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1st Quarter 2017 Market Commentary

Financial markets saw healthy gains during the first quarter of 2017. In the US, the Dow Jones Industrial Average reached 20,000 for the first time on January 25. 20,000 is a symbolic number that perhaps eases investor fear lingering from the 2008-2009 financial crisis. Growth stocks outperformed value stocks, and large caps fared better than small caps in the first quarter. International and emerging market stocks performed better than US stocks. Interest rates remained steady, allowing for modest, but positive, returns for bonds. The only negative performers were international bonds and commodities.

New Administration

In the US, stocks continued their post-election climb dubbed the “Trump rally”. Investors expect a positive environment for businesses from a Republican-controlled White House and Congress. Consumer confidence rose in March to a level not seen since December 2000.[1] Late in the quarter, markets cooled as key healthcare legislation failed to achieve enough support to pass the House. President Trump previously stated that healthcare must come before tax reform.

Delivering on his campaign promise of less regulation, President Trump ordered a review of the Dodd-Frank financial regulation and the DOL Fiduciary Rule on February 3. The Fiduciary Rule required that financial advice given to investors with 401(k) or IRA retirement accounts be in their best interest. Currently, the DOL rule is under a 60-day delay. Regardless of the outcome, the DOL Fiduciary Rule has let the “cat out of the bag” with regards to the best interest standard for retirement advice. Many of the largest financial services firms have already made changes to reflect the intent of this rule. Read more

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It’s Smart to Use Common Sense

Just as you wonder when the bad news cycle or political campaign season will ever end, something is announced which encourages you to think positively about the future.

Recent business news included the release of Commonsense Principles of Corporate Governance, www.governanceprinciples.org . Before you quickly conclude that I need a real vacation (yes, it’s scheduled), let me explain why the contents of this release are important to all of us as investors.

Everyone invested in the stock market, through individual stock holdings, mutual funds or ETFs, relies on the quality and competency of the leadership of the corporations in which they invest. This leadership comes from both boards and management, but the focus of these principles is with board leadership.

The Commonsense Principles of Corporate Governance were offered by a group of corporate leaders and institutional investors, including Warren Buffett of Berkshire Hathaway, Jeff Immelt of GE, Larry Fink of Blackrock and Bill McNabb of Vanguard to name a few. The hope of the authors is that “our effort will be the beginning of a continuing dialogue that will benefit millions of Americans by promoting trust in our nation’s public companies. “

When something goes terribly wrong at a publicly held company, how often do you hear the question “Where was the board?”   Too often there is concern (sometimes justified, oftentimes not) that boards are just cronies of top management, unwilling to ask the challenging questions or overlooking their responsibilities as fiduciaries of shareholders. This sort of thinking erodes trust in the very corporations that provide economic growth and employment in our country.

The letter from the authors of the principles states “truly independent corporate boards are vital to effective governance”. The principles cover best practices in a wide variety of areas from board composition to responsibilities to the public.  It’s a virtual handbook of good governance, and much of it is applicable to private, governmental and non-profit entities as well as public companies. It even addresses diversity on boards, stating that “diverse boards make better decisions, so every board should have members with complementary and diverse skills, backgrounds and experiences”.

As an investor, I find the work of this group encouraging and applaud the leaders who participated. With the adoption of these guiding principles, we should all feel more confident of the actions of our corporate boards. How commonsense is that!


Would It Help?

If you are a movie enthusiast, you may have enjoyed 2015’s Bridge of Spies, a Spielberg/Hanks historical drama set in 1957. Hanks plays Ray Donovan, a New York insurance lawyer asked by the government to provide a pro bono defense for Rudolf Abel. Abel is accused and convicted of spying for Russia in the midst of the Cold War. (Spoiler alert – if you intend to see the movie, you may want to skip the first two paragraphs). Donovan’s argument before the Supreme Court saves the spy from the death penalty. The CIA then becomes involved and Donovan finds himself in a tense negotiation in East Berlin with the Soviets for a prisoner swap. (A bit more exciting than his normal insurance practice!).

The Russian spy was especially calm throughout his capture, trial, and subsequent exchange into the hands of the Russians who were none too pleased that he was caught. I cannot imagine what awaited him in Russia. When asked on several occasions if he was alarmed, or if he ever worried, his response was a consistent, “Would it help?”, a simple but powerful response.

I think about this as it relates to the ups and downs of the market. We all occasionally suffer from strong reactions to market downturns. Some of us cope better than others, but it does not feel good to see the value of your account drop. After all, the timing of a bounce back is unpredictable. Frustration and genuine fear are common and painful reactions.

Would it help to listen more to the financial news when the market begins a downturn? Would that help us figure out what to do? Knowledge is power, right?   Unfortunately, much of what you hear is a dramatic sound bite or personal opinions regarding an uncertain future. Add the presidential election rhetoric and the drop in price of oil, and you can quickly become pretty depressed about the state of economic affairs in our country and around the world. This commentary is rarely useful for long-term investors or anyone with a well-diversified strategy. Bottom line – the noise doesn’t help.

Would it help to take action – believing that action is always better than staying still? Makes you feel more in control? Change up your investments so it doesn’t happen again? For instance, would it help to move to cash, recognizing that timing when to get back in to the market is a losing game? It is a likely prediction that the market will rebound before you are back in.

If your risk tolerance has changed due to your age or financial circumstances, then this should be fully considered. Otherwise, making a change in a downturn is rarely a smart move.

Staying the course is not indicative of not knowing what to do. Staying the course is a deliberate choice, which has proven to be successful when you have a well-developed long-term strategy.  Despite that, staying the course is oftentimes the hardest choice of all.

As I write this, the market has rallied and erased the losses from the first two months of the year. Now the commentary suggests that it won’t last. We should brace ourselves for a very volatile year. Nothing is right in the world. but then again it never is.

As for me, I am prepared to stay the course, focus on the long-term strategy, and put the ups and downs into a balanced perspective. And that, my friends, is what I believe will help.

Suzanne T. Mestayer


Financial Advice – It’s Not Only Cost, but Quality


There have been countless articles written on the cost of financial advice in recent years.  Every time I pick up a Wall Street Journal or a popular personal finance column there’s a story about fees. They are right to criticize.  Financial services costs remain high even though advances in technology have reduced costs dramatically.

This laser-like media attention on costs has sparked a revolution in financial services. Investors are flocking to low cost ETFs, whose AUM surpassed that of hedge funds in 2015. For Do-It-Yourself investors, online, automated investment services called robo-advisors provide basic asset allocations for one-third the traditional costs of similar advice.

These reductions in costs are good for investors. After all, the less you pay to invest, the more returns you get to keep. I would like to see the media turn its attention now, to the quality of financial advice, not just the cost.

Providing financial advice does not have a uniform education requirement, licensure, continuing education, or self-regulatory institution like many other established professions. Anyone who can pass a low level test has the right to call him or herself a “financial advisor.” Financial planners do not need credentials to enter the field.  The disparity in the quality of financial advice investors receive can be enormous. Some financial advisors have zero educational background or training in investing. Other advisors have PhDs and many professional designations. Might a difference in the price of these two individuals make sense?

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