From Scary to Satisfying

We reflect on 2016 with gratitude for good stock market performance and an economy that improved steadily after a poor first quarter. This progress defied so many skeptics. However, it’s also important to remember the start of the year. At the low on February 11, we had the worst year-opening selloff in the history of the Dow Jones Industrial Average, a stock barometer first measured in 1896! China’s economy was slowing and its stock market was crashing, oil prices had collapsed, and the specter of a global recession gripped financial markets. Results for major investment benchmarks are summarized below.

Lessons from 2016

Bartlett offers some key takeaways from such an extraordinary year.

1. Emotion has no place in the investment process. We are realists and always base our assessments on careful analysis of objective data. This kept us fully invested despite the early selloff.
2. Market timing can be seductive in turbulent times, but it rarely works. One of our favorite sayings is that “time in the market is much more important than timing the market.”
3. Long-term investors should expect occasional setbacks. History shows that 10% declines occur almost every year. A correction in 2017 would not surprise us and we would look for buying opportunities.
4. More prolonged selloffs usually happen in anticipation of recessions or much higher
   interest rates, especially if equity valuations are high. We think a major setback is unlikely this year, based on our ongoing assessment of business conditions, equity valuations,
   and interest rates.
5. Balance and diversification help control risk. Bonds and alternatives provided positive returns for 2016 and were steady amid the chaotic start for stocks. Many are tempted to abandon these portfolio safeguards and “chase performance” when conditions seem promising, but this is not prudent.
6. Careful financial planning is vital. Proactively identifying income and liquidity requirements should protect against the need to sell stocks and bonds at inopportune prices.

A New Sheriff in Town

In a time of political polarization, the incoming Trump Administration is welcomed by some and feared by others. Bartlett’s assessment is objective; we are focused on how new policies could impact economic growth and client portfolios.

1. We begin with a fact acknowledged by all economists – whether liberal or conservative. It is that sustainable economic growth results from labor force growth and productivity growth. All citizens should favor policies that support these factors, regardless of who occupies the White House.
2. We are encouraged by the prospect of corporate tax reform. Simplifying and lowering business tax rates should stimulate growth and investment, raising productivity, and should be especially positive for smaller businesses that are so important to innovation and job creation.
3. Some of America’s finest blue-chip companies have massive overseas cash holdings that could be returned to the U.S. if Congress legislated a lower tax rate for repatriation. Rather than being unproductive, this cash could be used for dividends, share repurchases, and capital spending.
4. By some estimates, U.S. infrastructure investment is 20% to 50% below what engineering studies indicate is necessary. Infrastructure investments promote productivity. A bold and enduring program, on the scale of President Eisenhower’s Interstate Highway System, would be desirable.
5. Bartlett is open-minded about personal tax changes, as long as estimated growth benefits are realistic. Streamlining regulations could be sensible too, though safeguards are necessary for a sound economy.
6. Tariff talk is a profound concern. U.S. leadership has fostered global cooperation and economic interdependence since the end of World War II. This is good for America, because almost 1/3 of corporate revenues come from foreign markets, and exports are 12% of our economy. Competition, under fair and transparent guidelines, promotes productivity. We should not fear it.
7. Immigration is obviously a polarizing topic these days. We think it’s important for all countries to welcome talented individuals in search of opportunity. Otherwise, labor forces will stagnate.

You can be assured Bartlett will carefully study developments in what promises to be a very interesting year.

Concluding Comments

We hope you will recommend Bartlett to family, friends, and colleagues who could benefit from our investment management and financial planning services.