October 2010 Market Commentary

Market Commentary: October 2010

Before I walk into the Pentagon each morning, I read, among other news sources, the key articles in The Washington Post.  Although this newspaper has never been part of my daily routine, it is required reading while I am stationed in Washington D.C.  The fact of the matter is I am enjoying it!  The perspective is slightly different from my regular sources, focusing more on political and defense issues.  I still read all the same papers and magazines I have in the past – The Washington Post is just another addition.  However, it reminds me that maintaining perspective is hard work.  But first, let me review the market numbers.

What a difference a quarter makes!  After a dismal August, the markets ignored a report showing consumer confidence dropping and instead focused on corporate earnings.  All the major stock indices finished up substantially for the third quarter of 2010 while the fixed income securities performed reasonably well.  The lagging one-year figures continue to show strong recovery with the exception of the international index lagging due to Europe’s woes.

What changed from last quarter?  Isn’t 2010 still a fragile year?  Yes, the political uncertainty, struggling global economy, tepid housing market, unemployment figures, and war issues all remain the same.  The answer is company profits.  Profits can drive up the stock market even if investors do not.  In the swirling news of the day, fundamental market forces continue to plod ahead and oftentimes make the biggest gains when the going gets tough.  The going remains very tough. 

The events of the last few years should have reinforced to investors that the promise of wealth without risk is more difficult to come by than a health-care model with bi-partisan support (The Washington Post influence is showing here). Properly balancing global investment risk begins with appreciating the complexity of the investment environment and then understanding the critical relationships well enough to navigate through the onslaught of information to add value.  This is where we return to the challenge of maintaining perspective. 

Like Harv, Eline, and most professionals, I am reading all the time.  My particular focus is naturally business, economics, politics, and national security.  [I generally know more about what is happening globally than locally, so I rely on others like my wife to keep me straight!]  In addition to reading, the meetings and conversations I have with other professionals and key contacts help broaden my understanding - for which I am very thankful.  All this study and discussion constantly challenges my assumptions and deepens my insights into other views.  However, one can get lost in all the analysis. 

One of my favorite investment professionals, Warren Buffett, lives in Omaha, Nebraska, far from the craziness of financial centers like New York and London.  He publicly explains that this is an advantage to him.  He is able to focus more clearly and not be distracted by the daily barrage of information and "good ideas" from experts.  He calmly looks at fundamentals and acts on them slowly.  Although I have the privilege of working with some wonderful people on critical issues to our nation, being in Washington, D.C. with all of the insights, analyses, and views can add to the deluge of information.  I look forward to coming back to Peterborough for many reasons, but the “perspective advantage” is certainly one of them. 

As your fiduciaries, as much as we are able to understand market complexity and sound economic perspectives, we must match that knowledge with our understanding of your perspective and ideas.  Your thoughts and views are critical to our success together.  Our meetings, telephone conversations, the occasional email exchange, and the articles we share with one another are all instrumental in forming our understanding that allows us to add value.  [You often add to our reading with articles you think are important - thank you!] This is why we want to have routine discussions with you, even if they are brief.  The whole is greater than the sum of its parts!

During the next few months, before year’s end, we will be reviewing tax strategies and opportunities in light of your individual circumstances and objectives.  The future of tax policy is certainly murky, so we will build on the strategies we have in place.  We look forward to continuing our progress, and our perspective, together. 

“It’s not that I am so smart, it’s just that I stay with problems longer.” Albert Einstein

May you have a delightful autumn and upcoming holiday season,

Carl Amos Johnson, MBA, CFP®, AIF®

October 1, 2010