What Abe can teach us

What Abe can teach us

What Abe Lincoln – on his birthday – can teach us about investing

Hey fellow Boomers… remember? Those of us Wonder Years kids – and all senior to us – might take a look at the calendar this weekend and recognize the significance of FEBRUARY 12th as Abraham Lincoln’s birthday which, along with George Washington’s birthday (on the 22nd) formed the Presidential birthday “daily double” each February before being unceremoniously welded together at the beginning of the 70’s into the entirely artificial Presidents Day falling on varying dates in February to provide us yet another Monday holiday.

All of us, however, can take a walk back just one year with Abe: While we can’t all recall when Abe got to celebrate his own birthday, we can all go back with Abe just ONE year -- remember what was going in our economy as dawned February 12, 2016?

• Oil Prices? – after peaking at $108 in June, 2014, oil had fallen to just $261

• US Stocks? – “S&P 500 off to worst-ever start to year” USA Today had decried2

• Bonds? – higher yielding bonds in particular followed suit, falling nearly 5%3

How did we counsel our clients then? Not only for our clients’ portfolios at large, but especially and most stridently with respect to the yield/income-generating portion of those portfolios, we channeled a little Lincoln and his astute observation that “it often requires more courage to dare to do right than to fear to do wrong.”: stay consistent in your bond and other yield producing holdings, allow their interest or dividends to reinvest monthly by month at lowered share prices, and in some passage of time, cooler heads will prevail, prices will moderate, and you’ll be justifiably proud of your Faith, Patience and Discipline!

So one year ago, with stocks, bonds and oil all dissembling, did we offer such counsel because we had a hunch or forecast on the markets? Those of you who have worked with us for any appreciable time can even now in your heads hear our constant refrain: “we are NOT in the prediction business!” Rather, we simply observe that extrapolation-based predictions make for lousy investment policies since a) they tend not to go on without end, and b) the endings themselves are nearly impossible to time! As a pendulum swings too far in one direction, at some point, it will swing back. Put another way: if something can’t go on forever… it will stop.

So how did all that work out one year later?... Thanks, Abe! We find ourselves, a few days shy of one year hence from Abe’s 2016 birthday celebration, regaling Honest Abe for reminding us to have the “courage to dare to do right” as we look back on the past 12 months:

• Oil – up more than 100% as of this writing to $53.591

• US Stocks – gains in the S&P500 of over 25% to fresh all-time highs4

• Bonds – higher yielding bonds – even a greater gain than the S&P500, up over 26%3

What will happen next? “We’re not in the prediction business!” We have no forecast. Neither do we imply that any past results imply anything about future returns.

What we do suggest: take a moment this weekend to pull out a $5 bill, think about Abraham Lincoln and how he saved our United States, AND about what he just taught us, all over again, about controlling what we can control: not the markets, but our own behavior as we invest in them. While you do that, don’t forget to congratulate yourselves for the “courage to dare to do right”.

 


https://ycharts.com/indicators/average_crude_oil_spot_price

2 http://www.usatoday.com/story/money/markets/2016/01/06/china-stocks/78390650/

3 https://fred.stlouisfed.org/series/BAMLHYH0A0HYM2TRIV

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