Wednesday, December 30, 2015

2016, The Year of Opportunity-Less, but Continued Uncertainty

Last month I shared an article about:
Warren Buffett is having an unusually bad year

As a follow up, Mr. Buffett did not recover much in December:

Some of the uncertainty I wrote about in November has been resolved:

OPEC decided to continue producing oil at record low prices, losing huge sums, hoping to “make it up on volume and market share”.  Oil continues to be supplied at a rate higher than demand—and storage facilities are nearly full.

The Fed did in fact finally raise interest rates.

We are not going to have a budget impasse with a government shutdown but we will continue to have record deficit spending at the Federal level.

The economy, judging by holiday retail sales, consumer confidence and unemployment seems to be growing, albeit slowly.

But, a lot of uncertainty remains:

How long will it take for the price of oil, and other commodities to recover to more normal levels?

How fast and how much will the Fed continue to raise interest rates?

How will the reality that a lot of voters are just not satisfied with the status quo play out?  Seems like both the Left and the Right are highly energized. Change IS coming, but what kind?

How fast will the global economy grow, if at all in 2016 and beyond?

How will rising global terrorism affect our lives and economic circumstances?

The reality of Warren Buffett’s performance as an investor in 2015 simply points out that nobody predicts the future with certainty.  And measuring your personal investment performance over a one-year period is foolish.  Investing is a long term multi-year process. The outcome in the short term is always uncertain.  History teaches that over the longer term, despite uncertainty of events, investment returns from owning parts of profitable businesses increases our real wealth and/or produces attractive income over time.

In the long run, as Warren Buffett has stated, and as common sense reinforces, investing is really about buying and owning stocks/bonds at attractive “undervalued” prices. Attractive “undervalued” prices meaning low enough that the likelihood they will decline in price is low—in other words a price with a “margin of safety”. Few investments met that criteria in 2015.  Many are likely to meet that criteria in 2016.  We are already seeing signs of opportunity in short term investment grade corporate debt, and some well capitalized integrated oil companies.

So as the New Year of 2016 is rung in, be optimistic that prolonged periods of uncertainty ultimately produce very attractive opportunities for those who choose to focus on their long term objectives.

This paper is for educational purposes and for the sake of discussion. It is not a sales presentation and not a recommendation or personal investment advice. Opinions provided are exclusively those of Wayne Strout and are not the opinions by any financial institution. All investing involves significant risk of loss and there is no proven method to eliminate that risk. No investment should be made without a complete due diligence process, fundamental analysis and a discussion with your personal financial advisor.