Our Thoughts

The Lesson We Have To Learn Over and Over

The world is our best teacher, but only if we have the wit to understand her lessons.  For us at FJY, 2012 provided one of the most useful lessons of our careers in this profession.

I think we can all agree that 2012 was not one of those happy time periods where the world seemed to be shining with opportunity and optimism.   There was the LIBOR scandal, the Eurozone credit crisis, miserable jobs reports, and a painfully slow recovery from the Great Recession that is now four years behind us and still casting its shadow over our economic growth and psyches.  MF Global and Jon Corzine found creative ways to make billions of dollars evaporate.  And then, after the highly partisan Presidential election, came the fiscal cliff faceoff.

We found ourselves wondering: How can such an awful year have turned out so great for investors?  When people of the future look back at their investment history, they will probably think of 2012 as one of those bright, happy years for U.S. stocks.  The S&P 500 index of large U.S. company stocks provided us with a 16% return last year, and the various other indices, domestic and foreign, were up at least 13%.  International stocks had an even better year than those in the U.S.  Commercial real estate, especially in Asia, outperformed them all.

No doubt, those people of the future will think of 2012 as a time when we were confident about our economic future and the direction of the markets.  Haven’t you heard it said that it is easy to invest in those years when the markets are generating double-digit returns?

The lesson we take from this is that it really is never easy to stay invested, and only in retrospect can we say that any random 12 month period was a good time to hold stocks.  During 2012 many of our friends, colleagues, and clients were asking how to hedge against the possibility of a dramatic drop in the markets, or another recession, or some unnamed catastrophe that would occur if we elected one candidate or the other for President.

We can learn from 2012 what we could have learned in any random year, but perhaps the lesson was clearer in the past 12 months: that it is very hard work for investors to stay invested even in the years which, in retrospect, turn out to have been generous.  There will always be things to worry about, and manifold indications that the future is not bright.  The next time we look back at those years when the markets delivered above-average returns, we will know that the people who actually received those returns were pretty brave, and had to ignore a lot of headlines, even if we do not remember those headlines.

We have no idea what 2013 will bring for equities, but the odds in the investing casino are pretty good: seven out of ten years deliver positive returns. As 2012 taught us, trying to predict equity returns given the swirl of global headlines is not a game worth playing.    Nevertheless, we will predict, here and now, that in the coming 12 months, there will compelling reasons not to own equities, and many great arguments that the end is just around the corner.   And yes, we are willing to bet that 2013 will be another tough year to stay invested – and that if we have another year of double digit gains, most of us will soon, again, forget how tough it was….

What none of us at FJY will forget is how grateful we are for your support, your loyalty, and your business.  We wish each of you a healthy, happy, and prosperous 2013!