This time each year people always ask, “What do you think the market will do this year?”
My answer most of the time is, "If I knew the answer to this question, I would be a fortune teller and not a wealth manager."
The truth is, I do not know what this year, or any year, for that matter, will look like financially. I see a lot of projections regularly from great managers. Talking to those same managers, they say that the numbers will get revised multiple times, which is a complicated way of saying, "We do not know."
Being this is letter season for money managers, I have been busy reading a lot. One manager who I follow and have quoted recently is Bill Miller. He has been around a long time and has a fabulous long-term record. Recently in an article, he was discussing market forecasting. In his letter, he says that he has noted before that just understanding what is going on now is preferable to try to guess what will happen in the unknown future. Miller goes on to say that now we are in a bull market in stocks that began in March 2009 and shows no signs of ending. The current state of the market is optimistic with a solid recovery underway. Corporate profits will be higher in 2021, inflation will stay low and the Federal Reserve will continue to provide significant liquidity. What all of this means is that for now, the support for stocks in 2021 is good.
Recently, I was on a call with a very well-known manager who Warren Buffett was responsible for helping start around 50 years ago. During the call, this manager was discussing businesses he owns and why he owns them. The common themes were the quality of the businesses and the management teams that they have in place – especially when the CEOs are top in class and aligned with shareholders. When you partner with great CEOs, the surprises tend to be good.
The point in all of this is you are a part-owner of a business when you own stocks. If you partner with great businesses, run by great managers, the ability to manage and avoid potholes in the future is higher than average.
I am comfortable with this way of thinking. If I were buying a local business, most likely, the first thing I would look at is who is managing it and what the team around that person looks like.
Next, I would look at its competitive advantages and then get into the numbers. If the numbers made sense and the other boxes checked out, I would buy it.
I would not buy the business unless I knew I was getting more than I was giving, all the way around. When someone buys a stock, it is the same concept: They are buying a piece of a business.
Great businesses evolve, disrupt and maybe at some point, get disrupted no matter who is president, and where interest rates are or where the national debt is. There is always a reason not to invest. I prefer to have clients aligned with managers who are buying ownership in businesses, and evaluating their investment decisions accordingly. The future is just too hard to predict for the market as a whole.
Aligning your interest with great companies, managed by great managers and CEOs, in my opinion, makes the most sense as opposed to trying to predict the future.
So, I am not sure how 2021 will work out for the market. I do believe that the fundamentals exist for a good stock market but economics change.
I am more excited about being a part-owner of businesses trying to disrupt, gain market share and grow profitability. Whether the market recognizes this today, tomorrow or in 2021 is not my focus.
~Lee Williams offers products and services using the following business names: Nowlin & Associates - insurance and financial services | Ameritas Investment Company, LLC (AIC), Member FINRA/SIPC - securities and investments | Ameritas Advisory Services (AAS) - investment advisory services. AIC and AAS are not affiliated with Nowlin & Associates.