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April 17th, 2017

If Q1 2017 had a theme song, it might be, “There’s a Kind of Hush All Over the World.”


There was the usual stream of global news. To name a few highlights:

  • U.K. Prime Minister Theresa May signed Article 50, officially starting the two-year clock ticking on a U.K. Brexit by March 29, 2019.
  • The U.S. inaugurated President Trump in January, and the Federal Reserve raised its overnight lending rate by a quarter-point in mid-March. Chairman Janet Yellen commented, “The simple message is the economy is doing well.”
  • Canada’s big banks were called to task by a CBC News exposé of an industry rife with high-pressure sales techniques. The Financial Consumer Agency of Canada will be investigating the accusations in April, and there have been additional calls for a parliamentary inquiry.


In the meantime, markets marched onward:


  • The Dow Jones Industrial Average broke 20,000 to considerable fanfare on January 25. It broke 21,000 on March 1.
  • In seeming disconnect, The Wall Street Journal (WSJ) also reported the Dow’s “quietest quarter” in 51 years. As BPS and Pieces blogger Phil Huber points out: “Milestones and large, round numbers are two things that human beings are predisposed to get really excited about.” But the Dow’s average daily movement during the first quarter was actually a scant 0.3185% – its lowest quarterly swing since 1965. Basically, the bigger the numbers become, the less the raw point swings really matter.
  • While U.S. stocks have been popular in recent years, emerging markets are fast becoming the newest market-timing darlings. At quarter-end, WSJ columnist Jason Zweig noted, “Emerging markets are up 12% this year, double the return of the S&P 500 index of U.S. stocks, counting dividends.” He also noted, “one-twelfth of all the money of these [emerging market ETF] funds has come in over the past 90 days.”


In this context, as he’s been doing for more than 50 years, Warren Buffett published his annual Berkshire Hathaway shareholder letter. To put this quarter’s moves in proper perspective, here are two of our favorite bits of Buffett’s usual wit from this year’s letter:


Chasing trends: “This year the magic potion may be hedge funds, next year something else. The likely result from this parade of promises is predicted in an adage: ‘When a person with money meets a person with experience, the one with experience ends up with the money and the one with money leaves with experience.’”


Following forecasts: “If 1,000 managers make a market prediction at the beginning of a year, it’s very likely that the calls of at least one will be correct for nine consecutive years. Of course, 1,000 monkeys would be just as likely to produce a seemingly all-wise prophet. But there would remain a difference: The lucky monkey would not find people standing in line to invest with him.”


As some of the U.S. equity benchmarks have hit new highs, investors begin to question if they should reduce their risk.  Regardless of what is transpiring in the capital markets, it is almost always better to stay the course, rebalance as necessary, and tie portfolio allocations to short and long term goals.  That is what we will continue to do for you.