6 Lessons I Learned in 2013
NEW YORK (FMD Capital Management) -- As an investment adviser, I consider myself a student of the market. Every year the market teaches you new lessons that you can either absorb and learn from or ignore at your own risk.
In fact, some of these lessons happen to be old favorites that can serve as a refresher of how the market can humble even the most ardent bull or bear. One thing is for certain: 2013 will go down as a year where the trend was your friend and fighting it only made things worse.
Don't fight the trend: The one adage that always seems to drive the most logical minds crazy is that "the market can remain irrational longer than you can remain solvent." This is especially true in 2013 when the market climbed a wall of worry that included Federal Reserve policy shifts, government budget impasses, fiscal cliff negotiations and a host of other looming disasters. Through it all, stocks persevered and the SPDR S&P 500 ETF (SPY) is now knocking on the door of 30% gains in 2013.
The lesson that was reinforced was: Do not fight the trend or get too predictive about the future of stocks. All you had to do was look at a chart and follow the 50 or 200-day moving average. Both of which confirmed the bull market was in place. At the end of the day, price is the ultimate arbiter of reality.
Taper is not the top: Speaking of forecasts, remember when tapering would be the death knell for stocks and interest rates would shoot to the moon? In fact, the opposite is true. In its most recent meeting, the Federal Reserve kept its commitment to honor improving economic statistics and decrease its current pace of bond purchases by $10 billion per month. That clarity helped boost stocks to new highs and gave us a road map for what additional policy changes may hold in the future.In addition, interest rates remain largely unchanged from the days leading up to the Fed meeting, which leads me to believe that the threat of tapering was largely priced into the market. Another lesson to be learned is to not fight the Fed or become convinced that a specific outcome is a foregone certainty. Often the market will surprise you. There is always a bull market somewhere -- even in bonds: Many have declared the bull market in bonds to be dead. Some have even suggested that we are in the throes of a great rotation from bonds to stocks that will drive interest rates considerably higher. They point to the double digit losses in the iShares 20+ Year Treasury Bond ETF (TLT) in 2013 as a proxy for the entire bond market. I assure you that it is not.
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