“The two most powerful warriors are patience and time.” ― Leo Tolstoy

2016 was a year filled with surprises.  Donald Trump came out of nowhere to win the US Presidency, Great Britain voted to exit the European Union, and stock markets around the globe seemed to love it all.  It is hard to imagine the media, professional pollsters, odds makers, and stock market prognosticators getting it more wrong in the span of just twelve months.

January began with a selloff in the US as the Standard & Poor’s 500-stock index fell 10.5 percent and pundits issued the age-old warning that “ …as January goes, so goes the year.”  Well, that observation couldn’t have been more wrong.  The S&P 500 ended up rewarding patient investors with a 11.96% return for the year.   Next, the drone of “it’s a stock pickers market” echoed across the canyons of the financial media.  Once again, the majority of actively managed funds lagged behind their index-tracking peers.

Brexit and the US Presidential election are best described as “epic fails” for the global media and their ability to poll voters and accurately predict outcomes.  In the case of Brexit, UK voters opted to leave the European Union.  Economists and pundits were quick to warn of the “systemic risks to Britain, the EU and the world” but financial markets did not agree.  The FTSE 100 Index that measures the performance of a basket of UK stocks responded by rising 13.85% during 2016.  Next, Donald Trump shocked his own party, the media, and much of the world by winning the US Presidency.  The S&P 500 responded positively rising 3.82% in the final quarter of 2016, with small stocks faring even better.

The biggest surprise of 2016 may possibly have been the outperformance of small cap stocks in the US as the Russell 2000 rose 19.48% with almost half of that return coming came after the US election.   In the infamous words of a 1960’s TV star: “Surprise! Surprise, Surprise!”

So what are our key takeaways from 2016?

Markets are unpredictable; pundits get it wrong all the time and a consistent   approach to investing fuels superior returns.  Diversification, discipline, and patience are among the best weapons investors can wield against the onslaught of negativity and dubious predictions offered by Wall Street and the media.  Investors increase their odds of success by maintaining well-constructed portfolios, constantly exposed to the dimensions of higher returns.  Owning a basket of stocks spread across the globe, while favoring smaller companies with attractive valuations and higher profitability has proven, once again, to be a sound and profitable strategy.

My Predictions for 2017     

2017 promises to be yet another year filled with surprises.   With a new US President and Congress, the pending exit of the UK from the European Union, and countless other catalysts across the globe, it will surely be a year filled with twists and turns.  While not normally a forecaster, I am compelled to agree with J.P. Morgan’s prediction issued over a century ago pertaining to what the stock market is likely to do this year: “it will fluctuate.”