2018 Wasn’t Historically Bad for Stocks But It Was For Diversification

Fortis Market Insights are meant to convey what we think are important business / market

events. Many firms share information from their “research directors”. We think hearing

directly from the people who manage the money and make the decisions can provide

some unique insights. We hope you enjoy.

TL:DR – 2018 was a bad year for almost every asset class.  Rather than let the financial

media convince you a recession is around the corner, focus on what CEOs are

saying…and they are not saying a recession is around the corner.  

2018 Wasn’t Historically Bad for Stocks But It Was For Diversification

Optimism is crucial to do well in the markets long-term. But some times and some years are just bad. 2018 - when it comes to the % of asset classes that have gone down last year - is historically bad. Investors generally have a mix of assets (stocks, bonds, commodities, etc.) that provide diversification and reduce volatility / risk to an extent. Not in 2018. 

Under Pressure.png

Source: WSJ


Almost everything was down in 2018: stocks, bonds, gold, oil - you pick it. We do think 2019 will be better for asset classes. If January is any indication, 2019 may be more “risk on”. And besides, look at 2017 (almost no asset classes were negative). If you average 2017 and 2018, say around 40% of asset classes negative, that’s a bit higher than average, but not the end of the world. 


Recession, Recession, Recession


If we say it enough does it actually come true? Potentially…


Humans can be talked into something - we know that much is true… If we are told something over and over and over again (“inculcation”), eventually a lot of people come around to that idea. 


The media needs juice, gossip, exciting things. The economy is growing at a steady 2-3% clip with tame inflation, solid employment, and significant less leverage is much less of an appealing story than:


“Does the stock market decline tell us the next big recession is on the way! 2008 all over again??? Tune in for Markets in Chaos tonight!!!”


There is inevitably someone willing to say that everything is about to fall apart. And it’s appealing to listen to them because it triggers your worst fears…all rationality starts to turn off and emotion takes over…because some guy/gal is spouting everyone’s worst fears that bad things might be coming. 


Rather than listen to the media, I’d rather listen to the people running the most important businesses in the world. These are straight shooters who are very rich, very secure in their jobs, and historically honest. 


Warren Buffett tends to be everyone’s favorite because he is the richest and outwardly humble. He also has access to more data on the US economy through his hundreds of owned businesses, from utilities to insurance to homebuilders to railroads to you name it, he probably touches it somehow. He said in May he thought we were in the 6thinning of the expansion….that’s a long way to go still.


So don’t let the media tell you what’s going on…take it straight from those running the businesses…and they say carry on.


Disclaimer: The views and opinions expressed in this quarterly letter are those of Fortis Financial Group, a wholly owned subsidiary of Glacier Peak Capital LLC (“the firm”). Portions of this letter may contain certain statements relating to future results regarding companies we may invest in which are forward-looking statements. These statements are not historical facts, but instead represent only our belief regarding future events, many of which, by their nature, are inherently uncertain and outside of our control. Such forward-looking statements are made pursuant to the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995.


Forward-looking statements are subject to market, operating and economic risks and uncertainties that may cause our actual results in future periods to be materially different from any future performance suggested herein. Factors that may cause such differences include, among others: increased competition, increased costs, changes in general market conditions, changes in industry trends, changes in the regulatory environment, changes in loan relationships or sources of financing, changes in management, and changes in information systems and technology.


The firm will not publicly update or correct any forward-looking statements to reflect events or circumstances that subsequently occur or of which we hereafter become aware.


This letter should not be considered an offering or solicitation to invest with the firm. Ideas and views expressed within are not recommendations to buy or sell any securities. Past performance is not necessarily representative of future results. The investment strategy of the firm is not designed to resemble returns generated by the S&P500 or any other index mentioned herein, and strategy volatility may be materially different from that of the indices.