After the uncomfortable 4th quarter last year (when stocks declined 14%), we wrote about a few items keeping our attention. Besides our indicators (which were negative at the time), the trade war with China and the Fed tightening monetary policy were top of mind. Here we are three months later and the negative trajectory of each item has reversed course sending stocks 13% higher. This increase basically recoups most of the previous quarter’s decline. If we were on a boat experiencing these ups and downs, we’d all be seasick!
Last month we passed the 10 year anniversary of the Financial Crisis lows. On March 6th, 2009 the S&P 500 touched 666. For context, it traded at 1,576 five months earlier, a decline of 58%. Today, the S&P 500 is trading around 2,800, 320% higher than the ’09 lows and 78% higher than the ’07 highs. It was a once in a lifetime opportunity for anyone who bought in the midst of the panic. Of course, hindsight is 20/20 and it’s a lot easier to see that now than during the storm.
Everyone learned a lot throughout the Financial Crisis and its aftermath (at least we hope so!). Here are a few of our favorite lessons:
- The storm will pass – even though it may not feel like it at the time
- Choose the right boat – the right portfolio is different for everyone and minimizes the risk of abandoning ship
- Trim the sails – there are telltale signs that must constantly be monitored and used to adjust investment strategy
It’s the last point here we’d like to highlight in this letter. While there is no indicator or set of indicators that is 100% accurate in determining market turning points, we believe there are certain warning flags that have helped more often than not. One of these […]