About DAVID EDWARDS
President
David is the president, founder and portfolio manager of Heron Financial Group. David was previously associated with Morgan Stanley, JP Morgan Securities and Nomura Securities.
David holds a BA from Hamilton College and an MBA from Darden Graduate School of Business, University of Virginia.
David includes sailboat racing among his hobbies and serves on the board of Nantucket Community Sailing in Massachusetts.
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About HERON FINANCIAL GROUP, LLC
Heron Financial Group is a Registered Investment Advisor serving individuals and families across the United States, Europe, Asia and Latin America.
Our clients are corporate executives, managing partners of law firms and consultancies, Wall Street professionals, owners of businesses, and heads of families.
Our purpose is to clarify and simplify the means by which our clients will achieve their financial goals.
Client relationships range from $500,000 to $10 million in assets. |
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As US stocks hit a 6 month low two weeks ago on October 15th, we wrote, "The CNN Fear and Greed Index hits "Extreme Fear" (but we're not selling...)" In hindsight that was a good call because US stocks, as represented by the S&P 500, rallied significantly over the next two weeks and closed at the 35th record high of the year on October 31st. The S&P 500 peaked September 18th at a record 2,011.18, but since fell 8.5%, which leaves the major average down 6.2% on the quarter and up just 1.6% on the year.
We commented specifically, "We don't fear the stock market, which goes haywire far more often than people remember. We fear our clients ordering us to do something stupid, like liquidate their portfolios. Fortunately, our clients have ridden through enough peaks and valleys at this point to be confident that this too shall pass. For any clients or prospects with cash on the sidelines, now would be a good time to invest, anyone who bought stocks October 16th would have gained 8.4% by month end, which is about what an investor would expect in a year. Or the investor could have earned 11.0% buying on January 1st.
The obvious question is: why didn't we jump out September 15th, at the previous market high, jump back in on the 16th. The answer: stock market movements in any time frame of less than a month are completely random. Any market timing strategy we have ever looked at, after subtracting commissions and taxes, yields substantially less than "buying and holding." So boring, and yet so true.
What does drive non-random stock market trends? Revenues, earnings, earnings expectations and interest rates. A helpful way to evaluate a world event is to ask, "how will this affect the earnings of General Electric, Pfizer and McDonalds." For example, how will a terror attack in the Canadian Parliament House affect the earnings of GE. Not at all? Then we should buy GE when some idiot attacks a government building, not sell. Two weeks ago, there was a bunch of bad news on world affairs, but earnings were fabulous (and that's why stocks are at a new high.)
People are terrible at understanding risk
This table is a good guess of US mortality for 2014:
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Cause of Death
| Estimated # of deaths | | Heart Disease | 600,000 | | Cancer | 575,000 | | Diseases of the lungs | 140,000 | | Stroke | 130,000 | | Accidents | 125,000 | | Alzheimer's | 85,000 | | Diabetes | 75,000 | | Influenza | 54,000 | | Kidney disease | 45,000 | | Suicide | 40,000 | | Drug overdose | 42,000 | | Car accident | 34,000 | | Firearms | 33,000 | | Bicycle Accident | 750 | | Hot Tub | 300 | | Police Officer | 150 | | Avalanche | 35 | | Lightning | 30 | | Terrorism (US CItizens worldwide) | 20 | | Terrorism (US Citizens domestic) | 5 | | Ebola | 1 |
So many other things will kill you ahead of Ebola, but because death from heart disease, the flu, or firearms is accepted by our society as a reasonable risk, we don't focus on these concerns at all. Ebola can be reasonably contained in the context of a modern medical system, but because it is scary and new, we way overreact. Applying overreaction to your stock portfolio WILL harm you in the long run.
Election night forecast
We projected months ago that the Senate would change parties, while the House remained in Republican hands. With hours to go in the polls, it seems very likely that the composition of the next Senate will be 52 Republicans, 47 Democrats, 1 Independent. We project that nothing gets accomplished in Washington over the next two years, and that the campaign for the US presidency switches into high gear November 5th.
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As always, please call with questions and concerns.
Yours sincerely,
David Edwards
Heron Financial Group, LLC
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The HERON FINANCIAL GROUP Financial Markets Commentary is published following month end and whenever market conditions require comment. The views expressed in this letter represent HFG opinion and strategy as of the date published and can change at any time upon receipt of new information. Data quoted in this letter are from sources deemed reliable, but no guarantee of such data is implied. |
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