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Never confuse investment genius with a rising stock market!


There have not been many investing years better than 2017. It is very likely that your portfolio has risen more in the past 14 months than any similar period in your life. The S&P 500 and all major indices ended the year at record highs. International stocks have been marching upward as well.

Amazon, Apple, Facebook, and Google each streaked to all-time highs last year. Scott Galloway authored New York Times bestselling book The Four, which examines how these four companies have changed American business. NYU professor Galloway believes the only competition The Four face is from each other, and the race is now on between them to dominate one another. The first half of the book looks at the history of retail and the business strategies of each of The Four (such as Apple transitioning from a technology company to a luxury brand before moving into retail). The second half attempts to predict what will happen in the future. This is an interesting, short read on this phenomenon. The Four have certainly left their mark on investing.

There has been a blizzard of interest in bitcoin and other cryptocurrencies. Personally, I do not see any way to value cryptocurrency. I do not want to own any investment I am not smart enough to value. Therefore I am on the bitcoin sidelines. It is plenty difficult to invest in assets I can value.

Yields on shorter term investments such as CDs, savings accounts, and money market funds are in the neighborhood of 1.5% or so. In direct contrast to the predictions of most economists and interest rate forecasters, most diversified bond portfolios enjoyed price appreciation of another 2%. This pleasant situation generated around a 3.5% return for many bond portfolios in 2017.

One should never confuse investment genius with a rising stock market. I find it interesting and unusual that just about all portfolio positions had a positive return. In other words, it has been almost impossible to lose money invested in anything since November 2016. This almost never happens. Many times a truly diversified portfolio by definition owns positions that disappoint.

I have written before that the Stock Market Prediction Hall of Fame is completely empty. No one can predict the future of the financial markets. Therefore your investment process for 2018 and the future should focus on a few simple steps. Start by asking, “What are my financial goals?” Next, determine a comfortable asset allocation strategy (how your portfolio is allocated between stocks, bonds, real estate, etc.). Finally, adjust your portfolio to match that strategy.

How do you determine a comfortable asset allocation strategy? Do not focus too much on the past 14 months. You will end up with an overly aggressive portfolio if all you think about is the gains. Factor in how you felt when financial markets melted down in 2008-2009. Talk it over with a trusted advisor and your life partner. Wise investors stick to their plans no matter if markets go up or down.

Tom Coulter, President of Meridian Trust, can be reached at