Normal, Natural, and Necessary AGAIN
Originally Posted on 1/9/2019
“This is my 10th bear market. I’ve been asked how this compares to the past. Like the other nine, they are never the same except that they are very unpleasant.”
William H. Hurt, Chairman Emeritus, Capital Strategy Research, July 20, 2002
I had the incredible fortune to work at Capital Group/American Funds with Bill Hurt before I joined Warren in 2012. I was so fortunate to soak up his 60+ years of wisdom and investment experience. When I would come across his new writings from time to time, I felt like a little boy on Christmas morning opening up gifts. You may disagree with Bill’s bear market description as “unpleasant” and use another description. We are fully aware that there are many issues facing the markets – trade conflicts with China, the Mueller investigation, and the government shutdown to just name a few. It is often said that the market always climbs a “wall of worry.”
The fact is the recent downturn of 20.2% in the S&P 500 that we have experienced since September 21 barely qualifies as a bear market. No matter. When you lose money it feels rotten. Though as much as our brain wants to disagree, these downturns are normal, natural, and necessary. But when you receive your 12/31/18 statement you will not feel good. A quick recap of 2018:
- The S&P 500 lost 6.2% in 2018 (without dividends reinvested) breaking a streak of 9 consecutive up years 1
- Foreign Stocks represented by the MSCI EAFE index were down 16.1% (without dividends reinvested) 1
- Bonds represented by the Bloomberg Barclays Aggregate Bond Index was up 0.01% 1
All of the above adds up to any diversified portfolio being down more than we or you would like.
Perspective
- Volatility-2018 reverted back to historical averages, as 25% of days exhibited a 1% move in either direction 2
- As a reminder, 2017 saw 1% moves in only 3% of days- lowest since at least 1985 2
- Bear Markets – Defined by a 20%+ drop tend, on average, to occur every 3.5 years and there have been 32 of these “bears” since 1900 3
- These drops are normal and necessary to squeeze out excesses in the market
- The S&P 500 has gained an average of 9.8% per year from 1969 thru 2018
- The S&P 500 has been positive in 39 out of those 50 years 4
- If you are one of many who feel “I lost money”:
- We implore you to read “Your Portfolio Value and Gymnastics”
Confidence
From Mike Gibbs, Director of Equity Portfolio, Raymond James:
“We acknowledge the volatile backdrop right now, but maintain our positive bias over the next 12 months. We still view economic and earnings growth, as well as valuation levels, as supportive of equity markets.” 2
It will be worth restating, even in the context of a letter primarily focused on the year just past, our overall philosophy of investment advice. It is goal-focused and planning-driven, as sharply distinguished from an approach that is market-focused and current-events-driven. Every successful investor We have ever known was acting continuously on a plan; failed investors, in my experience, get that way by reacting to current events in the economy and the markets.
We neither forecast the economy, nor attempt to time the markets, nor predict which market sectors will “outperform” which others over the next block of time. In a sentence that always bears repeating: We are planners rather than prognosticators.
Once a client family has a plan in place—and have funded it with what have historically been the most appropriate types of investments—We hardly ever recommend changing the portfolio so long as the long-term goals haven’t changed. As a general statement, We’ve found that the more often investors change their portfolios (in response to the market fears or fads of the moment), the worse their long-term results.
Opportunity
This was reported on January 4, 2019:
“Preliminary data from Lipper shows investors withdrew a net $98 billion (from domestic stock funds), smashing the October 2008 record of $48.8 billion.”
When the herd gets fearful as the above quote heavily implies, Warren Buffet has often posited it is wise to be “fearful when others are greedy and greedy when others are fearful.” We view this as an opportunity for the LONG-TERM investor. The market can certainly go down from these levels, but maintaining a long-term perspective has frequently provided a competitive advantage to our clients.
Thank you for the trust and confidence you have placed in us and giving us the opportunity to provide education to you on your financial journey.
As always, thank you for the introduction of your friends and family that so many of you have made. We are honored to serve you! As a service to our clients, we are happy to act as a sounding board for your friends and family. If any of them should need a second opinion on their financial situation, introduce them to www.striblingwhalen.com or call us at 678-989-0048.
Follow us on Twitter - @brianedwhalen
Regards,
Warren D. Stribling, IV, CFP®
Principal
warren.stribling@striblingwhalen.com
Brian E. Whalen, CFP®, CIMA®
Principal
brian.whalen@striblingwhalen.com
Stribling~Whalen Financial Group, 620 Spring St. SE, Gainesville, GA 30501, PH: 678-989-0834
Sources:
1 2018: A year of Mixed (market) Signals, Raymond James, 1/5/19
2 Portfolio Strategy Weekly Market Guide by Michael Gibbs, 1/3/2019
3 https://www.thebalance.com/u-s-stock-bear-markets-and-their-subsequent-recoveries-2388520
4 By The Numbers, 1/2/2019
5 http://ignites.com/c/2169483/261463/december_redemptions_worst_ever_stock_funds?referrer_module=emailMorningNews&module_order=0&code=WW5KcFlXNHVkMmhoYkdWdVFISmhlVzF2Ym1ScVlXMWxjeTVqYjIwc0lEVXdOelkzTlRNc0lERTVPVEE1TXprNE5UYz0
The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of Brian Whalen and Warren Stribling and not necessarily those of Raymond James. Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website's users and/or members. Raymond James Financial Services, Inc. does not provide advice on tax or legal issues. These matters should be discussed with the appropriate professional.
Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC. Investment Advisory services offered through Raymond James Financial Services Advisors, Inc. Stribling~Whalen Financial Group is not a registered broker/dealer and is independent of Raymond James Financial Services, Inc.
The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. The MSCI EAFE (Europe, Australasia, and Far East) index is designed to measure developed market equity performance, excluding the United States & Canada. The EAFE consists of the country indices of 22 developed nations. The Barclays Aggregate Bond Index measures changes in the fixed-rate debt issues rated investment grade or higher.
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