When the ball dropped in Times Square signaling the end of 2016 and the beginning of 2017, I paused to reflect on the year gone by.
2016, by almost all accounts, was a year of significant events. It often seemed that just as one major headline faded into the background another equally tumultuous happening was upon us.
Around the globe, news agencies reported on the conflict in Syria and the resulting refugee crisis, the impeachment of Brazil’s President on top of hosting an Olympics surrounded by fear of the ZIka virus. The rise of nationalism in political races around the globe had people on edge, and you couldn’t even get on a plane without fear of your phone exploding. (thanks a lot Samsung…)
Here at home we had conflict over the building of an oil pipeline, conflict on race relations and law enforcement, and plenty of conflict in our presidential debates. Yes, the election only added fuel to the fire that 2016 would be a year unlike any other. That doesn’t even take into account that we lost Muhammad Ali, Prince, John Glenn, Nancy Reagan, Princess Leia and her mother, Arnold Palmer and Florence Henderson. We even lost one of the world’s most useful prognosticators in 2016. No, not Jim Cramer, but famed television psychic Miss Cleo. (more or less the same thing…)
As for markets, we began the year with a headline from an analyst from Royal Bank of Scotland screaming, “Sell Everything! 2016 Will be a Cataclysmic Year!” When Great Britain voted to exit the European Union in June, the world wondered if that headline might prove correct. So as you can see, 2016 was a year full of tumultuous events, sending us on a roller coaster ride for 12 months that had us worried about every aspect of our political and financial lives. Surely the effect of such a crazy year made investing in markets a dubious and risky proposition.
Despite all of the headlines and significant and potentially challenging events for the markets, 2016 ended up being a very good year.
Or did it? Despite all of the headlines and significant and potentially challenging events for the markets, 2016 ended up being a very good year. In the U.S., the S&P 500 was up over 12%. International stocks were up just over 5% while emerging markets stocks had the best year of all at +15%. Even the Barclay’s Aggregate Bond Index was up, at a modest 2.65% gain. At the end of the day, despite all of the media blitz designed to get us excited, markets had a good year. This is why Baker Boyer’s investment philosophy and process works. We don’t look at what the media is screaming at us today, we take a long term view of investing and stay consistent.
As a function of our investment process, we regularly discuss various topics within our internal Investment Committee such as portfolio structure, reviewing investments used in client accounts and messaging around market relevant events like Brexit and the U.S. presidential election. The real value of the Committee is taking the opportunity for our team to analyze and question our portfolio strategies to make sure we are adhering to our core philosophy and mission to build our clients’ legacies. I am convinced that getting thoughtful, curious professionals in the same room to debate the merits of different investment strategies results in better outcomes for clients. 2016 proved to be a year this was especially true.
In that spirit would we have done anything differently in 2016 if we had known what we know now? From an investment standpoint, no. We were positioned well for the stock market moves in 2016, with an overweight in portfolios to stocks vs. bonds (win), U.S. stocks vs. international stocks (win), value stocks vs. growth stocks (win) and small cap stocks vs. large cap stocks (win). This was as a result of us paying attention to where returns come from, positioning portfolios accordingly, and being patient. 2016 just happened to be a year when the stars aligned on all of these strategies.
In that spirit would we have done anything differently in 2016 if we had known what we know now?
So what is our takeaway as we reflect on results from 2016? It is that Baker Boyer’s process and investment principles serve clients well over time, especially in years full of uncertainty like 2016. Also, that despite not knowing what will happen in the coming year we can still have great conviction on investment strategies based on each client’s individual circumstances, and then manage risks accordingly. If we do that, the headlines will take care of themselves.
As always, we appreciate the trust you place in us, and we’re looking forward to another successful year in 2017.
Chief Investment Officer