Weekly Market Recap The price of oil recently fell below $40 per barrel, attracting attention in the media, given that oil was trading over $100 per barrel last year. A falling oil price is generally bad for the stocks of energy producers. On the other hand, it can be positive for companies that use oil in their products and services from airlines to chemical companies, since their input costs will typically fall as a result of lower oil prices. This is one example of how a diversified portfolio can help manage risk. What hurts one sector of the economy, or stock market, can help another.
Also, remember that historical context can be useful. For example, in March 1999 the oil price fell to $10 a barrel and a cover article in the Economist, titled "Drowning in oil" mentioned that the oil price could fall further to $5. In fact, over the following 12 months the price of oil tripled. We use this example not to forecast the oil price, but to illustrate just how challenging it can be to make short-term predictions.
What can be helpful in situations such as this is a concept known as value investing. This is not attempting to predict the future, but looking to add potentially less expensive stocks to your portfolio based on current metrics.
Looking at US stock performance data from July 1963 to December 1990, Fama and French found that holding less expensive stocks (as assessed on a price/book value basis) historically boosted returns by 0.42% per month or 5.1% a year, on average, relative to holding a portfolio of stocks that appeared to be at an average valuation using the same approach. Value investing is an approach we look to implement by holding value tilted ETFs in our stock allocation, as well as our automatic rebalancing process across asset classes.
Notes:
Oil price: https://research.stlouisfed.org/fred2/series/DCOILWTICO
Economist cover from 1999: http://www.economist.com/node/21519208
Fama and French on value investing: http://www.bengrahaminvesting.ca/Research/Papers/French/The_Cross-Section_of_Expected_Stock_Returns.pdf
Disclaimer:
The views expressed are for informational purposes only and are not intended to serve as a forecast, a guarantee of future results, investment recommendations or an offer to buy or sell securities by FutureAdvisor. All expressions of opinion are subject to change without notice in reaction to shifting market, economic, or political conditions. The investment strategies mentioned are not personalized to your financial circumstances or investment objectives, and differences in account size, the timing of transactions and market conditions prevailing at the time of investment may lead to different results. Clients may lose money. Past performance is not indicative of future results. Investments in securities involve the risk of loss. Any tax strategies discussed should not be interpreted as tax advice and do not represent in any manner that the tax consequences detailed will be obtained. Clients should consult with their personal tax advisors regarding the tax consequences of investing. Your Portfolio Update Over the past month your portfolio was down 1.6%, and we have no recommendations at this time to improve it. Congratulations on maintaining one of the best portfolios among all our clients. We will, as always, continue monitoring your account and alerting you if there are actions to take (periodic rebalancing is required, etc). Ways To Improve Your Portfolio | 0 Accounts with Actions | Your portfolio has no recommended actions right now. We'll watch over your investments and alert you with an email when there are actions for you to complete. Sign in to see detailed steps  | | Sign in to see your full dashboard | | 
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