Doc Brown, Plans, Getting Punched in the Mouth

No ‘How Bout That Market’ post this week because everybody was on vacation last week.  The most interesting thing that happened was something that didn’t happen – the Dow didn’t hit 20,000.  Here are a bunch of random thoughts to start the year off:

Back to the Future

I keep coming back to the movie Back to the Future.  The Cubs won the World Series (Back to the Future II was only off by a couple of years).  Japan is the largest foreign holder of US government debt, reminding me of when it was all but carved in stone that Japan would rule the world.  There was even a gag in the third movie where 1955 Doc Brown and 1985 Marty discuss Japanese quality.  What really pulls me back to this series, though, is Doc Brown’s demand of Marty to prove he’s from the future: “Tell me, future boy, who’s President of the United States in 1985.”  “Ronald Reagan.” “Ronald Reagan!?!  The actor!?!?”  It’s easy to forget we’ve had a celebrity President before.

Punched in the Mouth

I stumbled across an interesting quote from Dwight D. Eisenhower the other day: “In preparing for battle, I have always found that plans are useless, but planning is indispensable.”  I imagine he would agree with the sentiment behind Mike Tyson’s “Everybody has a plan ’til they get punched in the mouth.”  A plan won’t save you when it all hits the fan, but it does provide a valuable frame of reference so you don’t lose your mind when everyone around you is panicked.

Punched in the Gut

The S&P 500 beat about 75% of active managers benchmarked to the index in 2016.  It is incredibly difficult to consistently outperform the index.  Case in point: a manager that was on our approved list 10 years ago placed dead last in the large blend category this year.  The issue that made us leave was not performance.  The fund actually had some good years after we left.  We couldn’t justify the expenses.  The manager is still charging well over 1%.

Strata

In early 2016, an analyst for RBS sounded the alarm to “Sell Everything!”  In forecasting 2017’s stock market returns, the biggest bull is… RBS.  What a great illustration of how Wall Street is never wrong.  Just trot a bunch of different analysts with wildly different views.  Somebody is sure to get close to what actually happens and that’s when you make the rounds on CNBC.  I am a Jonathan Golub (RBC’s perma-bull) fan so it pains me to point out this stuff, but everybody does it, particularly across client strata.  Institutions get one set of data and predictions, high net worth get another, and retail is left with the dregs.  My point is not to put a whole lot of faith in market predictions, even (or especially?) from the name brands.