, a valuation sell-off, trade retaliation, or extraneous factors (middle east flare-ups, a moderate pandemic) – are making a dent in consumer confidence. As long as that holds (and savers get shoved out of low yielding fixed income through central bank action), there are not a lot of alternatives for return focused investors who act without fear.