My Favourite Chart of 2017

Why It's Important Today

January 18, 2018

Our group (well, Tom and I for the most part) love charts. In fact, we are constantly sending each other emails with charts or articles about investments, the world and our thoughts on where we see the next opportunity (or risk!).

After all that, if I could only show an investor one chart heading into 2018 it would be the graphic below. It highlights a few very interesting facts:

  • The S&P 500 (the US Market) has had positive returns 29 of the last 38 calendar years
  • To ‘receive’ the calendar return, you would have had to hold through annual ‘drops’*

*a drop (or drawdown) is a peak to trough decline over a specific period…in this case, the largest during a calendar year


Why It’s Important Today

What we didn’t see in 2017 was a significant drawdown (the largest was only 3%!) and picking up stocks cheap is a key premise to our investing philosophy. We believe in managing risk and investing for the long term, but we like to make volatility our friend and invest opportunistically. To borrow a quote from an eloquent investor ‘be greedy when others are fearful and fearful when others are greedy’. In 2017 everything felt ‘great’ for many investors which, along with many other factors, makes us cautious and excited as we head into 2018.

The Past Repeating Itself

Bitcoin and Marijuana related investments have gotten many global headlines about wealth creation. It follows all the same euphoria we have seen in the past where investors blindly rushed in, often too late to the game. When I started my career we were in the beginning of the tech bubble. Many people I worked with were excited to get to work so they could spend their day trading tech stocks in their personal accounts. Needless to say, much of their paper gains disappeared just as quickly as they were gained.

My simple philosophy on investments being overpriced? When I hear about an ‘investment’ idea from a cab (or Uber) driver, I know the end is near. While some of these will survive and thrive, selection and volatility will be pervasive.

Take-Aways

  • Many managers in our portfolios have been accumulating cash & if we see more volatility over the next year, welcome it. It gives our managers opportunity to buy the companies they like at a discount.
  • If you have some near-term spending needs like a home reno or a trip to the US or abroad (maybe over the next 12-24 months) let us know and we can help you plan for them now before volatility returns.

Sincerely,

Pete & The Wooding Group