As we write to you on the eve of the 45th President of the United States taking the Oath of Office, many in this country are looking ahead with bewilderment or trepidation that the incoming President will actually keep his campaign promises. The President’s supporters, however, are counting on his promise to return this country to some sort of golden era – the “good ole days”.
Conventional wisdom tells us that, as investors, we should be focused on the long term. But what does that mean exactly: five years, ten years, longer? The answer generally is – it depends. Since “it depends” is about as satisfying of an answer as a parent saying “because I said so” we have decided to look at three underlying questions about being a long-term investor.
Following the referendum — commonly referred to as ‘Brexit’ — the global stock markets fell by roughly 5% over two dramatic days, and then recovered all of those losses as cooler heads prevailed over the next 3 days. In our view this brings two things into focus: First, the UK and Europe face a long road of negotiations and uncertainty around this historic decision by UK voters. Second, an important reminder that investors and the broad market will always be faced with some type of newsworthy crisis, usually overreacting at first, and the best course of action is to stay invested in good companies for long-term growth. As we said in our initial note, keep calm and carry on.
Decade after decade over the last hundred years we experienced what is now often referred to as a “normalized interest rate environment” offering a real return (beyond inflation) with very little risk of principal. You may have taken for granted at the time that cash in a money market “should” earn 3% – or even 4% to 5% – because in the thirty years leading up to the mid-2000’s, it generally did.