We believe that investing in equities should be a balancing act, not an exercise in placing bets on one side of the market. A Series Discussing Active Management In Late-Cycle Equity Markets Many investors are worried about the age of the bull market, how much longer it can last and what might happen to their investments in a downturn. We can understand these concerns about a market reversal. As of early November, the S&P 500 Index was trading at roughly 20 times earnings, well above its historical average. The bull market has indeed lasted for some time now, and the current geopolitical environment offers plenty of potential scenarios that could shock the market. But we can’t emphasize strongly enough that it is largely impossible to predict the near-term path of the stock market. Skewing one’s portfolio heavily toward a strong bullish or strong bearish belief is speculation, pure and simple. We believe that investing in equities should be a balancing act, not an exercise in placing bets on one side of the scale or the other. At any given time, we need to weigh the risk and opportunity we see in the economy, in the stock market and in individual companies—all in an effort to balance the possible positive and negative outcomes of every investment we make. Perhaps the risk of a downturn is elevated after a nine-year bull market, but that doesn’t mean it makes sense to blindly reduce or eliminate exposure to equities. One’s timing needs to be nearly perfect in order to justify a decision to temporarily pull out of the stock market, and then re-enter at a later date. As such, we believe strongly in maintaining consistent, permanent allocation to equities as a core mechanism for generating long-term returns. We also believe that active, selective management of equity portfolios is a powerful tool for directing capital to companies that, in our view, offer a favorable mix of upside potential and downside risk. And if history is any indication, being selective in the stock market often generates particularly strong benefits during time periods when the market or the economy falters. In this series of articles, members of our research teams will share their perspectives on this philosophy. We will hear equity research analysts talk about risk and opportunity within the sectors they cover, and portfolio managers discuss the dangers of relying too heavily on traditional valuation metrics. We will also talk about tools we use to better understand how our portfolios might behave in a downturn. The common thread in each of these pieces: To the extent that an “aging bull market” conundrum exists, we have no interest in trying to address it through market timing. We believe in a consistent approach to investing at all stages of the market cycle, in which we embrace the value we hope to create through active, selective equity investment. The views expressed are those of the author and Brown Advisory as of the date referenced and are subject to change at any time based on market or other conditions. These views are not intended to be and should not be relied upon as investment advice and are not intended to be a forecast of future events or a guarantee of future results. Past performance is not a guarantee of future performance and you may not get back the amount invested. The information provided in this material is not intended to be and should not be considered to be a recommendation or suggestion to engage in or refrain from a particular course of action or to make or hold a particular investment or pursue a particular investment strategy, including whether or not to buy, sell, or hold any of the securities or asset classes mentioned. It should not be assumed that investments in such securities or asset classes have been or will be profitable. To the extent specific securities are mentioned, they have been selected by the author on an objective basis to illustrate views expressed in the commentary and do not represent all of the securities purchased, sold or recommended for advisory clients. The information contained herein has been prepared from sources believed reliable but is not guaranteed by us as to its timeliness or accuracy, and is not a complete summary or statement of all available data. This piece is intended solely for our clients and prospective clients, is for informational purposes only, and is not individually tailored for or directed to any particular client or prospective client. Private investments mentioned in this article may only be available for qualified purchasers and accredited investors. All charts, economic and market forecasts presented herein are for illustrative purposes only. Note that this data does not represent any Brown Advisory investment offerings.