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  1. Ten years after the 2008 market meltdown, U.S. equities are up over 200% and posting fresh new all-time highs.

  2. Higher interest rates during the quarter presented some headwind for bond investors, but bonds can still generate decent returns within a long-term trend of higher interest rates.

  3. The underlying economy boasts plenty of strength, with economic growth during the rest of 2018 expected to remain above 3%.

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MLPs May Increase Portfolio Performance

Owning oil and gas pipelines can add octane to a portfolio’s performance, particularly in today’s energy and economic backdrop.

It’s our job to help clients gain the proper exposure to safety, market and aspirational asset categories. It’s also our job to identify pockets of the market that, when available, have attractive fundamentals and/or characteristics worth considering. Oil & Gas MLPs in the midstream space (storing and transporting energy) has caught our interest for years and remain an asset class of interest. While we take care of researching and handling the details for our clients, it doesn’t hurt for you to pipe into the conversation. Here’s a quick primer on the space.

Long-term strategies may challenge investors to stay focused. The fight against short-term thinking is getting harder as we accomplish so many things with increasing ease and speed.

There is more computing power in an iPhone than what NASA had during the first landing on the moon. Remember when Netflix mailed DVDs to your home? Now we can stream just about anything to our smartphones. And what would you have said ten years ago if I had told you the President of the United States’ main communication tool in 2018 would be Twitter?

But speed doesn’t change everything.

One asset class has rebounded to new all-time highs — U.S. small cap stocks.
Comparison of S&P 500, Russell 2000, Emerging Markets and Int'l Developed Indices

After a bullish 2017 and hopes of a continued global equity melt up, 2018 has instead reintroduced market volatility. Despite global market volatility, U.S. small cap stocks have rebounded to new all-time highs.

Factors influencing the success of U.S. small cap stocks

So what factors has caused this success versus larger capitalization stocks?

I’m not sure Yogi Berra is big source of investment knowledge for most investors. But, that doesn’t mean his words of wisdom, “déjà vu all over again,” don’t apply.

Today’s Wall Street Journal included an article titled, “Value Investors Face Existential Crisis After Long Market Rally.” It discussed the “rut” that value investing has experienced since 2009.  No arguments there. Value stocks are down about 1% year-to-date while growth stocks are up nearly 8%.  The tech-heavy NASDAQ Composite Index, which holds many of the favorite tech names among growth investors, is at its all-time high.

A Familiar Scenario

But as I sipped my morning coffee and read further, I didn’t ask myself how we should change our current value approach (for the portion of our portfolios dedicated to value investing) to match the current environment.  Instead, I found myself thinking about earlier in my career, the late 1990s.  Tech ruled the day from 1995 through 1999, and value investors lagged back then too.

JUDGMENT UNDER UNCERTAINTY
Behavioral Economics Takes Center Stage in Q3

I will be very impressed if the title of this latest edition of Portfolio Matters sounds familiar to anyone. It’s actually the title of the research paper by Daniel Kahneman and Amos Tversky back in September of 1974 that brought the field of behavioral economics into the mainstream mindset we know today. (We credit writer Jason Zweig for bringing this anniversary into spotlight.)

What this research paper really did was to question our understanding of how we think, or at least, how we think we think. The paper shed light on powerful thought patterns that likely affect us all. And when it comes to investing, these thought patterns and resulting behaviors play a far greater role in the markets than most folks realize…read more

In 2017 thus far, the only thing more dominant than the L.A. Dodgers may be large cap growth investing.

Through July, large cap growth is up over 17%, beating the S&P 500’s impressive 12% return. At the other end of the spectrum, small cap value investors have seen a minuscule 1% return, as seen in the chart below. But there’s something eerily familiar about these year-to-date results …

A SMOOTH RIDE IN Q2
But Don’t Fall Asleep At The Wheel

On May 16th, there was a Wall Street Journal column by Jason Zweig that may have gone unnoticed, if not, underappreciated. The article discusses Amazon’s 20th birthday as a publicly traded company. Since its IPO in 1997, Amazon generated a total return of nearly 49,000%, or over 36% annually for its shareholders. No doubt that a performance number of 49,000% will make anyone stop dead in their tracks, either in amazement, disbelief, or both. But the rest of the article had some far more important points that may not have sunk in for most readers.

We’ll return to this story later, but suffice is to say that the Amazon story was likely lost among the many negative stories that embodied the most recent quarter. In this issue of Portfolio Matters we’ll discuss what all these moving parts mean for investor returns and, more importantly, the future for our clients and friends…read more

Ready for the next market correction? Today’s drop rekindles questions of whether this bull market is finally over. To be sure, stocks are up over 7% in the first 4 months, extending the 8-year run from the 2009 low.

But the bull market run has resulted in some expensive prices. Regardless of whether one uses multiples relative to sales, book value, trailing earnings, or normalized earnings, stocks aren’t cheap. The Shiller P/E ratio, which compares stock prices to normalized earnings over a 10-year cycle, is at its third highest dating back to 1887. The top two instances were 1929 (before the Great Depression) and 1997 (during the Tech Bubble).

Thumbnail PM 041217Is The Market Getting Ahead of Itself?

I recently attended an event at which General George W. Casey spoke to a crowd of emerging business, civic, and non-profit leaders. General Casey served as U.S. Army Chief of Staff and was Commanding General of the Multi-National Force in Iraq from 2004 through 2007. He described his experiences in the Middle East, and his words offered some key truths for us all.

In his remarks, he referenced the “vuca” world in which we live: volatile, uncertain, complex, and ambiguous. He then stated how important relationships are to the success of any objective in such a world, in his case, peace in Iraq.


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