Only 1 month ago, U.S. stock indexes were reaching record highs as the bull market was nearing its 11-year anniversary (from the March 2009 lows). The attention of the market has quickly changed to the election, coronavirus, the precipitous retreat in oil prices, and the lowering of interest rates by the Federal Reserve. In addition, investors are increasingly skeptical of long-term global growth prospects in the current economic environment. No wonder many investors feel confused and a bit exhausted.
What the beginning of 2020 has once again made abundantly clear is that world-changing events are unpredictable. Therefore, a robust investment strategy must not be based on the ability to predict the future accurately. For this reason, market-timing, passive investing, and buying only short-term bonds are strategies to avoid. Successful investing is not dependent upon speculating about the future, but upon taking advantage of mispriced opportunities as they present themselves.
Because the future cannot be predicted with certainty, we believe an investment portfolio should emphasize high-quality, individual stocks and bonds. When either the economy weakens or the markets experience increased volatility, it is vital to hold companies that will not only survive, but thrive. A prudent investor should take the approach that volatility is likely to be an integral part of any long-term investment time horizon.
Here are a few items the Compass Investment Team routinely discuss as part of our ongoing portfolio management process:
The current investment landscape is volatile (markets are moving up and down daily—sometimes by 2, 3, or 4%), while economic and political forces are shifting. Nevertheless, following certain time-tested investment disciplines will likely continue to produce desirable results. Successful investing is not a matter of trying to determine the unknowable (such as the direction of the market in the short term, the fluctuation of interest rates, or the spread of a virus). Rather, it is a matter of establishing a sound long-term investment policy and following sensible investment disciplines. Once these are in place, much of the anxiety and distraction disappears, and the Compass Investment Team can continue to locate mispriced, high-quality investment opportunities for you and your portfolio.Download PDF