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We believe education is the strongest defense against the vagaries of the market. Each quarter we’ll share with you our perspective and some context about the economy and markets. We hope you find our Relative Strength newsletters interesting and informative.

Relative Strength Newsletter

3rd Quarter 2017

Model Activity*

We hope you are enjoying a nice summer and had a good 4th of July.

During the second quarter, we continued to closely monitor our Relative Strength(RS) indicators as we prepared for our move to 305 Carteret Street in downtown Beaufort. In April, as International Equities continued to gain RS, we increased our exposure in the ETF portfolios. US Equities and International Equities are still ranked #1 and #2, respectively, with International continuing to gain ground. The Growth portfolio now has a 17% allocation to International Equities, with more conservative portfolios having slightly less exposure.

As you may have seen, there were some changes within the International sleeve during the quarter. Brazil fell out of the top tier and Japan and Chile were added. Later in the quarter, we saw Peru fall from grace and India replaced it. The Relative Strength process continues to keep us invested in the strongest areas of the markets. Within the US, Technology, Banks and Industrials are still the focus.

The Income portfolio saw a change in the Equity Income sleeve, with Federated Strategic Value Dividend fund being added and Prudential Jennison being sold. This portfolio also has International exposure.

At 305 Carteret we are getting settled in and invite you to stop in and see our new “digs”. As always, please call with any questions.

Were you Aware?

In case you missed it, here is a quote from Andrew Adams, Raymond James, July 5, 2017 report:

“As investors and traders start to trickle back in from celebrating Independence Day here in the United States, we also must pause to celebrate what was a pretty decent first half of the year for world equity markets. Despite all the uncertainty as we entered 2017 surrounding the new Trump administration and key elections in several European countries, things have remained mostly positive for those willing to face the global risks.

Out of the 76 country stock markets tracked by Bespoke Investment Group, 84% are in the green for the year so far, with an average first half return of 7.84%. Even better, though, the downside has remained mostly contained, as half of the countries with negative returns have lost less than 5% and only three countries are down more than 10% on the year (Oman, Russia, Qatar). Raise your hand, too, if you had Latvia being the top stock market for 2017, with a 32.22% return so far (we didn't).”

The bull market continues…as Sir John Templeton, legendary investor said “Bull markets are born on Pessimism, grow on Skepticism, mature on Optimism and die of Euphoria.’ Euphoria seems a ways off…

Process over Short-Term Outcome**

Short-term outcomes are important, but process ultimately determines long-term results. Jim O'Shaughnessey, author of What Works on Wall Street, recently wrote about 7 traits that he believes are required for active investors to win in the long run.

We fully agree with all 7, but we found #2 on his list to be particularly compelling:

2. Successful Active Investors Value Process over Outcome.

“If you can’t describe what you are doing as a process, you don’t know what you’re doing.” ~W. Edwards Deming

The vast majority of investors make investment choices based upon the past performance of a manager or investment strategy.

So much so that SEC Rule 156 requires all money managers to include the disclosure that “past performance is not indicative of future results.” It’s ubiquitous–and routinely ignored by both managers and their clients.

In keeping with human nature, we just can’t help ourselves when confronted with great or lousy recent performance. “What’s his/her track record?” is probably investors’ most frequently asked question when considering a fund or investment strategy. And, as mentioned above, the vast majority of investors are most concerned with how an investment did over the last one- or three-year period.

Yet successful active investors go further and ask “what’s his or her process in making investment decisions?”

Outcomes are important, but it’s much more important to study and understand the underlying process that led to the outcome, be it good or bad. If you only focus on outcomes, you have no idea if the process that generated it is superior or inferior. This leads to performance chasing and relying far too much on recent outcomes to be of any practical use.

Indeed, shorter-term performance can be positively misleading. Long-term success with active management comes from doing sufficient due diligence to either design a robust investment process yourself (or to employ one designed by someone else) and then to execute, execute, execute. If the process is sound, longterm outcomes should take care of themselves.


Tumlin Levin Sumner Wealth Management of Raymond James



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