Most baseball fans will have issue with this analogy, given the Philadelphia Phillies were bottom dwellers again in 2017 while U.S. stocks were highly successful, but bear with me. While the Phillies’ lousy winning percentage (.407) shares nothing in common with the capital appreciation seen in stocks last year (+21.8% total return for S&P 500 Index), the Phillies' prospects for the year ahead may share much in common with equities. Few baseball fans would give the Phillies a chance again in 2018, and many stock market enthusiasts would likewise argue against stocks now on the basis of valuation, but this diehard fan of each is seeing the Phillies and stocks under-appreciated for the value creation I expect in 2018.
It’s true that my independent track record with stocks is far more accurate than my home-fan favoritism of the Phillies et al Philly sports clubs, though I did become a season ticket holder in 1993 in anticipation of the World Series run my club made that year. In the case of the Phillies, nobody outside of Philly is buying yet based on popular value assessment, or lack thereof. Even I believe the team is still a few key pieces away from perfection. In the case of stocks, many argue that their perceived rich P/E valuations and Fed policy are serious red flags for the year ahead. I think both points of pessimism are wrong, though I’ll discuss the reason for Fed policy in-depth in my next market report. Each asset class, the Phillies and stocks, should reward relative enthusiasts and true believers in the year ahead. For stocks, I believe that means we can look forward to returns like those witnessed in 2017, or better.
