FMD Capital Management

6 Lessons I learned In 2017

Written by David Fabian, December 27th, 2017

The end of every calendar year brings about a sense of accomplishment from both a personal and professional standpoint.  It’s also a wonderful time to reflect on lessons that were learned or re-enforced over the course of the preceding twelve months.  I have made this somewhat of an annual tradition and believe wholeheartedly that this process makes me a better investor, advisor, and writer. 

If you are a glutton for punishment, you can read my previous four years of reflections here: 2013, 2014, 2015, 2016.  The following list marks my fifth installment in this ongoing series:

1. Volatility can stay lower for longer than you expect.  There is a well-known adage that markets can stay irrational longer than you can stay solvent.  I’ll amend that to include volatility as well.  It can sure stay subdued for much longer than many people believe possible (me included).

2017 was filled with healthy doses of political turmoil, social unrest, and other polarizing issues of our times.  This didn’t deter the stock market for more than a couple of percent on the downside and the bias continued to point towards new highs.  It’s rare we see a year of such subdued volatility, but it’s also a wonderful reminder that just because you “expect a correction” doesn’t mean you will get one.

2. The stock market does not care about your politics. This one was a hard lesson for many to experience this year.  There are scores of investors that were convinced the ushering in of a new President and political party alliances would create havoc throughout the global stock and bond markets.

The reality was the exact opposite.  Market prices rose across the world as continued optimism for business expansion and trade took hold.  The counterintuitive nature of this psychology never ceases to amaze me.

It bears repeating here once more: keep politics out of your investment portfolio.  It rarely turns out the way you instinctively believe it should.

3. New investment crazes offer profound insight. 2017 was truly a breakout year for crypto currencies like Bitcoin, Litecoin, and Ethereum.  Not only did these alternative assets put up quadruple digit performance gains, but they also captured headlines and attention around the world.

I have no idea what the true utility and growth expectations for this investment class should be.  However, they are giving investors who are both participating and watching from the sidelines a gift in demonstrating how sentiment drives trends.  Investment manias generate perplexing levels of greed and fear on both sides of the fence.  Don’t ever forget how quickly money can be made or lost based purely on the mentality of the herd.

Staying level-headed through all market cycles can be a valuable tool in your arsenal.

4. When in doubt, sit it out. For me this one hits closest to home with crypto currencies.  I don’t understand them or how they should be valued.  I’m completely comfortable not knowing how they operate and it’s the primary reason why I have no intention of putting my money in them.

This can be applied to so many other aspects in life as well.  You don’t have to be everywhere at once or constantly chasing the hottest trends.  Just find something you understand and are good at.  It keeps life so much simpler and reduces the asymmetric risks you never see coming.

5. Discipline beats conviction more often than not. It was easy coming into this year to scare yourself out of the market.  Valuations were already reasonably high for stocks.  Interest rates were all but guaranteed to rise for bonds.  Commodities have been unpredictable at best.  There wasn’t a compelling edge to be had for a big year of investment gains.

Nevertheless, money is still being made in numerous asset classes by investors who practice discipline over gut-feelings or portents of doom.  Staying committed to existing trends, even when experiencing self-doubt, is a difficult practice to adhere to.

6. Less is more. This year I took a step back from writing as much on the blog.  There simply wasn’t a great deal of compelling setups or interesting commentary that fit my framework.  I opted instead to spend more time researching, watching, and testing various ideas.

There is a big difference between having to do something (writing) and wanting to do it because you have something worthwhile to say.  Sometimes less is more and this year is a prime example for me of that phenomenon.

I can say with a great deal of enthusiasm that I am excited for the opportunities and unknowns that 2018 will bring.  I think we are experiencing a pivotal time in the markets where new factors will be tested, and risk dynamics will appear unannounced.  I look forward to sharing more thoughts with you in the coming year and welcome those who share my mindset to join us for the journey.