DISCLAIMER: The following is the opposite of a political commentary.
On November 6 of last year, I received multiple tearful calls from distraught clients convinced that the world was coming to an end. They feared for their freedom and, as it relates to me, the value of their portfolios. I reassured them that I have a lot of very smart clients on both sides of the political aisle that were equally convinced Armageddon would ensue if their candidate didn’t win. Both sides were wrong.
Despite holding the most powerful leadership role in the world, under the U.S. system of democracy, the President, for better or worse, can only do so much good or bad thanks to the checks and balances installed 250 years ago by our prescient founding fathers. And, when it comes to the stock market, there is no evidence to suggest any correlation between who sits in the Oval Office and the performance of our investments.
There is no denying that, in the short-term, ‘the market’ can be swayed by sentiment (aka: fear and exuberance) and react to headlines or the Apocolypse de jour. We’ve seen several examples these past few years with names like COVID-19 and Artificial Intelligence as investors scramble for the lifeboats or reach for their share of the pie, but, over time, stock prices are not driven by current events or investor excitement, but rather, are 100% a measure of a company’s underlying value.
Innovation is the fuel, but in the end, profitability determines what a company is worth and profitability lights the flame of growth. A great idea incites speculators who drive up stock prices in an effort to capitalize on the ‘next big thing’ (think: “the internet”). But, if that idea can’t be easily monetized and turn a profit, the stock price will eventually reflect that reality and come back down to earth (think: “dot-com bubble”).
Despite political or regulatory climate, like water running downhill, the best companies find a way to turn their product or service into profits by providing what their market wants at a price it’s willing to pay. This is Economics 101: Supply and Demand.
The S&P 500 is like an all-star team in that it represents the best of the best companies in the world in every industry. Hall of Famers retire (Blockbuster Video, Sears & Roebuck, etc.) but are quickly replaced by the next generation of superstars (Netflix, Amazon, etc.). So, whether it’s clothes, cars, or CPUs, if we’re buying, somebody is producing and somebody is selling. That is the stock market. Like a boy on an escalator with a yo-yo, the yo-yo is constantly going up and down, but as long as the boy stays on the escalator, he keeps moving up. [Editor’s Note: In case you missed it, the lesson here is to stay on the escalator and ignore the yo-yo. 😊]
At SageCreek Planning and Investments, our guiding principle remains steadfast: your goals drive our plans and portfolios, not predictions about the economy and the markets, or, worse yet, newspaper headlines and soundbites. Commitment to our philosophy will continue to guide us in 2025 and beyond.
Our Philosophy: Stay Focused on What Matters
We are long-term, goal-focused, plan-driven investors. Our core investment philosophy centers on building broadly diversified portfolios of high-quality businesses. We believe that:
- The economy and markets cannot be consistently forecast, nor can market timing yield consistent success.
- The premium long-term returns of equities are best captured by enduring their frequent, sometimes significant but historically always temporary declines.
- As long as your long-term goals remain unchanged, so will our plan for achieving them.
A Look Back and Glimpse Ahead
Last year was strong for equity investors, thanks largely to big tech. Strong economic growth and rising corporate profits fueled another impressive year for stocks, with the S&P 500 gaining over 20%, led by the “Magnificent 7” tech giants. Encouragingly, market gains started spreading beyond just a few major players, while corporate earnings and dividends hit record highs, setting the stage for further growth in 2025.
Many of last year’s key market drivers—economic growth, rising corporate profits, and stable interest rates—remain in place. While valuations are higher than historical averages, they aren’t reliable timing tools. The best approach? Stay focused on your long-term plan and avoid reacting to short-term market swings.
Volatility is an inherent part of investing. In 2024, the S&P 500 experienced a peak-to-trough decline of just under 9%, yet the market rebounded to new highs. This highlights the importance of maintaining perspective and staying committed to your financial plan. Risks still exist, including a potential inflation resurgence, Federal Reserve missteps, or unexpected geopolitical events. However, history shows that patient, disciplined investors tend to come out ahead. Stay the course.
At SageCreek, our approach is grounded in experience and supported by academic research. While no portfolio is immune to market pullbacks, diversification and discipline remain the most effective tools for achieving your financial goals.
We are deeply grateful for the trust you place in us. It is an honor and a privilege to serve as your financial advisors. As we look forward to another year together, we encourage you to reach out with any questions, concerns, or updates to your goals. We are here to support you every step of the way.
Investors should note that diversification does not assure a profit or protect against loss in declining markets and can't guarantee that any objective or goal will be achieved.