Market volatility has returned. With it, increased fear amongst investors. I’ve heard it coming from our clients and can see it in the way financial media is reporting news. For example, at the end of Q3, Amazon reported another quarter of record profitability, yet a Wall Street Journal article on October 26, 2018 focused on “slowing” sales.
This month marks the ten-year anniversary of the climax of the 2008 financial crisis. That September, falling asset prices led to the bankruptcy of the investment bank Lehman Brothers. The collapse started a domino effect which nearly brought down the entire global financial system. Both the US economy and stock market bottomed out in the following months at different points in 2009.
It’s official, we’re currently amidst the longest bull market in US history (as measured by the S&P500 at least). According to data from JP Morgan, the average S&P500 bull market since the 1920s has lasted about 55 months. The current rally is now in its 113th month and just passed the previous record which ran from October 1990 to March of 2000.
I recently spent several days in Los Angeles visiting an asset manager that I hold in high regard, First Pacific Advisors (FPA). The event was a biannual opportunity to hear from each of the firm’s portfolio strategists, ask questions and meet their respective teams.
I read an excellent autobiography this summer by Edward Thorp which I also mentioned in our most recent newsletter. Mr. Thorp’s name is much less known in contrast to his accomplishments. He is a mathematician by training, obtaining his Ph.D. from UCLA. He’s popularly known for a number of feats.
As human beings, I think we’re naturally more inclined to be active than inactive. Our minds are constantly turning with thoughts and ideas. If you’ve never tried meditation, I would encourage it just to experience how difficult it is to keep your mind from drifting.
After a remarkable run, the stock market has finally experienced some negative volatility. The last time we experienced anything like the past few weeks was in 2011. As you may recall, late that summer, one of the big ratings agencies downgraded the credit of the United States as politicians in Washington wrangled over raising the nation’s borrowing limit.
Measuring performance in the investment business is absolutely necessary. But far too often, evaluating performance itself causes investors to make wealth destroying decisions. This is a phenomenon I’ve witnessed throughout my career.
One of the lessons I’ve learned over the years is that a critical part of my job is setting expectations. Since late 2012, US stocks have really marched steadily upward with no major pull-backs. This type of market environment tends to create a false sense of security.