One January in the mid-1980s I spoke up at the initial investment committee meeting said I thought that that year would be especially tough. Everyone laughed ,,,apparently because that’s what I said every January.

Nevertheless, I do think that next year will be especially challenging.

my general rules

Because of that, I think it’s important to go back to first principles, namely:

–almost all professional equity portfolio managers routinely underperform their benchmark indices, even before subtracting operating costs and management fees. So an index fund/ETF is probably the best option for all of us for most of our money. In my case, about 3/4 of my equity exposure is in Vanguard index products. Yes, Vanguard’s web infrastructure may be clunky, but I don’t see this as a big deal. And it’s really cheap. I manage the rest myself, because I think it’s fun

–for any money any of us actively manage, it’s important to study our own tendencies–what we typically do right and what we typically do wrong. The way I do this is through periodic post-mortems.

In my case, over twenty+ years as a pm I’ve generally outperformed in up markets and have counted myself lucky not to get beaten up too badly in down markets. About half my outperformance has come from industry/sector selection and half from overweights in individual stocks.

I know nothing about Healthcare or Staples and only a little about Financials. So it would take a lot of convincing for me to believe I’m not the dumb money in any of these. On the other hand, I think I know more than the average person about Energy, Materials and IT. Just about anyone can more or less wing it with Consumer discretionary. That leaves Industrials (really mostly suppliers to Consumer discretionary), Utilities and Real estate in no-mans land for me. Experience tells me the heart of my individual stock selection will be in IT and Consumer.

Taking a very wide perspective, what do I think next year will look like, from an economic perspective?

More tomorrow.