"The world looks brand-new," said Hobbes. "A New Year ... a fresh clean start," said Calvin. "It's like having a big white sheet of paper to draw on," said Hobbes. "A day full of possibilities," said Calvin. "It's a magical world, Hobbes old buddy ... let's go exploring."
Bill Watterson wrote those words in December 1995 as he concluded his Calvin and Hobbes comic strip. Every year since then I open my first column of what will soon be a New Year by quoting that phrase because the message is so abundantly clear. The financial markets are analogous to Calvin's magical world: full of possibilities. All that remains is for you to go exploring.
Looking back on 2013, the financial markets have done well, actually extremely well. The Dow Jones industrial average and S&P 500 are both up more than 20 percent, while the Nasdaq has soared over 30 percent. The broad rally puts the Dow on track for its best year since 2003 and the S&P 500 on pace for its best year since 1997.
While historical data have their place, that is not what is at issue here. Rather it is what you are going to do going forward that counts. And despite what you may have been told, investing in stocks has been and always will be the greatest wealth builder of all time.
Now amongst all the merriment over those numbers, let me add a word of caution: We will not see the same performance in 2014.
Do not get me wrong, it will quite likely be a good year on Wall Street. One key reason is that the economy grew at a 4.1 percent pace during the July-September period, the fastest rate of growth in nearly two years. Compare that to the 2.5 percent rate of growth in the second quarter. And my current forecast is for a 3.2 percent annual growth rate in 2014.
Meanwhile, if you are apprehensive as to your ability to adroitly invest in today's market, take heart. Common sense, combined with a modicum of patience, will often produce annual gains of 11 to 15 percent. Nonetheless, there will be times when stochastic events of an exogenous nature will take their toll, at least temporarily. That is the nature of the beast.
Now wait a minute, you say. Are not the markets ready for a "correction?" Forget about corrections. Forget about where the markets are. Transfer your attention away from the continual prognostications of what might happen and instead concentrate on how to best allocate your investment resources among individual companies. You can forecast a company's performance; you cannot forecast the market's performance.
There is every indication that with a growing economy and the start of the Fed's tapering program, your investment risk is more than manageable. There are a number of reasons for this. For example, the Fed has made it abundantly clear that interest rates are likely to remain at their current low levels through 2014, maybe even into 2015. And inflation will likely remain benign throughout next year. Both should be an incubator for higher corporate profits and subsequently higher share prices.
Do not fall sway to the passions of the market or the tenets of its prognosticators. Instead, consider the words of Wall Street legend Lucien Hooper.
"What always impresses me," he once wrote, "is how much better the relaxed, long-term owners of stock do. The relaxed investor is usually better informed and more understanding of essential values; he is more patient and less emotional."
Now relax and have a healthy, happy, and safe New Year.
Lauren Rudd is a financial writer and columnist. You can write to him at LVERudd@aol.com. Phone calls accepted between 9 a.m. and 3 p.m. at 1-941-706-3449.