Economic predictors are not a reliable predictor for market results

When 2012 began with lingering concerns about the weak U.S. recovery, the debt crisis in Europe and political uncertainty, many financial pundits predicted a lackluster year for stocks and more market volatility. Some predicted a eurozone breakup triggered by impending debt defaults in Greece and Portugal. The global economy was showing early signs of a slowdown, and many investors were weighing the potential economic impact of the U.S. elections and the so-called “fiscal cliff.”

Despite the steady diet of bad news, most markets around the world logged strong returns in 2012. Major market indices around the globe delivered double-digit total returns, and as a group, the non-U.S. developed and emerging markets outperformed U.S. equities. The total market value of global equities increased by an estimated $6.5 trillion in 2012, while market-wide volatility fell to its lowest level in six years. The market returns for 2012 were anything but lackluster.

2012 was just another example of how economic predictors can’t be relied upon to predict market results.

As we enter 2013, many of last year’s concerns still exist. Europe faces historic challenges. The U.S. economy is still in a slow growth mode, and interest rates remain near historic lows. Factor in the uncertain impact of the U.S. fiscal cliff, and there are few financial “experts” projecting robust capital market returns for 2013. So what’s an investor to do?

“Don’t be discouraged by the gloom and doom prognosticators,” says Stephen High, chief manager of Kraft Asset Management, LLC (KAM). Stephen explains that a well-designed and diversified portfolio can help clients participate in good markets and weather the bad ones. “We help each client design an individualized investment plan, taking into account his or his ability, willingness and need to accept risk. Market outlooks can be used to set expectations, but not to drive asset allocation decisions.”

Stephen adds, “Our investment philosophy and practices are founded on fully-vetted academic research rather than emotion and gut feeling. We craft plans and portfolios that are tailored to each client’s unique situation and goals. So, while we’re always alert for opportunities to enhance our fundamental wealth management strategies as new academic research becomes available, there remain a few, basic overriding principles that guide our investment philosophy and practices — diversification and consistency being chief among them.”

“Diversification is your safety valve,” Stephen explains. “We routinely advise our clients to temper riskier investing (and commensurate higher expected premiums) with global diversification. It’s why our equity funds with non-U.S. holdings have been, and remain, broad in scope.”

He also says the market is too smart to outsmart. “It does not matter whether the next news bulletin is good or bad. What matters is whether it is better or worse than expected. That’s how the markets set prices — and they do so lightning-fast, well before anyone can expect to profitably trade on the news.”

If you would like to establish a sound investment plan and portfolio — one that’s designed specifically for your personal situation and goals, contact Stephen High.