If you're a partisan Republican, skip this commentary

US stocks surge to the highest levels of 2012, just 7.1% below the October 2007 record high

The S&P 500 closed earlier today at the high for 2012, up 18.0%, handily exceeding our 2012 forecast of 12% gains. In April we wrote:

"The market will do one of three things over the rest of the year: 

  1. Trade flat for the next 9 months - not likely.
  2. Surge into a "buying panic" as investors finally jump back into stocks, which would leave the market up 20% or more by year end.
  3. Plummet as some exogenous event (like last year's Japanese tsunami or the Greek credit crisis) cause investors to retreat to cash once again." 

In June after stocks slumped over concerns about Europe, we wrote "US stocks however, were a good value a month ago and a better value today. With the weak hands forced out by the recent 10% pullback, we are moving forward with investments in stocks." With two and half months remaining in the year, our "buying panic" forecast is starting to look prescient.

A client writes "I'm curious to know how Heron is adapting to the major changes taking place and which might emerge in the short to mid-term in the markets."

Our answer: we care ever LESS about what happens day to day in the markets, which at this point is entirely random. We maintain our core discipline of buying REAL companies with REAL revenues and REAL and SUSTAINABLE earnings. We balance our primary US equity allocation with non-US stocks (primarily through index funds,) bonds, commodities and cash. We build all-weather portfolios, which cope well with anything the markets throw at us. Most importantly, we rely on our own TRAINING, EXPERIENCE and INSTINCTS and don't care a fig for the conventional wisdom, which time and again is wrong.

Read the entire commentary here.