January 10, 2019Individual Investment Management

Stocks in 2019. It's important to be realistic about what the market will (and won't) yield following a multi-year rally in stocks.  

Big Gains?  Probably not - but...Various sectors, classes, and industries do not move in unison and this presents opportunities.  For the past decade, lower quality, high growth companies were in favor by the market as earnings expanded, credit was cheap, and the business cycle matured.  This often left large, mature, dividend-paying companies unloved and ignored as investors chased higher risk returns.  This cycle has been seen before, and often allows the investor to use strategic rotation between classes to take advantage of these cycles.  Don't forget that cash flow from investments can often represent 30-40% of your total lifetime return on your investment!  

Don't forget that cash flow from investments can often represent 30-40% of your total lifetime return on your investment!

Why we are buying in '19...Ironically, down markets are necessary for long-term investors to make money.  If markets failed to self-correct, every investor would be buying at higher prices each year.  To maintain your buying power, it is essential that you keep investing to maximize each dollar you put to work.  This will maximize your dividend earnings and also take advantage of unpredictable and random market events that are simply impossible to time! 

What I'm looking for...It is highly likely that interest rates have temporarily stabilized.  With this, markets will look to take advantage of opportunities particularly in US value and high dividend paying names that trailed growth sectors for the last cycle.  Also look for real estate and utilities to recover in 2019 as the interest rate picture stabilizes.  Energy (a big loser in 2018) has found early footing as value investors step in.  

TAKEAWAYS???...Markets will continue to present investors with volatility in 2019.  I am expecting this to be the year where the value investor returns to outperform growth.  High quality, transparent, cash-rich companies that trade at attractive valuations should win the day.