Crowell Weedon Asset Management Montecito Investment Portfolios

Q1 2019 Market Commentary

Dear Fellow Investors,

When managing portfolios to help reach your long-term goals, we consider a number of inputs to help make long-term investment decisions. This quarter, we wanted to share some of these inputs and give a glimpse into our thought process when it comes to piecing this ever-changing puzzle together.


Sometime this year, for the first time in human history the number of people over the age of 65 will exceed the number of people under the age of 5. This trend is only accelerating. In 2012 the global population reached 7 billion people with 8% being over the age of 65. As the world is projected to reach over 9 billion people by 2050, the 65 year old plus age group will grow even faster, nearly doubling, and represent approximately 20% of the global population. While this aging population is partially a result of lower fertility rates amongst the developed world, it also reflects a human success story as living to 70 or 80 years old is no longer a rarity in many parts of the world. We find demographic research exceptionally useful when it comes to making long-term investment decisions. Growth or contraction in populations can directly impact economic and business results. With trends clearly defined for overall and generational population numbers, we also asked ourselves if there is any work being done on how age affects people’s attitude about investing.


Here we found some incredible research completed by the University of Sydney regarding the volume of grey matter in certain parts of the brain. For most of us not familiar with brain anatomy - grey matter is involved in muscle control and sensory perception such as seeing, hearing, memory, emotions, speech, decision making, and self-control. The results of this research showed grey matter volume and density reduces with age. This reduction in a specific region of the brain was significantly predictive of individual attitudes towards risk – the more volume, the more willingness to take risk. This work is still in its infancy but may provide biological proof as to why most of us prefer simplicity to the complex as we age.


With markets pushing toward all-time highs, we are always curious about investor sentiment. Excitement and euphoric behavior often result in lofty valuations while depression and despondence can provide excellent opportunities. BlackRock’s Global Investor Pulse survey and Legg Mason’s Global Investment survey provide some wonderful color on investor’s mindsets.

BlackRock’s most recent survey highlighted that when people start investing, they create a greater sense of well-being with 43% saying they are more positive about their financial future. This was true regardless of affluence, age, gender, or life stage. Yet, 57% of those surveyed report they do not currently hold any stocks or bonds in their portfolios. The most common responses for not investing:

I don’t have enough money to start investing

I find information about investing difficult to understand

I’m too worried about my financial situation today to think about the future

I’m afraid of losing everything

BlackRock’s 2017 survey also provided valuable insights:

4 in 10 Americans have yet to start saving for retirement

58% of Americans held their liquid investable assets in cash

While 59% of Millennials have started saving for retirement, they are reluctant to invest their savings with 65% holding cash.

Millennials have the highest allocation to cash amongst any age group (Gen X 59%, Baby Boomers 54%, Silent Generation 47%)

80% of Millennials admitted the Great Recession influences their investment decisions.

Legg Mason confirmed BlackRock’s findings of investors being risk averse in their latest survey with cash being the largest asset class held at 30%, followed by equities at 24%, fixed income at 17%, real estate at 15%, alternatives at 9%, and gold / precious metals at 5%.


With two significant market declines occurring within a decade, we now see proof of Millennials not wanting to experience the market pain that their parents did. This is a generational shift in sentiment toward the stock market. Further, the Baby Boom generation has not done a great job of saving for themselves but will inherit significant assets from their parents who have done an excellent job of saving. Not wanting to take a lot of risk with their inheritance, these funds seem to be finding their way into less volatile investments such as cash and fixed income. With an aging world, a possible biological driver of risk aversion, and the next biggest generation (Millennials) riddled with fear about investing in the stock market we ponder some possible outcomes:

Are we in for a significantly longer period of time with lower interest rates than anyone expects?

With funds flowing into other assets besides stocks, are we also in a prolonged period of time where stocks never reach truly euphoric valuations?

In the end, only time will answer these questions. However, it is worth noting what sentiment was toward the stock market only 20 years ago. In 1999 there were 457 IPOs in the United States with most of them being internet and tech companies. Of these, 117 doubled in value within the first day of trading! Valuations on some of the high-flyers were truly astronomical as measured by Price to Sales ratios: Cisco at 30, Juniper at 147, and Microsoft at 33. Today’s high-flyers looks like outright bargains compared to those valuations: Amazon at 4, Tesla at 2, and Netflix at 10. Source: FactSet database

Although the market continues to push toward all-time highs, we take comfort in knowing that both demographic trends and a generational shift in sentiment have stocks facing an uphill battle when it comes to winning a popularity contest. As history has repeatedly shown, this is usually the best time to invest in them.


Blake Todd, CWS Senior Vice President, Financial Advisor Portfolio Manager, Branch Manager

Jarrett Perez, CFA Senior Financial Advisor, Portfolio Manager


The information contained in this report has been taken from trade and statistical services and other sources, which we deem reliable. We do not represent that it is accurate or complete and it should not be relied upon as such.

The opinions expressed herein are those of the authors and Montecito Investment Portfolios at this date, are subject to change, and are not necessarily that of DA Davidson & Co. The same is true of statements of financial market trends, which are based on current market conditions. We believe the information provided here is reliable, but do not warrant its accuracy or completeness. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The views and statements described may not be suitable for all investors.

This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for accounting, legal or tax advice. Reference to future returns are not promises or even estimates of actual returns a client portfolio may achieve. Any forecasts contained herein are for illustrative purposes only and are not to be relied upon as advice or interpreted as a recommendation.

Neither this presentation, nor any chart or graphs within this presentation may be used, in or of themselves, to constitute investment advice, to determine which securities to buy or sell, or when to buy or sell such securities.

There are risks inherent in any investment and there is no assurance that any money manager, asset class, style or index will provide positive performance over time.

The Standard & Poor’s 500 Index is a capitalization weighted index comprised of 500 widely-held stocks on US stock exchanges. Companies included in the index are selected by the S&P Index Committee, a team of analysts & economists at Standard & Poor’s.


Created with images by nattanan23 - "money profit finance" • Priscilla Du Preez - "untitled image"

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