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2Q19 Quarterly Letter

“The big money is not in the buying, the selling, but in the waiting.”    Charlie Munger

Why do we worry so much about market declines instead of focusing on what the stock market has consistently demonstrated over longer time periods?

Most people reading this letter have lived through multiple periods of market volatility.  All proved to be temporary.  Most of us realized too late that the most consistent aspect of a market decline is they end. Following the end, stock markets consistently have risen at annual rates around 10%.

Maybe it has something to do with a belief we can know what is not really knowable.  Predicting stock markets in the short term is one of those problems for the human species.  So many people really believe predicting markets is possible.  Perhaps as individuals we cannot but certainly someone with more knowledge can do it?

Unfortunately too many people believe we can predict when the market will go up.  Even more believe we can anticipate or even know when the market is too high and a bear market is eminent.  

I thought a bear market was due as early as 2014.  Since then I have written frequently that a bear was overdue, but I always added the following comment.  Stick with your asset allocation.  Stay the course.  

The simple truth is no one knows when the market will rise or fall.  I continue to be amazed at how much time and money is wasted on market forecasting.  Finding a unicorn probably has the same probability for success. 

So if you have visited our offices you know we do not tune in to CNBC, Fox Business or Bloomberg.  In fact, I cannot recall the last time I casually viewed or listened to the popular media regarding the markets.  Even Facebook would be a more productive use of time.  And to make this very clear, we do not subscribe to anything regarding market forecasting.

This is what we do know.  Over periods of 10 years or longer, the stock market trends higher.  Usually the stock market is much higher over 10 year periods.  An exception was 2000-2009 when the S&P 500 depreciated 0.72% annualized.

The worst one-year rolling time frame delivered a return of -43%.  This occurred over the twelve months ending in February, 2009.  The best one-year index return delivered a 61% return, which occurred over the twelve months ending in June, 1983.

If you are a long-term investor, the worst twenty years delivered a positive return of 6.4% a year.  This occurred over the twenty years ending in May, 1979.  The best twenty years delivered an average return of 18% a year, which occurred over the twenty years ending in March, 2000.

We admit we do not know for sure anything except what the market has demonstrated over longer periods of time.

Since 1928, the worst 35 year annual return for stocks measured by the S&P 500 was 8.1%  In more than 50% of rolling returns since, stocks exceeded 10% annualized.

If you say 35 years is too long for you to consider, I would seriously suggest you avoid thinking about investing in stocks.  Invest instead in short term bonds at about 2%.  Lose money after adjusting for inflation.  And understand it will take you approximately 36 years to double your money.  While you are waiting, the purchasing power of your money will probably depreciate at least 20%.

Let’s say you invested on October 1, 2007.  It was a few days before the market peaked.  We now refer to it as the Great Recession or the Financial Crisis.  Let’s also assume you held your stocks.  Measured by the S&P 500 your total annualized return would have been about 8.2%.

Even though your timing was terrible you still earned about 8% annualized.  In spite of buying at an all-time high you still managed to double your money every 8 years.  

Our view of the markets remains unchanged.  Fixed income diversifies risk but currently provides negative real returns across many maturities and even in some low quality securities.  Negative real returns are common in most high quality fixed income maturities.

The dilemma for those seeking income continues.  Do they buy lower quality and longer term securities to attempt to increase income?  Our very strong opinion is no.  

For the risk-averse investor we continue to advise an asset allocation to include 60%-70% high quality equities.  Fixed income should be invested in high quality securities with an average maturity of five years or less.  

Kevin and I thank you for your trust in Curran Wealth Management and Curran Investment Management.


Thomas J. Curran                  Kevin T. Curran, CFA
Chief Executive Officer &      President, CIO & Portfolio Manager