Hello and happy 2013 from the Abacus Investment Committee (IC). The IC certainly had a busy 2012. We revised our bond fund mix to capture better yields with only a modest increase in credit risk and interest rate risk; we added master limited partnerships (MLPs, which are energy infrastructure companies) to most client portfolios; we designed and launched our new “income portfolios,” which put more emphasis on generating income than capital gains; and we have made available to our accredited clients two new private investment options for which we conducted extensive due diligence and placed in portfolios where appropriate. Our IC is excited to be meeting in the next few weeks to discuss key themes for 2013 and set our priorities, initiatives and agenda for the next 12 months.
Those who know me well know I do not like to spend a lot of time looking backward. But before we all become completely focused on 2013, I would like to briefly recap the lessons learned in 2012. Several of our advisors are dedicated readers of Nick Murray’s monthly newsletter. Nick, who is known as the advisor’s advisor, just released a fabulous January 2013 article titled “2012: The Year Pessimism Got Skunked … Again.” I’ll summarize it for you here.
With the presidential election, the fiscal cliff, Superstorm Sandy and other major events, 2012 was certainly a banner year for catastrophe and worry. If investors had a crystal ball on New Year’s Eve 2012 (when the S&P 500 was at 1,277) that revealed the dismal events that would transpire over the next 12 months, how many of them would have predicted that the S&P 500 would finish the year at 1,426 (a 16% increase, including dividends)?
There are only two logical explanations for this dichotomy. The first is that the market is wrong and the pessimists are right, meaning that the market has recklessly ignored the plethora of real impending disasters that are constantly bearing down on us, and which will surely swamp our economy and precipitate a market meltdown any day now. The other possibility is that the market is right and the pessimists are wrong, and not just momentarily wrong but fundamentally wrong about the whole equation. They’ve been focusing entirely on the (very real) financial, political and economic mistakes of countries, whereas the equity markets have been much more focused on the variables that ultimately drive investment returns: the healthy, growing (and in some measures, record-breaking) earnings, cash flow, dividends and cash reserves of companies. Indeed, the earnings of the S&P 500 companies are currently yielding 6.7% relative to the price of those companies, while 10-year U.S. Treasury bonds are yielding 1.8%.
Meanwhile, the developing world (for example, India, Brazil and China) continues its staggering economic progress, which is one of the key factors that explains the financial health of companies in the equity markets, as those companies continue to succeed (despite no shortage of regulatory obstacles) in adapting to ever-increasing globalization. In 2013, General Motors will sell more cars in China than it will in the United States. “This is not your father’s Oldsmobile, and it isn’t his stock market, either.”
I encourage all of you to discuss with your Abacus advisor whether it might be the market that’s right and the pessimists who are wrong. In terms of your own financial planning and investment planning, this could turn out to be the single most important financial question you ask in 2013.
If you’d like to read the complete Nick Murray article, please ask your Abacus advisor to send it to you.
Regards,
Darius Gagne, PhD, CFA, CFP®, MBA
Partner and Chief Investment Officer
Note from Our CIO: Lessons Learned in 2012
The Abacus Investment Committee
Hello and happy 2013 from the Abacus Investment Committee (IC). The IC certainly had a busy 2012. We revised our bond fund mix to capture better yields with only a modest increase in credit risk and interest rate risk; we added master limited partnerships (MLPs, which are energy infrastructure companies) to most client portfolios; we designed and launched our new “income portfolios,” which put more emphasis on generating income than capital gains; and we have made available to our accredited clients two new private investment options for which we conducted extensive due diligence and placed in portfolios where appropriate. Our IC is excited to be meeting in the next few weeks to discuss key themes for 2013 and set our priorities, initiatives and agenda for the next 12 months.
Those who know me well know I do not like to spend a lot of time looking backward. But before we all become completely focused on 2013, I would like to briefly recap the lessons learned in 2012. Several of our advisors are dedicated readers of Nick Murray’s monthly newsletter. Nick, who is known as the advisor’s advisor, just released a fabulous January 2013 article titled “2012: The Year Pessimism Got Skunked … Again.” I’ll summarize it for you here.
With the presidential election, the fiscal cliff, Superstorm Sandy and other major events, 2012 was certainly a banner year for catastrophe and worry. If investors had a crystal ball on New Year’s Eve 2012 (when the S&P 500 was at 1,277) that revealed the dismal events that would transpire over the next 12 months, how many of them would have predicted that the S&P 500 would finish the year at 1,426 (a 16% increase, including dividends)?
There are only two logical explanations for this dichotomy. The first is that the market is wrong and the pessimists are right, meaning that the market has recklessly ignored the plethora of real impending disasters that are constantly bearing down on us, and which will surely swamp our economy and precipitate a market meltdown any day now. The other possibility is that the market is right and the pessimists are wrong, and not just momentarily wrong but fundamentally wrong about the whole equation. They’ve been focusing entirely on the (very real) financial, political and economic mistakes of countries, whereas the equity markets have been much more focused on the variables that ultimately drive investment returns: the healthy, growing (and in some measures, record-breaking) earnings, cash flow, dividends and cash reserves of companies. Indeed, the earnings of the S&P 500 companies are currently yielding 6.7% relative to the price of those companies, while 10-year U.S. Treasury bonds are yielding 1.8%.
Meanwhile, the developing world (for example, India, Brazil and China) continues its staggering economic progress, which is one of the key factors that explains the financial health of companies in the equity markets, as those companies continue to succeed (despite no shortage of regulatory obstacles) in adapting to ever-increasing globalization. In 2013, General Motors will sell more cars in China than it will in the United States. “This is not your father’s Oldsmobile, and it isn’t his stock market, either.”
I encourage all of you to discuss with your Abacus advisor whether it might be the market that’s right and the pessimists who are wrong. In terms of your own financial planning and investment planning, this could turn out to be the single most important financial question you ask in 2013.
If you’d like to read the complete Nick Murray article, please ask your Abacus advisor to send it to you.
Regards,
Darius Gagne, PhD, CFA, CFP®, MBA
Partner and Chief Investment Officer
For more information about Abacus and this article, please read these important disclosures.
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