From our family to yours, Happy New Year! I hope you had a wonderful holiday season celebrating Christmas and the New Year with family and friends. The big excitement in our household Christmas morning was the addition of Molly!
Two thousand eighteen was perhaps the strangest year I’ve experienced in my career as a financial advisor. Most importantly, it was one of the truly great years in the history of the American economy, and by far the best one since the global financial crisis of 2008. Worker productivity, which is the long-term key to economic growth and a higher standard of living, surged. Wage growth accelerated in response to a rapidly falling unemployment rate. Household net worth rose above $100 trillion for the first time, yet household debt relative to net worth remained historically low. Finally—and to me perhaps the most remarkable—for the first time in American history, the number of open job listings exceeded the number of persons unemployed! 1
It was also a year in which the equity market could not get out of its own way. Having gone straight up without a correction throughout 2017, the S&P 500 came roaring into 2018 at 2,674. In February we had a 10% correction, followed by several months of consolidation. The advance resumed through the summer, with the Index reaching a new all-time high of 2,931 in late September. It then went into a savage decline, falling to the threshold of bear market territory: S&P 2,351 on Christmas Eve, off 19.8% from the September high. A rally in the last week of trading carried it back up to 2,507. Two thousand eighteen thus became the tenth year of the last 39 (beginning with 1980) in which the Index closed lower than where it began.
It will be worth restating, even in the context of a letter primarily focused on the year just past, my overall philosophy of investment advice. It is goal-focused and planning-driven, a stark contrast from an approach that is market-focused and current-events-driven. Every successful investor I’ve ever known was acting continuously on a plan; failed investors, in my experience, get that way by reacting to current events in the economy and the markets.
Many of you had heard me reference a quote by Mr. Warren Buffett, “The market is the most efficient mechanism anywhere in the world for transferring wealth from impatient people to patient people.” I have included a “Bear Market Chart” below illustrating all of the bear markets we have experienced since World War II. Historically speaking, those that have simply stayed the course have been rewarded greatly. We understand that times like this can be challenging. Our team is here for you and fully committed to your success.
We sincerely appreciate your friendship and trust, and we look forward to our continued partnership in 2019.
Happy New Year!
Bain