Quarterly Commentary

Happy New Year! As we welcome 2024, the question looms: What lies ahead? Recently, on Face the Nation, a CBS correspondent speculated about the possibility of a black swan event in the upcoming year, citing various reasons for this forecast.

The term "Black Swan," popularized by the book written by Nicholas Taleb, refers to high-impact events that, in retrospect, appear inevitable but are challenging to prepare for. The "Black Swan theory" emphasizes statistically unexpected events of significant consequence and their dominant role in history. While Taleb's book delves into terms like degenerate meta probability and antifragility, he also humorously highlights the inherent unpredictability of Wall Street, where a celebrated hedge fund manager one year might find themselves collecting unemployment checks the next.

Looking back at black swan events like world wars, 9/11, the subprime crisis, and Covid, we note that hindsight is, indeed, 20/20. Predictions from financial pundits at the beginning of 2023 included fears of a recession, government default, increased inflation, and unemployment. Yet, in 2023, market movements defied expectations, prompting The Wall Street Journal to note, "Almost no one thought 2023 would be a blockbuster year for stocks."  As Andrew Pease, Chief Investment Strategist at Russell Investments, remarked, "I’ve never seen the consensus as wrong as it was in 2023."

This serves as a stark reminder that even seasoned experts struggle to accurately forecast the markets. If there’s a message to take from 2023 markets, it is this: Timeless wisdom best informs timely decisions. 

Here’s how Morgan Housel describes the same in his new book, Same as Ever.

“The typical attempt to clear up an uncertain future is to gaze further and squint harder—to forecast with more precision, more data, and more intelligence. Far more effective is to do the opposite: Look backward, and be broad. Rather than attempting to figure out little ways the future might change, study the big things the past has never avoided.”

The idea that there's never a good time to time the market, a concept championed by Burton Malkiel since 1973, remains a timeless truth. The unpredictability of market trends was evident in 2023, where the consensus on the market's direction proved to be wildly inaccurate.

What do we expect for the coming year? Certainly, there will be volatility, but for us as long-term investors we believe in the persistent upward trend of our portfolio values interrupted by temporary downturns, for whatever reason they may occur.  This is the evidence of history, and has demonstrated to be the most realistic, and accurate of predictions.

As we enter 2024, our perspective on diversification remains unwavering. While it may be tempting to chase the recent winning streak, or shirk back in fear of a black swan, maintaining a globally diversified portfolio tailored to your needs provides a more resilient approach. Diversification acts as a safeguard against the inevitable surprises that the coming year may bring.

We encourage you to navigate the uncertainties of the market with a long-term perspective. As we strive to make informed decisions in an unpredictable world, we wish you a well-diversified investment portfolio in 2024, accompanied by abundant health, happiness, and harmonious well-being for you and yours.

Regards,

FVIM