Quarterly Client Letter: April 2024

Until recently, much of our investment advice has emphasized the importance of maintaining your investment strategy, even when it’s tempting to jump out during market declines.

But so far in 2024, tables have been turning. Not only have many broad markets delivered gains from acceptable to amazing, there have been the usual assortment of sizzling stocks and tantalizing new products like crypto ETFs to distract us with their dazzle.

Strong market performance is welcome news. But at least in the wider investment world, we’re likely to see a different kind of response that isn’t as welcoming: Instead of fleeing the downturns, restless market players may be tempted to chase after speculative trends, no matter how closely they resemble past Fear of Missing Out (FOMO) frenzies.

There’s a reason Fear of Missing Out has its own acronym; it’s an incredibly common affliction. When we combine FOMO with recency bias, we humans are especially prone to sabotaging our own best interests in fair markets and foul.

When we succumb to recency, we give current news more weight than it deserves. We begin to believe the latest trumpets are somehow more important than the countless similar fanfares we’ve experienced throughout the history of capital markets.

We forget, before today’s “Magnificent Seven” (Tesla, Apple, Alphabet, Microsoft, Amazon, Meta and Nvidia) and related AI tech trends, there were the “Roaring Twenties” of U.S. industrial innovation (including automobile and airplanes), the 1970s “Nifty Fifty” blue chip extravaganza, and the 1990s “Dot-Com” boom (and subsequent bust). We can add these to countless other supposedly unstoppable market forces that have periodically taken investors by storm with their jaded battle cry: “This time, it’s different.”

In other words, there’s almost always something alluring and allegedly unprecedented to fuel our FOMO. But before you lend excessive weight to the most recent high-flyers, remember:

The latest innovations are often very real, remarkable, and potentially game-changing forces in our lives. But the manner in which capital markets absorb these forces and convert them into long-term returns is far more constant.

Which reinforces why our own refrain remains the same whether markets are up or down:

Neither hot nor cold streaks among stocks, sectors, or markets give us good reason to abandon an otherwise well-built portfolio.

Consider instead how quietly a remarkable centennial just passed: When the Massachusetts Investors Trust fund was launched 100 years ago on March 21, 1924, it became the nation’s first open-end mutual fund. Some 50 years later, John Bogle built on the idea by delivering the first publicly traded index mutual fund in 1976—today’s Vanguard 500.

Now, these are innovations worth celebrating, as they ultimately brought lower-cost, more efficient and equitable market access to all.

In similar vein, we pay homage to the recently passed Nobel laureate Daniel Kahneman. Having founded the field of behavioral economics, Kahneman and his colleagues demonstrated (among many other things) the hazards inherent to being a stock picker in hot and cold markets alike:

“Unfortunately, skill in evaluating the business prospects of a firm is not sufficient for successful stock trading, where the key question is whether the information about the firm is already incorporated in the price of its stock. Traders apparently lack the skill to answer this crucial question, but they appear to be ignorant of their ignorance.” — Daniel Kahneman

This is why we still advise building and maintaining a low-cost, globally diversified investment portfolio aimed at your personal long-term goals. This, despite the cognitive traps laid by the most recent rounds of FOMO. As Kahneman reportedly observed even more bluntly:

“If you think you’re an expert on picking stocks, then you should be fabulously rich. If you’re not, you’re probably not.” — Daniel Kahneman

In the days, quarters, and years ahead, we remain available to speak with you about your financial future. As always, let us know how we can help.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

All investing involves risk including loss of principal. No strategy assures success or protects against loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services.