4th Quarter 2020

At the dawn of a new decade, the global economy is changing rapidly with the rise of the services sector. The world’s Gross Domestic Product (GDP) accounted for by services is experiencing a sharp increase in developed regions and especially emerging economies, such as Sri Lanka and Brazil. This growth in services has not only transformed the make-up of the world’s economic production but has altered trading patterns. In the U.S. economy, the services sector (a broad category of the economy that includes technology, media, financial services and transportation) is, by far, the largest contributor to GDP, accounting for nearly 70% in 2018. This contribution has rapidly accelerated in recent years as value added by service producing industries now accounts for 79% of total growth in GDP.

The fusion between mature manufacturing and service companies with intangible assets, such as digitization and software, are creating new and accelerated growth opportunities and value
to shareholders.

Even more transformative is the growing nexus of physical (tangible) products and digital (intangible) technologies, which is revolutionizing what manufactured products can do and contributes to a renewal of their value and place in the economy. Examples abound and include Smart TVs that are networked for streaming, exercise equipment that comes with videos or live streamed instructions, cars with navigation systems, printers with ink jet replacement subscriptions and so on. The takeaway is that investors have a much broader choice in incorporating technology into their portfolios and, as a result, it is a misappraisal to define technology representation as consisting exclusively of companies in the tech sector. Traditional companies with dynamic management have embraced this paradigm shift, reversing and extending the lives of their maturing products and creating new shareholder value. Companies that embrace the rise of services are creating jobs and wealth, and they are making products we rely on more efficient.

1st Quarter 2019

After two seemingly polar-opposite quarters, one thing not in short supply is the number and diversity of market commentaries and outlooks going into 2019. Through February, the U.S. stock market had its best first two months of the year since 1991 amid mixed economic news following the worst December since the dramatic days of 1931.  The increase in volatility comes after a long period of ever-increasing valuations and steadily advancing markets. Many investors have become accustomed to the robust valuations and low volatility of an almost decade-long bull market. The sudden sharp volatility of a potential new “normal” calls for perspective, particularly for investors who feel nervous and compelled to act during such stress points.

The duration of this bull market has the potential to cause investors to make the wrong decisions, vis-a-vis their portfolios, when volatility reappears after a long hiatus. As we approach the 10^th anniversary of the second longest bull market in modern times, the phenomenon known as “recency bias” can be a dangerous trait for investors. “Recency bias” is a cognitive condition that lulls us into believing what has happened in the recent past will continue for the foreseeable future. Investors continuously fall victim to this bias during both positive and negative market cycles.

Our brains are conditioned in such a way that recent memories are more easily recalled. Thus, it is completely reasonable to think the market will perform well when we’re in a bull market, even though most investors are cognizant of the cyclical nature of the stock market. Alternatively, when the market turns negative, we may be inclined to think that these conditions will persist and reactively liquidate stock positions. Obviously, selling low is not a good long-term investing strategy. Markets recover and invariably those who have sold are likely to be still sitting on the sidelines.