Guest column
At Riverplace Capital we are often asked what do we expect over the near as well as the intermediate-term. Our opinion is that we are still in the initial recovery period after a vicious bear market. Past experience in that this initial recovery period usually produced dramatic returns. That is what we are currently experiencing. Except for some fairly typical volatility, we believe this phase can last for some time yet.
Returns should be supported by an accelerating recovery. One caveat is that expectations for the current quarter may be unrealistic given that the recovery has just started. It will take a little time to gain momentum. For this reason, at Riverplace Capital, we recently raised a little cash in case we had the opportunity to pick up some bargains. At any rate, we expect to reinvest those proceeds before the end of the year.
This recovery is accompanied by recoveries in other markets around the world — a strong indicator that not only is the United States in recovery, so are our trading partners. This fact should help sustain and extend a positive cycle.
If one could plot out what a typical stock market recovery should look like, this is it. We made the first bottom last October, recovered some, then collapsed again to new lows culminating in investor capitulation in early March of this year. At first, the market began to recover without any economic evidence or support. When it became clearer that the worst was over, stocks already had made impressive gains.
After a few quarters, we may see a leveling off of growth. There are significant headwinds including a U.S. consumer that needs to deleverage, higher taxes and more regulation. Growth opportunities may become scarcer. We have identified several investing themes that we believe offer durable growth opportunities. These are participation in faster growing foreign markets, green energy, clean water, mobile Internet and Internet services.
The fact that interest rates are low, real estate may recover only slowly, and other alternatives are scarce, may leave stocks in a particularly favorable position for continuing interest. Also favorable for stocks is that the past 10 years have produced almost no returns for investors. Subsequent periods have historically been very favorable as market returns tend to regress to long term averages. It is also interesting to note now little respect this market advance has garnered. This leaves many potential converts on the sidelines. This is a positive contrary indicator.
It is impossible to see the future, but indications are that we are likely to have a favorable environment well into next year.
Peter Bower has over 30 years investment experience and co-founded Riverplace Capital Management (RCM) in 1998 with Charles M. Thompson Sr. who retired in 2000. As head of RCM’s Investment Management Committee, he provides strategic guidance for all RCM activities, with a focus on the firm’s investment management model, investment process, institutional portfolio management and analysis. Prior to forming RCM, he joined St. Johns Investment Management Co., Inc. as a Principal & Senior Vice President.
Bower began his career with Merrill Lynch as Vice President & Financial Consultant where he served for 18 years. Bower has a bachelor of science degree in quantitative systems and a Masters in Business Administration.
He has held NASD Series 7 Registered Representatives and Series 8 General Securities Sales Supervisor licenses.
Riverplace Capital Management, Inc. is an independent SEC Registered Investment Advisor based in Jacksonville and licensed in Florida. Established in 1998, Riverplace Capital’s client base includes individuals, partnerships, trust, endowments, corporations, municipalities and union plans.