In an article sent to me recently by a client, Burton Malkiel, author of many books including A Random Walk Down Wall Street, makes the following statement about corporate earnings (read it twice if you need to):
“…the structure of U.S. corporate earnings increasingly reflects economic activity abroad – including the rapidly growing emerging markets – rather than activity in the U.S. This is why corporate earnings have been growing so rapidly even though U.S. economic growth has been so tepid. For large U.S. multinational corporations, the continued growth in emerging markets will be the most important determinant of the future growth of corporate earnings. For many companies, what happens in China, India and Brazil is more important than the inability of Europe to get its house in order and the paralysis in the U.S. and Japan.”
For the well-diversified investor or plan administrator, this is encouraging.
A few talking points…
~ Diversify prudently and don’t chase sectors. Make sure you and your employees know that adding a hot sector or a mutual fund after it had a great run is a destructive practice. Make sure you own the entire market and that you own enough fixed income to reduce your downside volatility. Then let it happen. Don’t allow yourself to become fixated on what’s happening here or in Europe. The companies you own will not settle too long for tepid returns. They will look elsewhere for returns, and we will be there.
~ Be reminded that you don’t own the U.S. economy – you own companies, and companies are incredibly resilient and innovative. There will be out-of-the-box returns in sectors that cannot be predicted. Only new and unknowable information can change pricing. As soon as a new venture is known, the pricing will immediately change. My clients are ready in advance with a well-diversified and continuously rebalanced portfolio for optimal results, whatever may happen.
~ The government (of any country) cannot act fast enough or know enough or focus enough to capture their own tail much less an opportunity. Don’t put your faith in the government. You can more easily trust the efforts, motives, abilities, and ventures of 13,000 companies worldwide than you can 600 suits in Washington or 1400 wigs in London.
Investing well is a discipline, not a game. It’s a practice, not entertainment. Be entertained by the media hype and the comedians, even the politicians if you want to. None of that matters. But know this: In the board rooms of 13,000 companies that you own, the men and women around the table are not smiling unless you are. They work for you. They will not let you down.
Be patient investors.