Last month marked the fifth anniversary of a landmark event we would all rather forget: the ominous intraday low of 666 on the S&P 500 Index. It is also six years since the collapse of Bear Stearns, which set in motion a frightening series of events that nearly brought the global economy to its knees and triggered a liquidity-driven collapse in equity prices. For those days, we’re feeling anything but nostalgia!
Often we are asked, “what kind of investment manager are you?” We’re inclined to reply, “a very good one, of course!” But the question relates to what style of investing we employ.
Here we go again. The current market correction, measured from the April highs, briefly met the common definition of a “bear market” this week with a 20% peak-to-trough decline.
“It’s tough to make predictions, especially about the future.” Yogi Berra’s wry observation enjoyed particular resonance in 2010 as the strength of the equity markets’ advance far exceeded consensus expectations. Annual market forecasts are challenging enough under normal circumstances, to say nothing of the unique environment of the past few years.
In publishing Perspectives we have a straightforward editorial guideline: ensure the narrative and opinions relate to our investment philosophy, our process and/or our portfolios; and depending on the topic, give our readers actionable take-aways. Our goal is to shed some light on how and why we come to our conclusions, and hopefully impart a sense of our consistent analytical framework.
The markets have come a very long way from their lowest levels set back in the dark, desperate days of March 2009, erasing earlier losses and leaving the indices ahead by a substantial amount for the year. That’s the good news/bad news story of this newsletter, for as we predicted in our spring newsletter last year the markets have performed much better than the economy.
In our last issue of Perspectives, amid the abject gloom of the first quarter, we offered the following words of encouragement from the great John Templeton: “Bull Markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria.” The meaningful second quarter market rebound suggests that the extreme pessimism has faded.
Legendary investor, the late John Templeton, was fond of saying the best time to buy stocks was at the moment of “maximum pessimism” – when new “bull markets are born”. Certainly in modern market history there was seldom, if ever, a more verdant pasture of pessimism upon which a new baby bull market could graze!
Many books will be written about these extraordinarily tumultuous and historic times. So we will leave for later a discussion of the whys and wherefores of how our country and the world arrived at this incredible place in our financial market history.
As we approach the final month of this traumatic year, the major indices have broken through what had been viewed as key support levels, once again disappointing investors hoping for a definitive bottom.
