Pinnacle’s Chief Investment Officer, Rick Vollaro, explains why the investment team has developed a new view in response to economic developments.
First quarter market performance was as whippy and volatile as the weather. Unusually cold temperatures in the U.S. not only froze much of the country’s population, but it also wreaked havoc on the quality of economic data, and kept markets on edge regarding how investors should be positioned. Geopolitical issues also rose from the ashes as various emerging markets had currency issues and Russia showed poor sportsmanship and invaded the Ukraine shortly after the conclusion of the Olympic Games.
By the end of the quarter, the markets showed mixed results, with U.S. stock and bond markets logging roughly equal returns, and international markets showing large variations depending on country and region. Commodities appeared to benefit the most from the weather and geopolitical environment, and they bounced to a very strong quarterly return.
It’s true that opposites sometimes attract. But what do you do when you and your significant other are opposites when it comes to investment strategy? You might be an aggressive, pedal-to-the-metal investor, while your partner is more financially conservative. (Or vice versa.) A difference like that can be a huge obstacle to developing a sound financial plan.
So what can you do?
The first weeks of 2014 have brought the return of market volatility. Pinnacle’s Chief Investment Officer, Rick Vollaro, explains why this is both a danger and an opportunity.
When we decided to ride the central bank liquidity wave in 2013, we knew there was a chance the market could have a pretty good year, but like most investors we were pleasantly surprised with the gains that the U.S. stock market delivered. Including dividends, the S&P 500 Index soared by 32%, well in excess of what even the most optimistic prognosticators envisioned at the start of the year.
One branch of technical analysis studies the relationships between asset classes to determine the health of the financial markets. John Murphy has written extensively on this subject and I have gathered a lot of my own wisdom through his teaching. With that in mind, here are a few relationships that I am watching right now to help determine the health of the U.S. stock market.
If you are looking for a movie about power, money, sex, drugs, yachts, Lamborghinis, high-pressure sales tactics, stock manipulation, sex, and drugs (did I mention sex and drugs?) then go see the new Martin Scorsese movie, The Wolf of Wall Street, starring Leonardo DiCaprio. The film is based on the memoirs of Jordan Belfort, the founder of the brokerage firm Stratton Oakmont, which functioned as a boiler room selling penny stocks in the 1990s. I don’t want to give away the ending, but I will say that if you enjoy watching unimaginable amounts of corruption and debauchery, you are going to love it.
All of which gets me thinking about the admittedly boring world of our Pinnacle investment analysts.
Actively managing a portfolio requires buying and selling securities with the goal of managing risk and outperforming passive benchmark portfolios. Clients are correct to question the number of trades that are being made in their portfolio in pursuit of this objective. After all, one trade can generate several trade acknowledgments from our custodians, and each trade acknowledgement shows the brokerage commission charged for each transaction. Clearly the cost of trading has a negative impact on total portfolio return. As we approach year-end and Pinnacle’s investment team continues to generate commissionable transactions in our managed accounts, it might be helpful to analyze the cost of brokerage commissions relative to our ability to implement our active management strategy.
With less than two months to go in the year, the markets have returned a remarkable 23% on the S&P 500 index. Our portfolios are diversified, so we haven’t gained that much, but many policies are in double-digit territory (which represent significant gains in less than a year). With healthy returns already booked, one has to question whether investors will want to cash out and go the beach. I admit that a trip to the Bahamas sounds great right about now.
Is it time to ring the register and take profits on our portfolios? Pinnacle’s Chief Investment Strategist, Rick Vollaro, explains why we’re not ready to do that just yet.