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Investors would do well to learn from deer hunters and fishermen who know the importance of “being there” and using patient persistence, so they are there when opportunity knocks.
— Charles Ellis, on investment policy
One of my favorite sayings is, “If you think education is expensive, try ignorance.” This is certainly true about investing, which is why I believe that knowledge of investment history is an important, if not necessary, condition of achieving success. The following is offered as evidence.
Distribution Of Returns
Most investors know that the U.S. stock market has historically returned about 10%: Over the 92-year period from 1927 through 2018, the S&P 500 returned 10.1%. If we were to remove the returns of the best 92 months > SEE MORE
It’s been said diversification is the only free lunch in investing, with the largest benefits of diversification coming from adding assets with low, or—even better—negative correlations.
However, when designing portfolios, investors also need to be aware that correlations are not constant—they are averages of the relationships of returns. Thus, it’s important to understand not only that correlations can drift, but also under what circumstances the correlation of returns are likely to increase and decrease.
For example, while the correlation of high-yield bonds to stocks tends to be low, during bear markets caused by recessions, their correlation tends to rise toward 1 (at exactly > SEE MORE
For the 10-year period 2008 through 2017, a very wide dispersion in returns has existed in markets. As the following table shows, U.S. stocks far outperformed international stocks, and growth stocks outperformed value stocks.
Given these results, it’s no surprise I have been getting lots of queries from investors about their international equity investments. Any time an > SEE MORE
A common axiom is that those who fail to plan, plan to fail. And while most people would never start a business without a business plan, many investors manage their money without an investment plan that identifies their ability, willingness and need to take risk, sets goals (such as the rate of return they require their portfolio to generate), and includes an asset allocation and rebalancing table to provide discipline.
Compounding the problem of a failure to plan is that even a well-thought-out investment plan is only a necessary condition for > SEE MORE
It can be hard to hear the best course of action during tough market times may be to do nothing. It can be even harder to repeatedly hear the message as things seem to get worse. But it is a message we would not repeat if we did not truly believe it was in your best interests. The following discusses why our message is not wavering despite market conditions.
Stay the course. We repeat that advice again and again. Yet, in the face of a persistent down market, a common refrain from investors has gone something like this: “Yes, that advice has worked in the past. However, this time is different. It obviously isn’t working now! The market just keeps going down and down. There must be a better alternative than to sit and do nothing.”
Founder and Private Wealth Advisor
Beacon Hill Private Wealth