Past Performance Is Not A Guaranty Of Future Returns

That is the disclaimer that we are required by our regulators to impart to our clients and prospective clients in order to make sure that we do not confuse the issue of the potential for future investment portfolio performance. Many advisors may have this disclaimer in small print somewhere in their literature, but unlike us, they are not nearly as forthcoming.

At High Rock, we also follow with a commitment to our clients to work our hardest to provide them with what we consider are the best possible risk-adjusted returns: returns that consider exactly how much risk (standard deviation from the mean, also known as the potential for loss) comes into play while attaining reasonable portfolio growth. (see chart below)

You all (Y'all) may be looking for something more exciting, you won't find it here. We don't sell excitement. You can possibly find that at your local casino. As a risk manager, I can tell you (and I am certain that you already know this) casino odds favour the house (not the gambler). Lottery tickets, by the way, are worse.

We sell long-term comfort and restful nights (with low fees, fiduciary responsibility, family wealth management, tailored investment strategy and 24/7 personal client service). 

We focus on risk first. I know that is a repetitive message, but it is our mantra. We also invest our money in the exact same assets as our clients, so if I don't like the near-term risk scenario for myself (and Paul and I discuss this daily), I will not be comfortable allowing our clients to have excessive risk.

We have not changed our view for 2018, we see plenty of risk on the horizon. Unlike those who are comforted by high and rising US stock markets, we see that as risk that is high and rising. Safety lies in greater allocations to cash and cash equivalents.

Short-term  (1 year returns) can and may be misleading and our understanding of natural human cognitive biases (behavioural finance) tells us that the "recency effect" will tend to create expectations based on the recent past to be extended into future decision making.

Expectations of a continuation of equity market performance going forward are easily influenced by what has been occurring (record highs in some markets).

This should (and does for us) raise caution flags. Our longer-term (5 year) absolute and risk adjusted returns for a balanced and globally diversified investing strategy (with a tactical application) are a reflection of our ability to drive portfolio growth, with a much better return per unit of risk taken (but does not necessarily guarantee future performance). 

Do not let 1 year equity market returns skew your judgement. Those returns come with high and rising risk and as we expect, if volatility (which has been historically low) returns to more normal levels (reversion to the mean), that could spell trouble for portfolios with too much risk.

And as I have said before and will say over and over again (ad nauseum), most individual investors (and a good portion of their advisors) have very little understanding of the risk in their investment strategies, even if they are in a nicely balanced ETF portfolio (which is why the regulators insist on the above disclaimer). Especially when equity markets are moving higher.

Fortunately for our clients, we do.

Wishing you all a happy, healthy and prosperous new year!!