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Our Thoughts On The Market

The primary function of financial journalism seems to be terrifying us out of ever achieving our financial goals by focusing on the market’s volatility. We’ve been reminded of this almost hourly as the S&P 500 approached “official bear market territory,” defined as closing 20% below its January all-time high.

Every market decline of this magnitude has its own unique causes. We think it’s fair to say that the current episode is a response to two issues: severe inflation, and the extent to which the economy might be driven into recession by the Federal Reserve’s somewhat belated efforts to root that inflation out. Russia’s war on Ukraine, supply chain issues and the like are surely contributing to the angst, but recession vs. inflation is the main event, in our opinion.

We look at it this way:

From March 2009 (when the S&P 500 index bottomed at the end of the Global Financial Crisis) through the end of 2021, the S&P 500 produced an average annual compound return of 17.6%.1 Indeed, over those last three calendar years (2019 – 2021), despite a hundred-year global pandemic that carried off millions of people worldwide, the Index compounded at 24.2% per year. This was one of the greatest runs of all time.

But it’s evident that some part of that extraordinary growth in stock values was due to excessive monetary actions by the Fed. And to that extent, we are having to give some of that gain back, as the Fed moves to bring the resultant inflation under control. We believe we should want them to do this, even if it means the economy slows. In the long run, the cure (possible recession) is not more painful than the disease (inflation).

For long-term investors like us, succumbing to a bear market by fleeing stocks has often proven to be a tragedy, from which retirement plans may never recover. Our investment approach is founded on the idea that the only way to be reasonably assured of capturing premium stock returns is by riding out their occasional declines.

Our mission continues: not to insulate you from short- to intermediate-term price volatility, but to minimize your long-term regret – the regret that has always followed a fear-driven exit when stocks resume their long-term advance. As they usually have.

We continue to counsel you to stay the course. We are always here to talk this through with you.


Andrew, Janet, Lyman and Rick

1 - Standard and Poor’s 500 Index is an unmanaged index of the 500 largest U.S. corporations. Investors cannot invest directly in an index. Returns are with dividends reinvested from 3/31/2009 to 12/31/21. Source: https://dqydj.com/sp-500-return-calculator/

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