3 Things 6-20

06/20/2022

Although MAS is a financial services company, not everything published herein will be about numbers or investing. But no matter the topic, we hope for three things: 1) That you find the time you spend engaged worthwhile. 2) That you’ll reach out to us for help in any of our areas of expertise if something we discuss creates an urging in you to do so. 3) That you’ll share this with somebody new each time you read it.

Thing One

Nobody Knows (But History Tells Us That’s Okay)

From an article in marketwatch .com this week:

“…When it comes to bear markets, investors can take comfort from history which suggests that where there’s a beginning, there’s always an end. And according to Bank of America, investors have only got a few months left to endure the bear market that the S&P 500 SPX, 0.33% tumbled into on June 13, at the start of this week. And then will come the bull market.

As per history, points out chief investment strategist Michael Hartnett, the average peak-to-trough bear market decline is 37.3% and lasts 289 days. That would put the end to the pain on Oct. 19, 2022, which happens to mark the 35th anniversary of Black Monday, the name commonly given to the stock market crash of 1987, and the S&P 500 index will likely bottom at 3,000.

A popular definition of a bear market defines it as a 20% drop from a recent high. As of Thursday, the index was off 23.55% from its record close of 4796.56 hit Monday, Jan. 3, 2022. And an end typically marks a beginning with Bank of America noting the average bull market lasts a much longer 64 months with a 198% return, “so next bull sees the S&P 500 at 6,000 by Feb. 28,” said Hartnett…”

Lots of precise numbers and timing to consider, right? The S&P will bottom at 3000 on October 19, 2022. Then it will return 198% over the next 64 months.

There’s almost zero chance that those numbers are precisely right. The S&P could start going up next week or it could continue falling below the predicted floor of 3000. That’s why it’s important for us investors to remember a few things:

  • Investing isn’t about timing the market, it’s about time in the market.

  • We shouldn’t put capital at risk in the market that we need in the near term.

  • Negative events/shocks have happened throughout our history yet the market has always gone up – given enough time in (see chart below).



Thing Two Why The “Average Investor” Underperforms The Market According to marketwatch.com, the 20-year annualized return of the S&P 500 was 7.68% while the average equity fund investor’s return was 4.79%. In trying to account for the gap, those researching it often look at fees as they assume they’ll account for the bulk of the difference there. What they are finding is that fees aren’t the biggest issue, human behavior is. Yes, there are times when competing needs for capital or lack of capital are the chief cause, but at least half of the time, psychology is the cause of the investment shortfalls. Specifically, investors tend to make emotional decisions in both directions. When the market is going up, they get excited and follow the herd in. When the market is going down, they get nervous and follow the herd out. They buy high and sell low, in other words, because their emotions get the best of them. So what to do? Well, Dana Anspach of thebalance.com has four pretty good tips on how to avoid succumbing to bad investing impulses: 1. Do Nothing A conscious and thoughtful decision to do nothing is still a form of action. Have your financial goals changed? If your portfolio was built around your long-term goals (as it should be), a short-term change in markets shouldn't matter. 2. Know That Your Money Is Like a Bar of Soap To quote Gene Fama Jr., a famed economist, “Your money is like a bar of soap. The more you handle it, the less you’ll have.” 3. Never Sell Equities in a Down Market If your funds are allocated correctly, you should never have a need to sell equities during a down-market cycle. This holds true even if you are taking income. Just as you wouldn’t run out and put a for-sale sign on your home when the housing market turns south, don’t rush to sell equities when the stock market goes through a bear market cycle. Wait it out. 4. Trust That Science Works A disciplined approach to investing delivers higher market returns. Yeah, it’s boring; but it works. If you don't have discipline, you probably shouldn't be managing your own investments. I’d add to that list number five, which would be: Find an advisor you can trust.

Thing Three Just A Thought “Patience is also a form of action.” - Anonymous