2022 Winter Newsletter
Christine Fortin - Feb 26, 2022
It will be worth restating, even in the context of a letter primarily focused on the year just past, our overall philosophy of investment advice. It is goal-focused and planning-driven, as sharply distinguished from an approach that is market-focused and current-events-driven. Long-term investment success comes from continuously acting on a plan. Every successful investor I've ever known was acting continuously on a plan; failed investors, in my experience, get that way by continually reacting to current events in the economy and the markets.
You and I are long-term, goal-focused, plan-driven equity investors. We believe that the key to lifetime success in equity investing is to act continuously on a specific, written plan. Likewise, we believe substandard returns and even investment failure proceed inevitably from reacting to (let alone trying to anticipate) current economic/market events.
We're convinced that the economy cannot be consistently forecast, nor the markets consistently timed. Therefore we believe that the only reliable way to capture the full long-term return of equities is to ride out their frequent but historically always temporary declines.
Just in the last four decades or so, the average annual price decline from a peak to a trough in the S&P 500 exceeded 14%. One year in five, the decline has averaged at least twice that. And on two occasions (in 2000-02 and 2007-09), the Index has actually halved. Yet the S&P 500 came into 1980 at 106, and went out of 2021 at 4766.18; over those 42 years, its average annual compound rate of total return (that is, with dividends reinvested) was more than 12%.
These data underscore our conviction that the essential challenge to long-term successful equity investing is neither intellectual nor financial, but temperamental: it is how one reacts, or chooses not to react, to market declines. We mostly feel that as advisors we would have been well served with a Psychology degree v. an Economic one
As long as your long-term goals haven't changed. As a general statement, we, The Fortin Wealth Advisory Group, have found that the more often investors change their portfolios (in response to the market fears or fads of the moment), the worse their long-term results.
In sum, our essential principles of portfolio management remain unchanged. (1) The performance of a portfolio relative to a benchmark is largely irrelevant to the long-term financial success. (2) The only benchmark we should care about is the one that indicates whether you are on track to accomplish your financial goals. (3) Risk should be measured as the probability that you won't achieve your goals. (4) Investing should have the exclusive goal of minimizing that risk.
These principles will continue to govern the essentially behavioral nature of our advice to you in the coming year…and beyond.
* Sources: Standard & Poor's; Yahoo Finance; J.P. Morgan Asset Management “Guide to the Markets” (p. 16); S&P 500 Return Calculator with Dividend Reinvestment, DQYDJ.com.
I am writing this on the precipice of a lot of nervousness around the I-word (invasion) and disturbing talks from the media of what could be WWIII. This should be clarified by the time this goes to print and passes the compliance test.
I circled back to my opening comments from last year “Once in a very great while, there comes a year in the economy and the markets that may serve as a tutorial—in effect, a master class in the principles of successful long-term, goal-focused investing. Two thousand twenty was just such a year.”
As always, I welcome your comments, questions and concerns. As always, I can't predict, but I can plan. As always, I thank my clients for working with me and my team. It is a privilege to serve you.
If you get me talking about perspective around the current economy and how we properly need to align that to investments, you may here me talk about “Long Term Secular Trends”. I am referring to the 20-40 year trends that are propelling the world forward. Most often, selecting best of breed companies that are aligned with those secular trends reduces your volatility and frankly, if have demonstrated the ability to create long term stability of earnings, then we should scream with glee for any selloff to acquire more of these droolworthy names at discounted pricing.
We have added a new member to our team, Ryan Lidder, of which you likely saw the announcement. Ryan is a key strategic addition and will level up the wealth advice that we provide to clients. With over a decade of observing dozens of teams, he is proud to have found his career destination.
Christine is still working on her Harvard Leadership Course and hopes to complete that by June.