A Tale of Two Graphs

*As seen on Forbes

Looking at year to date performance of the S&P 500*, the heart sinks, all is doom and gloom, and heavy duty regret follows.


Why, oh why was I ever in this market? How could we not have known that the Chinese would devalue the Yuan, that their markets would fall, and their economy slow? We should have seen the mess in the Mid-East coming, the Federal Reserve raising rates, and of course we should have predicted the implosion in the price of oil. Woe is me! And my advisor doesn’t seem to care at all.

But, a longer term view tells an entirely different story. It’s all a matter of perspective. The 30,000 foot view looks much differently. (As a former military pilot, I always prefer the 30,000 foot view.)


Going back 30 years, we can see the relentless climb of market values represented here again by the S&P 500*. In spite of the peaks and valleys the trend is unmistakable. Up! In retrospect, who wouldn’t have wanted to be on board for that ride?

Would you have had moments of regret? Of course. Those ups and downs are annoying, perhaps disconcerting. Nobody enjoyed the bear markets of 2000 and 2008. But, keep the faith. Markets recovered as they always have in the past and went on to new highs.

Every bear market sows the seeds of the next recovery as firms regroup, resize, right size. I freely admit I don’t have a clue what will happen in this afternoon’s market or tomorrow’s. But, notwithstanding what happens in the stock market, business will come to work to improve products, marketing, services, develop new products and services and make themselves more efficient. In the process they create value for the shareholders.

For several hundred years the value of the world’s economy has grown. The way for investors to profit from that growth is to own shares of the companies. Perhaps the optimum way to do that is through a global portfolio of index funds for maximum diversification along with minimum costs and taxes.

With the unfortunate events of 2008 still in our mind, I’d like to point out that once again as it has always been, doing nothing was the right move. If it’s always worked before, why would you do something different this time. Look closely and you will see that even after the recent correction, the S&P 500 is comfortably higher than at its peak in 2008.

I used the S&P 500 to illustrate the point. Different markets will show different curves. But, the unmistakable trend in all of them is upward. A global portfolio would have experience pain and pleasure at different points and in different amounts along the way but would have dominated over the entire time.

Keep cool and carry on.

Disclaimer: All the standard disclaimers apply. The illustration is for educational purposes only, and not to be construed as individual investment advice. Past performance is no indication of future performance. Investing in stocks is risky, and there certainly is no guarantee implied.

*Source: CNBC February 11, 2016

By | 2018-11-28T22:16:27+00:00 February 11th, 2016|Blog|

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