HFG Perspectives: March

March 6, 2014

“We all know by now that bull markets tend to take a few steps forward and then give a bit back. While it’s never enjoyable to watch our account balances decline over the shorter term, stock markets gave back a bit in January. While the talking heads on TV might attempt to make us think that the next crisis is at our doorstep—that’s just how the media business works—the decline we’ve been witnessing for the last month has been, if anything, average.”

We opened last month’s letter with the paragraph above, and we think it applies nicely today as well. After all, after having a rough go of things in January, the S&P 500 closed out February at all-time highs. Two steps forward and one step back, indeed.

As quickly as markets exhaled with a sigh of relief, Ukraine popped up giving investors yet another issue to fret over. Maybe this will be the end of the global expansion, but we highly doubt it. Greece didn’t stop the rally, nor did any of the other PIIGS. Egypt, Libya and Syria couldn’t. Venezuela and Argentina couldn’t. We doubt that Ukraine will.

What really matters? Let’s check off the list. Earnings growth matters. Check. Economic improvement matters. Check. Stable inflation matters. Check. Reasonable valuations matter. Check.

There are negatives in the world, but there always are. The economy, corporations and markets, however, are moving in the right direction. For long-term investors, market stresses are uncomfortable, but they serve the purpose of keeping mass psychology honest. It’s hard for the kind of unbridled optimism that pushes asset prices into bubble territory to take hold when investors are nervous.

It’s said that markets climb a wall of worry, and for the last five years, that wall has seemed very large. Nonetheless, markets keep climbing. Don’t be greedy, but don’t panic either. Ukraine will work itself out. It’s not your responsibility. Your plan, however, is. Focus on it.



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