“Don’t worry, be happy!"-Bobby McFerrin
Happy New Year! Many investors are quite happy indeed to see 2018 behind us, especially the 4th quarter. But as we often caution, perspective is in order. At the year-end close of 2507, the S&P 500 is right about where it was at the end of the 3rd quarter in 2017. Even another 10% down from here, taking the broad market into bear territory still only returns us to 1st quarter 2017 levels. While it doesn’t seem like it in the midst of a storm, corrections and bear markets are good things! They weed out excess and sloppiness and, like a cleansing forest fire, thin out the weak and leave the strong trees standing and ready for regrowth. Since 1970 there have been 7 bear markets (S&P 500 down 20% or more), including 3 that took the market down 50% or more (‘73-‘74, ‘00-‘01, ‘08-’09). And yet, during that time the market has risen from 90 to just over 2500, a cumulative gain of almost 2700% (not including dividends!).
At this time of year everyone wants predictions. We won’t go there. The Wall Street Journal, in a special section on January 2, has targets for the S&P 500 from a number of major Wall Street banks. For what it’s worth they’re virtually all higher (the easy historical pick!). Their track record is right up there with those Hollywood soothsayers predicting who is going to have Elvis’s baby in 2019. Best advice: hold quality investments, be well-diversified, and don’t watch the tape every day. Don’t worry, be happy!
That this seemingly obvious advice, well-grounded in the historical record, is so routinely shunned, not only by many individual investors but institutional ones as well, can initially seem puzzling. But on deeper reflection, maybe not so much. For one thing, it requires overcoming the “short-termism” that afflicts so many aspects of society. People tend to measure things (not just investment returns) over time spans that are too short to really matter. In the investment world the “short” view is constantly being propounded by the media (for whom intra-day swings in the market are often viewed with apocalyptic concern), and analysts and corporate executives (with their relentless focus on the “next quarter”).
And then there is just bad and misleading information out there. For example, if you even casually watch any business media you have probably seen advertisements by Ty J. Young, whose firm sells equity-linked annuities. In one (which has been running for years), he states that “the stock market has been going up and down like a roller coaster for years.” This is exactly the opposite of the truth! A roller coaster starts from a high hill and then progresses through a series of lower hills as gravity pulls it down and friction slows it. It violates the laws of physics for a roller coaster to “coast” back up to a peak as high as the initial one. The stock market has done the reverse (as described above): going up and down but always achieving ever higher peaks over time! This is in no way to critique the merits of Young’s products; they are essentially put-protected equity positions that over time will achieve lower than market returns at lower than market volatility, potentially a valuable trade-off for some investors, but the selling point is very misleading and contributes to the sense of many (unfortunately including politicians and regulators who should know better) that the market is a zero-sum “casino” and not a long-term reflection of economic growth and productivity. So, don’t worry, be wary!
About Beirne Wealth Consulting Services, LLC
Beirne Wealth Consulting Services, LLC (“BWC”) is a growing, privately owned, SEC Registered Investment Advisor with office locations in Connecticut, Pennsylvania and Florida. BWC provides independent, fee-based investment management services and customized financial planning solutions. Our institutional business provides consulting expertise to defined benefit and defined contribution plans, endowments, foundations and non-profit organizations. Our private clients include high net-worth individuals and prominent families, many of whom bring complex wealth management challenges and multigenerational planning needs. For more information, please visit www.beirnewealth.com or give us a call today at 888-231-6372.