18 March 2016
Are you ready for some surprises and wild finishes? That’s what March Madness brings each and every year! It’s also an opportunity to take a high level view of the current investment environment with what lies ahead.
Six years ago we became the first Registered Investment Advisor to use the NCAA basketball tournament as a way to show our readers a forward-looking view on the stock market. We break down and assign each of the four “regions” with an asset class and then pick teams (companies) that we think have the best chance at doing well relative to others.
This year we will dive right into our investing bracket looks and how we think the remainder of 2016 will play out.
To set the table let’s take a quick moment to recall last year and the undefeated Kentucky team. They came into the Final Four 38-0 and were a virtual lock to win it all but as you may remember the Wisconsin Badgers shocked everyone and provided the surprise millions of fans tune in for every year! This type of “upset” is exactly how we think 2016 will pan out in the Large Cap asset class.
Five years from now people will look back at 2015 as a year that the stock market extended its bull market run for one more year. Investors will exhibit a short-term memory lapse and forget that it actually was a very rough year with heightened volatility, the first correction, and a market that actually turned in negative numbers if you looked “under the hood”. The problem is…most people will not remember this and only look to see the S&P 500 finished positive +1.38%.
Without the “FANG” stock phenomena, however, 2015 would have been very negative. In other words, the index was falsely propped up by some mega cap names like Facebook, Amazon, Netflix, and Google (ergo the acronym “FANG”). Without the massive performance that these companies returned, the average breadth of the market was negative and dismal.
#1 Amazon (AMZN) vs. #6 Lockheed Martin (LMT)
As you’ll note in the above bracket we have Amazon (AMZN) continuing to outperform the vast majority of the market until it runs into Lockheed Martin (LMT). Simply think of Amazon as last year’s Kentucky and Lockheed Martin as Wisconsin…