Q2 2015 Market Commentary

In 1785 Robert Burns wrote a poem called "To a Mouse, on Turning Her Up in Her Nest with
the Plough after he had accidently plowed over a mouses nest which the mouse would need to
survive the upcoming Winter. The poem spawned the phrase the best laid plans of mice and
men.
I often think of this phrase when it comes to investing. As we have gotten more globally
integrated in our markets, we have become more sensitive to every variable because we are
bombarded by non-stop data from all over the world. Not only does this make it more difficult to
read the proverbial tea leaves, it also makes it harder to keep ourselves from taking action, any
kind of action, as we attempt to understand and come to terms with all this information.
We begin to convince ourselves that being in motion is better than standing still. We are tempted
to forego long-term plans when the market rallies, selling off carefully considered investments in
order to chase better returns in riskier fare. And then the data changes and we again are tempted
to scuttle plans when the market is showing signs of weakness.
In essence we willingly plow over our best laid plans in our effort to address the millions of
small details that are increasingly available to us, in real time at the touch of a button, anywhere
our phones can find a signal. Whether the current environment is good or bad, the 24-hour news
cycle (with headlines about the hottest IPO, or the next big Crisis) can amplify the effect of all
this information, to the point that we feel stress because we are not doing something and we
perceive everyone else is doing something.
Right now the financial press is focused squarely on the Federal Reserve Board, and every new
day begins with a fresh round of prognostications about when the Fed will raise rates, or if they
even should raise rates, or what would happen if they waited too long to raise rates.
The consensus at this point is that they will announce a rate increase this year, perhaps as early
as June but more likely September or later. There is concern that this could dampen the recovery,
and there are some compelling data points to support that concern. Higher rates will surely
impact the mortgage market, potentially forcing housing prices back down to compensate for the
increased cost of borrowing. Similarly, higher rates will increase the cost of debt service for US
firms that remain (or have again become) highly leveraged, and a stronger dollar will reduce the
value of earnings that are generated overseas.
There were, however, also some compelling data to support the idea that the Fed would print the
US Dollar into oblivion, and that hyperinflation was the only realistic outcome to such
aggressively loose monetary policy. But those who have abandoned either US dollars or stocks
in response to those predictions have found themselves in a costly conundrum invest in an
inflated market, or continue to wait on the sidelines for the US to fail?

Any move now as a direct response to the growing chorus of pundits discussing the impact of a
stronger dollar, in grave and knowing tones, could very well yield a more direct kind of damage
to investors. Abandoning your investments during a rough patch is no way to protect your
portfolio, just as plowing over your field is no way to protect your crops. At best, and with
crystal ball timing, you can mitigate that loss by replanting, or re-investing, in something more
productive. Typically, however, you end up stuck with fallow ground.
The anticipation, or fear, of the impact of any action typically does more to change the market
than the action itself eventually does. Even rather impactful events, such as the Fed raising
interest rates, ultimately do very little to portfolio values in the near-term because the effects of
such real events take a good deal of time to work their way through to the larger economy. But
the market can quickly become over-exuberant with anticipation, or drop precipitously with
dread.
Fortunately, despite all our adventures in monetary policy, our technological prowess and our
debilitating excesses of data, the business cycle still ebbs and flows in a relatively
straightforward way. Currencies see-saw in value against one another, industry sectors move in
and out of favor, and the long-term upward trajectory in the value of the economy both here in
the US and globally is undeniable. It is because of this that we can, in fact, make plans at all.
Timing certainly matters, and there have been (and will be) periods that can rattle even the most
stalwart and experienced investors. Generally speaking, however, the average performance of a
diversified and well-balanced portfolio of stocks and bonds still bears out as reliably as ever
despite the highs and lows of recent history.
By the end of 2007 the geometric mean return of large cap stocks since 1926, according to
Ibbotson was 10.4%. Then the financial world almost ended in 2008 and our faith in equities was
tested as the S+P 500 dropped over 60% peak to trough. For those clients who had newly retired,
this was devastating. The need to liquidate assets in such a downturn forced them to realize those
losses in real time. Many investors abandoned their plans and plowed over their fields. But for all
of that perceived destruction Ibbotson reports that the geometric mean of large cap stocks from
1926 to the end of 2013 was 10.1%.
A well balanced portfolio is not exciting, and it will not make anyone a fortune - that requires
real investment, the kind that takes 100% of your time and effort and may very well pay you
back with nothing. The kind that entrepreneurs, innovators and college students alike make every
day, when they invest in their own hope for the future. But by investment in the stocks and bonds
of an open market, we both participate in that future and demonstrate our faith in it.
Similarly, a company that has stood the test of time, or has created innovations that have changed
our lives, or has become so ubiquitous that its name has come to replace the word cola might not
be particularly exciting. But given the point of our investing of allocating our hard earned
savings so that we can one day send our kids to college, or buy that vacation home, or retire
comfortably it is rather easy to understand their appeal.

As such, our efforts this quarter will focus on pulling clients portfolios back into relative
balance by reducing the risks that have grown along with certain segments of the market. These
include particular bond market exposures, as certain bond issues have fully realized their
potential and no longer offer the kind of value that supports future price growth. This is likewise
true of some equity exposure, though to a lesser extent.
This is not a reaction to the latest inescapable doom that is making the rounds in the financial
press, be it Fed tightening, the size of their balance sheet or the gyrations of global currencies. It
is instead the tuning of a well thought out plan in recognition that in the short-term market
volatility can be overwhelming but over longer periods the markets cyclical character will help
smooth out even the steepest dips.
As always, we welcome your questions and look forward to any discussion you would like to
have about your portfolio, our recommendations or the economy generally. We can be reached
by e-mail at steve@nstarfinco.com or julia@nstarfinco.com, or by phone at 800-220-2161.
Steven B Girard
President
The opinions expressed are those of Northstar Financial Companies, Inc. and are based on information believed to
be from reliable sources. However, the informations accuracy and completeness cannot be guaranteed. Past
performance is no guarantee of future results.

Northstar Financial Companies, Inc, 1100 East Hector Street, Suite 399, Conshohocken, PA, 19428 Tel: 800 220 2161
www.nstarfinco.com Registered Representative, Securities offered through Cambridge Investment Research, Inc. a
Broker/Dealer, member FINRA/SIPC. Investment Advisor Representative, Northstar Financial Companies, Inc. a Registered
Investment Advisor. Northstar and Cambridge are not affiliated