The Continued Importance of a Long-Term Perspective
We recognize that whenever markets get bumpy you hear the words, “stay focused on the long-term perspective.” We suspect it often sounds like a broken record, but history tells us this is the prudent and profitable perspective, and we will spend some time explaining why it is such an important mindset to success.
Not so long ago, investors faced a bleak and uncertain time. It was March of 2009, and our economic system was reeling from a mortgage crisis that took down some of the biggest financial institutions in the country and threatened to collapse our economy. At that time, we turned on our broken record and said, “stay focused on the long-term perspective – this too shall pass.”
We managed client portfolios through that crisis, just as we are doing now and have done in times before, by buying more stocks as markets dipped. Simply taking advantage of the mispriced panic that regularly occurs when uncertainty is high. And what happened after that is one for the record books.
From the bottom of the markets in March of 2009 through January of this year, the S&P 500 multiplied seven times – representing one of the greatest market advances of all time. This resulted in compounded returns of 17.6% annually for the twelve years following March 2009, through the end of 2021, one of the greatest market gains in the whole history of American equities. Furthermore, this period included the Coronavirus outbreak, which saw 24% annualized returns from 2019-2021.
So here we sit, with news headlines blaring the “worst start of a calendar year since the 1960s,” negativity abounds. Therefore, we now place our favorite record on the turntable – you know the title. Here is what we know, and why you look for our professional guidance: The best way to ruin any chance for lifetime investment success has historically been to sell one’s quality portfolios into a bear market (when investment prices drop by 20% or more). To sell when investor sentiment is sufficiently negative – to sell, that is, when everyone else is selling – is the ultimate long-term mistake.
“The single greatest edge an investor can have is a long-term orientation.”
– Seth Klarman
While having a long-term perspective is important, it does not mean we ignore the short-term or what is occurring economically. We work hard around the “here and now” constantly strategizing to make the right moves for your portfolio. This market correction has been fueled by excess stimulus money, coupled with historically low interest rates, which logically resulted in high inflation – not a big surprise to most economists.
In hindsight, and considering those who love to Monday morning quarterback, one might argue that the Federal Reserve waited too long to raise rates in order to slow down and quell inflation. However, we know from history that these new higher rates will likely continue to climb and will eventually slow down our economy, getting inflation back in check.
The current big question is – will the Federal Reserve overshoot and slow us down so much that our economy contracts before we set the stage for our next growth cycle? Time and data will determine what happens, and we will continue to keep our careful eye out and make the necessary changes to your investments while keeping our long-term view.
The war in Eastern Europe and supply chain woes of various kinds have exacerbated inflation, but in our judgment they’re nuisances: monetary policy got us into this mess, and monetary policy must now get us out. No matter what happens, we at Charter Oak remain focused on coaching our clients to be long-term, goal-focused, plan-driven investors. We act continuously on our clients’ financial and investment plan.
After 30 months of chaos— a pandemic with its several variants, a troubled election that would not end, high inflation, supply chain woes, war in Europe and so on—we’re all understandably exhausted. And when we’re exhausted the impulse to give up and get to the illusory “safety” of cash – becomes the strongest. This is precisely when the impulse must be resisted most strongly – and that’s our job, keep you on track and not let you make investing mistakes born from emotions and misinformation.
In the simplest of terms, your Charter Oak advisors remain confident that this too shall pass, and we are here to talk all this through at any time. Thank you for being our clients. It is a privilege to serve you and we wish you many glorious summer days ahead.