From September 30–October 10, the US market (as measured by the Russell 3000 Index) fell 4.8%, resulting in many investors wondering what the future holds and if they should make changes to their portfolios. While it may be difficult to remain calm during a substantial market decline, it is important to remember that volatility is a normal part of investing.
“Purpose of the margin of safety is to render the forecast unnecessary.” – Ben Graham
If you are feeling uneasy about your investment performance during these periods of volatile market activity, watch this video, “Tuning Out the Noise”, to help remind you of the importance of remaining disciplined during uncertain times.
Markets have been up and down this year, which can be hard for many investors to live with. During periods like these, hearing stories about how other people deal with uncertainty can be helpful.
Please read about our New Client Portal! The attached message was sent in Mid-March, with the New Client Portal emails sent a few days after that. If you have not established access to the New Client Portal and would like to do so, please contact our office.
The investing world always presents us with moments of “Firsts”. The news media is great at highlighting the first time the market did this or did that. However, they leave out much of the context.
“The general is well aware that your division’s forecasts are worthless. However, they are required for planning purposes.” Kenneth Arrow, a Nobel Memorial Prize winner in 1972 who recently passed away in 2017, began his career in the Weather Division of the Army Air Force during World War II. His division was in charge of predicting future weather patterns. Given his economic and statistician background, he recommended to his general that his unit be disbanded because they were no better at predictions than historical averages for the day in question. As the quote above suggests, the division remained intact.
At the beginning of 2017, a common view among money managers and analysts was that the financial markets would not repeat their strong returns from 2016. Many cited the uncertain global economy, political turmoil in the US, implementation of Brexit, conflicts in the Middle East, North Korea’s weapons buildup, and other factors. The global equity markets defied their predictions, with major equity indices in the US, developed ex-US, and emerging markets posting strong returns for the year.
It is the Christmas season and families are exchanging wish lists for Christmas. As a father of 11-year old twins, my view of Christmas lists has been evolving as my kids have been getting older. Gone are the days of Emily and I suggesting “appropriate” ideas that just happen to make it onto their lists each year. These were great experiences in expectation management. Now, they are more independent and less willing to listen to our advice.
In honor of Richard Thaler, the recent winner of the Nobel Memorial Prize in Economic Sciences, we thought a discussion on behavior finance would be timely and relevant. This field of study has provided great insight on how to better manage personal finances. We would be well served to understand some of his great insights into human behavior.