Your Portfolio is Not the Economy
Your Portfolio is Not the Economy
Investors often believe they can use "expert" economic forecasts to enhance their investment performance. The pitfalls of radical action based upon the advice of pundits are significant and often lead to disappointment. In difficult market environments, there is no shortage of doomsayers predicting bad times to continue. Their commentary may be good for TV ratings, but relying on their advice makes it very difficult to stay committed to a long-term investment strategy. Predictions from economists in the current environment offer a window into the challenges faced by investors interested in outthinking the market.
In an effort to fight inflation, the Federal Reserve has been tightening (raising its short-term interest rate) throughout 2022. As a consequence, rates on all manner of financial vehicles have climbed significantly. For instance, the rate on a 30-year fixed rate mortgage has risen from approximately 3% at the beginning of the year to 6.5% today. This increase has had a sobering impact on the residential real estate market, with single family home starts falling in six out of the last seven months to the lowest level in more than two years.
It’s fair to wonder if weakness in housing and other important areas of the economy will lead to a recession. In our view, it is definitely possible.
Does the possibility of a recession in the near future mean investors should consider reducing their exposure to the stock market? Our answer is, “No.” In order to benefit from macroeconomic predictions, an investor not only has to get the prediction right (recession, hard landing, soft landing, etc.) but also correctly anticipate the stock market’s reaction. It is important to remember that the stock market is forward-looking. There might be a recession in 2023; however, the stock market could very well deliver gains with the belief that a recession may kill the threat of rampant inflation and lead to eased financial conditions that accommodate investors. John Kenneth Galbraith said it best: “The function of economic forecasting is to make astrology look respectable.” In our experience, it’s hard to profit from the information, unless you’re the one selling it.
At First Fiduciary, we instead focus our efforts on identifying 30-40 high quality, industry leading companies trading at attractive valuations. We believe companies with strong balance sheets and pricing power have the flexibility to ride out a rocky economy and emerge stronger on the other side. Warren Buffett stated, “If you aren’t willing to own a stock for 10 years, don’t even think about owning it for 10 minutes.” It’s impossible to know what the economy might do over the next 10 years, but we’re confident our diversified portfolios of market leaders can continue to compound value for shareholders.
Articles We Enjoyed
Stone Skipper
Even if you didn’t know stone skipping was a sport, chances are you will enjoy this profile of the world’s best skipper.
Scientists Find a 6th Ocean
For those of you still getting used to the fifth ocean (the Southern Ocean was added by National Geographic in 2021), make room for one more. A word of caution: don’t plan a vacation to Earth’s sixth ocean.
Toto Wolff
Newer fans of Formula 1 racing will especially enjoy this profile of the impressive leader of Mercedes.
Online Gambling
In recent years, states have been eager to legalize gambling in order to collect the tax dollars associated with it. If the United Kingdom is an analog, the unintended consequences of financial loss, depression, and suicide will outweigh the benefits.
Life After Putin
Some Russians are beginning to ponder what the country will look like after Putin.
Notable Reads
Titan: The Life of John D. Rockefeller, Sr.
by Ron Chernow
Chernow has famously written incredibly dense biographies on important Americans, including Alexander Hamilton, J.P. Morgan, and Ulysses S. Grant. His biography of John D. Rockefeller is on par with all of them. Self-made from a humble upbringing, Rockefeller parlayed his first job as a clerk for a trading firm into becoming the world’s most powerful business person as the head of Standard Oil. His philosophy of “cooperation over competition” led him to acquire smaller competitors as he established a lucrative monopoly in oil refining. This playbook was quickly copied by his peers in other industries such as steel and banking. The only quibble I had with the book is that Chernow devoted too many pages to the second half of Rockefeller’s life, including his philanthropy, and less time to what I view as the more interesting portion of Rockefeller’s life – the creation of his business empire. But at over 800 pages, there was plenty devoted to both. – AG
Restaurant Review
Encanto
Lisbon, Portugal
Jose Avillez’s Michelin star restaurant is well worth an evening even if you are not vegetarian (vegan option is available with advance notice). Our 3+ hour meal of 12+ courses (we lost count) was as delicious as beautiful to behold. Plant based and locally sourced, the variety of flavors tantalized our palates repeatedly. Highlights include an edible gold hummus egg in a bird’s nest, truffles & Tonburi seed caviar and a carrot tartlet served with pinenut milk. The sommelier made excellent recommendations of Portuguese wines. – MA
More Than a Trusted Investment Advisor
As clients contemplate retirement, they are often confused about the best way to handle their employer-sponsored retirement plans. Whether the plan is a 401k, a Simple IRA, a 403b, a Thrift Savings Plan or any of a number of other investment vehicles, we stand ready to help alleviate the confusion and to help guide you to the best investment option for your particular situation, even if that decision is to remain a part of the employer’s investment program. We will review your existing plans as part of an overall review of your investments and objectives and we will learn what is most important to you as you enter retirement. Retirement planning is a collaborative process and we look forward to working with you to determine the best course for you to follow. Let us know how we can help!
The data contained within this newsletter is for informational purposes only. The information contained herein should not be considered investment, tax or legal advice.
This newsletter contains links to external third party websites that are not affiliated with First Fiduciary Investment Counsel. FFIC does not control or direct the content of the information contained on these websites. Information contained on the third-party website is relevant on the date the newsletter was published but may be changed or revised by the third parties without the knowledge of and/or notice to FFIC.
Statistics and other information have been compiled from various sources. First Fiduciary Investment Counsel believes the facts and information to be accurate and credible but makes no guarantee to the complete accuracy of this information.
Past performance does not guarantee future results. The mention of securities or types of securities in this newsletter should not be considered as an offer to sell or a solicitation to purchase or sell any securities mentioned. Neither First Fiduciary nor the authors hold positions in any of the stocks mentioned unless otherwise stated.
First Fiduciary Investment Counsel, Inc. is a registered investment adviser with the Securities and Exchange Commission. A more detailed description of the company, its management and practices is contained in its firm brochure document, Form ADV, Part 2. A copy of this form may be received by contacting the company at: 6100 Oak Tree Blvd., Suite 185, Cleveland, OH 44131; Phone: 216.643.9100; Email: ffic@firstfiduciary.com.