As market valuations continue to climb upward, investors can develop a fear of heights, nervously anticipating a major correction — or worse. While many of our own clients have expressed concern about the high market, long-term investors — rather than speculators— are among those who should feel the most secure. That’s because they are invested in companies with a proven record of double-digit growth earnings and exceptional financial strength, not speculating in hit-and-run, high-risk stocks. With short-term liquidity needs met and a reasonable horizon for investing, they can rest more easily in volatile times.
Savvy investors also know the importance of having a dedicated, trusted investment advisor who knows them personally and can provide invaluable counsel during times of uncertainty. A disciplined approach with a proven wealth management partner working with you over time is the safest route to achieving your financial goals.
When evaluating the stock market from an investor’s point of view, versus that of a shorter-term speculator, it’s paramount to consider the valuation of the company’s stock price. Investing in a company’s stock is the same as paying for the right to participate in the company’s future profits. Tesla and Twitter, for example, are considered speculative stocks. They have no profits, which makes it difficult to evaluate their trajectory toward future profits. Additionally, Netflix trades at more than 86 times its estimated 2018 earnings. History paints an ugly portrait of companies that trade at such exorbitant multiples.
A conservative, steady investment philosophy will see you through times of uncertainty. We believe our clients profit from a strategy that targets companies in exceptional financial condition with little debt, significant cash reserves and excess annual cash flow. These companies also are benefiting, and will benefit, from an identifiable major trend, providing added reinforcement of prospects for future growth. When investing for income, we utilize investment grade bonds, exchange-traded funds, preferreds and other instruments we feel offer a reasonable return consistent with the risk.
Conditions indicate that markets could continue to see upward movement. That said, markets will always go up and down, causing investors anxiety that, sometimes, results in poor decision making. Smart investing requires a lot of work, as does achieving your financial goals. That’s why it’s so important to have a proven advisor helping you stay the course, through good times and bad.