Business perspective for the new year | Column

Business perspective for the new year | Column

A monthly business column from a local financial adviser.

This year, 2020, will mark my 35th “new year” in the investment and financial planning industry. Over those years, I have reviewed many market forecasts from investment firms that issue them about this time of year. A lot of it is marketing to be sure, but there are some good strategists out there in whom I have a higher level of confidence. Several of those whom I hold in high regard are bullish for 2020.

So, that’s great, right? Well, sort of. These people are smart and do excellent research, but they are human and the truth is no one can forecast the future. Investing is really a process of assessing probabilities and managing risks. And while forecasts may change, there are a lot of things about investing that don’t change. Allow me to provide some perspective on several immutable aspects of investing from 35 years of looking at and formulating market forecasts.

Perspective 1

Time and circumstances change but investing “things” don’t change. We know the stock market goes up about 75 percent of the time. We also know there will be severe corrections or bear markets periodically. In retrospect, there are always some telltale signs or indicators that tell us risk is rising or becoming inordinately high (think dot-com bubble in 1999, or excesses in mortgage lending in the mid-2000s). As investors, we have to be constantly aware of these excesses.

Perspective 2

Sentiment is important and highly bullish sentiment is usually a negative for the stock market (or any market for that matter). Bullish sentiment reflects high or rising investor confidence and extreme investor confidence is often associated with market tops, like 1999 and 2007. Currently, bullish sentiment is elevated, not extreme, but becoming an increasing concern.

Perspective 3

Fundamentals matter. Fundamentals are things like the outlook for corporate profits, valuation, inflation and economic growth. When investing in a rational way, it is important to keep these factors in mind as they have a significant impact on the overall market as well as individual stocks and sectors.

Perspective 4

Risk management is paramount. We can look at investing as a “business” and as with any business, managing risk is very important. In investing, we manage risk (reduce portfolio volatility) through asset class diversification, periodic portfolio rebalancing, and portfolio allocation. The goal is to manage and reduce the risk of a major portfolio drawdown under negative market circumstances.

Perspective 5

Financial planning can help to reduce investment risk. A comprehensive financial plan can help to lower one’s financial risk in a number of ways: By imparting greater discipline in one’s personal financial management, thereby improving one’s cash flow; by avoiding deviation from a predetermined investment plan which helps reduce the probability of investment mistakes; by increasing one’s potential for a larger estate through disciplined cash flow and investment management.

Bob Toomey, CFA/CFP, is vice president of research at S.R. Schill and Associates on Mercer Island.


In consideration of how we voice our opinions in the modern world, we’ve closed comments on our websites. We value the opinions of our readers and we encourage you to keep the conversation going.

Please feel free to share your story tips by emailing editor@mi-reporter.com.

To share your opinion for publication, submit a letter through our website https://www.mi-reporter.com/submit-letter/. Include your name, address and daytime phone number. (We’ll only publish your name and hometown.) We reserve the right to edit letters, but if you keep yours to 300 words or less, we won’t ask you to shorten it.

[flipp]

More in Business

2021 Lexus RX 350L. Courtesy photo
Car review: 2021 Lexus RX 350L

By Larry Lark, contributor It’s always a good day when a Lexus… Continue reading

2021 Chevrolet Blazer. Courtesy photo
Car review: 2021 Chevrolet Blazer

By Larry Lark, contributor When it comes to certain car models they… Continue reading

The Cadillac CT4 is designed to appeal to a new generation of Cadillac buyers with its athletic design and astute driving dynamics. Courtesy photo
Car review: 2020 Cadillac CT4 Premium Luxury

By Larry Lark, contributor With apologies to Oldsmobile, “the 2020 CT4 Premium… Continue reading

2021 Mercedes E-350 luxury sedan. Courtesy photo
Car review: 2021 Mercedes E-350 luxury sedan

By Larry Lark, contributor Mercedes-Benz occupies rarified air in the automobile pantheon.… Continue reading

Photo courtesy of Fisher Scones
Fisher Scones parent company fined for overworking teenage employees

Washington State Department of Labor and Industries found more than 1,500 instances of violations including missing meal breaks, working during school hours and more.

t
Time’s up for Francisco as he retires

He surveys thousands of old watch batteries awaiting recycling.

Don C. Brunell is a business analyst, writer and columnist. He recently retired as president of the Association of Washington Business, the state’s oldest and largest business organization, and now lives in Vancouver. He can be contacted at thebrunells@msn.com.
Coronavirus stimulates RV sales and rentals | Brunell

Before the pandemic came ashore, the number of active camping households was increasing.

Dick’s Drive-In announces search for new Eastside location
Dick’s Drive-In announces search for new Eastside location

The local popular burger chain is looking for public suggestions on possible properties

Stock photo
Union files charges against QFC, Fred Meyer over Black Lives Matter button ban

Grocery store workers condemn ban; QFC spokesperson says wristband options available to employees

Mercer Island Martial Arts kicks into online classes
Mercer Island Martial Arts kicks into online classes

Business has been thriving on the Island for 23-plus years.

Facebook purchases unused Bellevue REI headquarters
Facebook purchases unused Bellevue REI headquarters

The companies will also each donate $1 million to the Eastrail