QUARTERLY LETTER

1st Quarter 2017 — Investment Strategy Review

“Trouble is opportunity ”
                                          — John Templeton


The Trump stock market bump continued into 2017 before encountering minor resistance in March. Investor enthusiasm since the election has been stoked by the President's promises of deregulation, infrastructure outlays, and corporate tax reform, but reality is beginning to intrude. Nothing can ruin friendships like political debate, so we are not going to comment about the bizarre scene in Washington D.C. Do not expect tweets from us. Suffice it to say that the evolution of the legislative process will influence the market trend ahead. Investors also need to be aware that the Federal Reserve's gradual implementation of interest rate hikes is eliminating a powerful stimulus supporting asset prices.

On March 9, the bull cycle celebrated its eighth birthday making it the second longest advance since World War II. Successful investing requires the courage to buy aggressively during periods of widespread pessimism. We always keep in mind legendary investor John Templeton's simple maxim: “trouble is opportunity.” Back in early 2009, the climate was one of pure panic, however history affirms that purchases were rewarded. Today's atmosphere is the opposite in terms of sentiment and the reborn optimism is not necessarily a plus. The newspaper headlines highlighted below illustrate just how different the current situation is compared to eight years ago.

Early March 2009

  • “A Bleak Day for World Markets”
  • “What Are the Odds of a Depression?”
  • “S&P 500 Plummets to Oct '96 Lows as Bank Fears Grow”
  • “Confidence Crisis Over GE Intensifies”
  • “Citi Breaks a Buck”
  • “Dow 5000? There's a Case for It”

Early March 2017

  • “Stocks Surge as Optimism Rises”
  • “Small Investors Run to ETFs”
  • “Stock Market Fuels a Boom in Household Wealth”
  • “Individual Investors Wade in As Stocks Soar”
  • “Wall Street Hits Record High as Markets Bet on Fed Rate Rise”
  • “Next Stop Dow 30,000”

Our business is not forecasting and we remain bullish about the long-term. We are always eager to accumulate shares in dominant businesses. Nevertheless, investors often forget that risk tends to rise as market psychology becomes cheery. It is fear that produces value, not greed. The longest lasting advance of the modern era (10/11/90 to 3/24/00) survived more than nine years. Sentiment at its peak was euphoric as day trading became the national pastime and internet issues soared. We all know what happened; the following decade produced two of history's worst bear markets. Lately, retail investors have been flooding into index funds after sitting things out since 2009 and discount brokers are slashing commissions to promote trading. This does not mean danger is imminent, but the combination of high prices and investor complacency has diminished the margin of safety. We will not relax our discipline now that investors feel happy again.

Thank you for your encouragement and support. Please call anytime.

3/31/17           Henry D. Mercer III

Index 1st Qtr. Return   12/31/16 3/31/17
S&P 500 +5.5% Fed-funds .50 - .75% .75 - 1.0%
    10 yr. T-note 2.45% 2.40%
    Oil (W.T.I.) $53.72 $50.60

* Please contact Mercer Capital Advisers, Inc. if there are any changes in your financial situation or your investment objectives or if you wish to add to or modify any restriction to the management of your account. Our current disclosure statement as set forth on Part II of our form ADV is available for your review upon request.

* Mercer Capital’s management fee is billed quarterly, in advance, based upon the market value of the assets on the last day of the previous quarter.

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