2017 Year End Letter

This is the time of year for predictions. The broad consensus of stock market

predictions a year ago was that the S & P 500 Stock Index might be up a small

percentage at best, following a near 12% rise in 2016. For the year just ended, the

index was up 21.8%. So much for predictions! Fifty years ago, John Detmer, my

mentor, told me that a market prognosticator has as much chance of being right as a

coin flipper. Over my career, he has proven to be right. Yet, we all (including me)

read and listen to the predictions of “gurus” with interest. While these forecasts are

entertaining, they can be quite detrimental to long term investment performance if

we act on them, no matter how convincingly they are presented.

Morgan Stanley did a study in 2015 showing that the return on the S & P 500 Index

for the 25 year period 1990 – 2015 was 9.2%. However, if one missed the best 45

days during that period the return was 0.4%. In addition, the good days and good

years seemed to come when least expected.

To me, the message is clear. Unless you get lucky like the coin flipper who calls it

right three times in a row, you have to stay invested to earn the return that equities

have to offer. You can’t afford to miss those 45 “best days” and there is no way to

predict them. For my part, I will continue to listen to the predictions for

entertainment, but spend my time looking for stocks that will create long term

value, if they are held through those unpredictable market cycles.