As we think back to all the potential landmines over the last 12 months, we are grateful to have a nice increase in our composites. The market faced many negative headlines throughout 2017. An untested president with an active Twitter account raised concerns for both parties from both a policy and the resulting economic perspective. An irrational, nuclear-capable North Korean dictator displayed alarming capabilities. The FOMC raised rates three times, the most in a decade, and started reducing its balance sheet. Cyclically adjusted price-to-earnings (CAPE) ratios increased to over 32, the highest in 16 years. Part of the discipline of professional investors is avoiding the temptation to fold-the-tent and go to cash when the outlook appears murky and prices are full, as they did in 2017. Poor investor behavior has proven to be an expensive mistake time and time again. Dalbar, a financial research firm, claimed the average investor trails a 60/40 portfolio by 4.6% per year due to suboptimal investor behavior, a.k.a. market timing (see table below). As long-time admirers of Warren Buffett, we agree we are not able to time the market. At RVP, we use discipline to our advantage and will continue with our time-tested approach to provide a real return. Specifically, we systematically aim to take advantage of three well documented ways to consistently add value: diversification, rebalancing and value investing.
Read our full Q4 2017 Investor LetterRelative Value Partners merged with Kovitz Investment Group Partners, LLC as of August 2024. All Insights are opinions of the author as of the posting date. Any graphs, data, or information in this publication are considered reliably sourced, but no representation is made that it is accurate or complete, and should not be relied upon as such. This information is subject to change without notice at any time, based on market and other conditions. Past performance is not indicative of future results, which may vary.