2017: Year in Review

John Noonan Uncategorized

Another Record, But This Time a Good One

In 2016, a record was set: worst start to a year, ever. Although a recovery came quickly, it was no fun while it lasted. In 2017, another record was set: all twelve months saw a positive return. Far more palatable.

Never before had this happened, though we’ve been close in years past. But this time, even the bad months were good enough to stay positive, and cement 2017’s place in history. The worst month was August, with a return as low as a tenth of a percent. August was followed by the best month, with returns as high as two and two-thirds percent in September. Your exact returns were a function of your allocation to stocks and bonds. Whatever that allocation was, you came along for the ride.

Did you even notice? We hope not, as it’s a bad habit to get hung up on monthly returns! In fact, while this record is fun to talk about, it’s over, and it has no bearing on what comes next. Do you remember our post (link to post) from March about hitting all-time highs? In short, whether we’ve been at highs, as we are now, or at lows, the market has been positive over the next year about three quarters of the time. The case for staying the course remains strong.

As usual, total returns came from wide-ranging returns among asset classes. In a complete reversal from 2016, in the US, large growth dominated while small value trailed, with all else in between. US markets overall doubled their historical averages, but still trailed foreign markets, and especially emerging markets. Even domestic and foreign real estate stocks switched positions last year. Another case made: “chasing returns” doesn’t work. Those who haven’t yet learned this and bought 2016’s winners trailed badly in 2017. It’s “recency bias” (link to post) at its worst – something we’ve all learned to avoid.

The final lesson of 2017 began in 2014. Two years of flat markets between early ‘14 and early ‘16 tested the patience of many. Then after February of ‘16, the ascent to new highs began, tallying only two down months since. Stocks are up about 50% since then. The lesson? Not only does risk equal reward, but the order in which they come is unpredictable (as is just about everything in market). Sometimes markets spike, then pull back. Sometimes they meander with little direction, for longer than we’d like, before rewarding us for our patience. The latter is what we’ve experienced since 2014. Clearly, patience is a prerequisite for successful investing. Now, when (not if) the next bear and/or flat market appears, this experience will guide you.

We thank you for your trust and confidence over the last year. Earning it is at the heart of everything we do at Great Oak. Markets will go up, and markets will go down. We all know that too well. But what remains constant is our commitment to doing only what’s in your best interest, every day.

Wishing everyone a prosperous year,

John & Bill