NO EUPHORIA IN SIGHT | June 2018
NO EUPHORIA IN SIGHT
Sir John Templeton, a pioneer in the mutual fund industry, is notable to many of us in the investment business because of his legendary success in the stock market over the last half of the twentieth century. In 1999, Money Magazine named him “arguably the greatest global stock picker of the century”. Of interest to those of us in Middle Tennessee is his heritage, having been born in Winchester, Tennessee in beautiful Franklin County.
His investment wisdom is widely respected, and the following is one of his most famous quotes:
“Bull markets are born on pessimism, grown on skepticism, mature on optimism and die on euphoria.”
From my experience, if you had to pick one indicator to guide your investment decisions, I believe Templeton’s “Pessimism-Euphoria” index may be the best one out there. Before every major market plunge in my career, including the Technology Bubble Burst in 2000-2002 and the Financial Crisis of 2008-2009, there was widespread euphoria and the overwhelming sense that you could not lose money in the stock market.
Peter Lynch, the highly successful portfolio manager with Fidelity Investments during the late 1970s and 1980s, described in his book, “Beating the Street”, how in 1987, “with herds of bulls appearing on the covers of every major magazine in the country” he made a major tactical shift in strategy. He moved away from the auto stocks and toward the more conservative financials, just before the “Black Monday” global stock market crash!
We are seeing no euphoria among investors right now, suggesting that the likelihood of a significant near-term drop in the market is small. The skepticism you can feel in the air, as well as the statistics put out by the mutual fund industry, tell a pessimistic story.
Year to date, investors voting with their checkbooks have pulled out over $50 million from U.S. Equity (stock) mutual funds, according to Investment Company Institute data. At the same time, investors have added over $100 million to their bond mutual funds, telling us that the average investor has been unsure about the future of the stock market…not optimistic and definitely not euphoric.
ONE THING YOU NEED TO KNOW
I certainly don’t know anyone who believes the market is going to go straight up, and I haven’t seen any magazine covers recently touting a roaring stock market. That bodes well for investments this year. And as Raymond James Chief Market Strategist, Jeff Saut, said again in his May 31 monthly missive, “currently, the one thing you need to know is that – it is a secular bull market!”
While this gives us confidence in the market, we never believe we should just throw caution to the wind and invest blindly. We agree with Saut that the economy continues to support very healthy employment growth as well as corporate earnings growth, both critical to the energy of the stock market, and that any downturn in the market this year will most likely be limited.
To use an old Warren Buffet quote again:
“We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.”
Note that he said they attempt to behave inversely to emotions of others and, at Aspen Grove Asset Management, we try do the same. Sometimes it is difficult, but we understand that and always do our best to temper the emotions driving our investment decisions and recommendations, backing those decisions and recommendations with checklists of fundamental data to guide us.
As we stated in our letter last month, it is important that we communicate periodically to be sure we are all “on the same page”. Kim is doing her best to set up appointments, either in our office or over the phone, and if we haven’t yet made a connection with you in 2018, please call and help us take care of this very important task. We appreciate your business and regular communication is our most important exercise.
Registered Principal Branch Operations Manager
Any opinions are those of Dave Crouch and not necessarily those of RJFS or Raymond James. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. There is no assurance any of the trends mentioned will continue or forecasts will occur. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected.