As the anniversary of the March 9, 2009 stock market bottom came and passed a few weeks ago, the bull that had been running roughshod over those nine years finally took a pause to catch its breath. Most of you have heard of one of the most recognizable and time-tested investing maxims ever: Never Fight the Fed. With unprecedented global central bank stimulus serving as the foundation, as unique set of improving market dynamics converged to drive virtually unstoppable momentum for stocks, scaling the proverbial wall of worry along the way. Investor skepticism focused on the sustainability of this stock market run appears to be firmly in place. The recent February “correction” helped confirm that (so far) every pullback still looks as if it is another Buy-the-Dip opportunity. Although the hiccup stocks experienced in the final few weeks of March resulted in an increase in overall volatility and a temporary shift in market leadership, fundamentals have yet to fully confirm that the recent turbulence is justified and that prevailing market momentum has been entirely disturbed.
Momentum markets naturally mature with an increasingly narrow subset of popular out-performing
stocks eventually accounting for index returns that over-represent performance. As a result, investors frequently experience excessive impatience and frustration when their individual investment performance does not always keep up with the most popular high-profile benchmarks. As one seasoned market observer and true value investor recently noted, “In normal times it is reasonable to believe clients are concerned about how well an advisor can handle a downturn. But in a bubble, forget it — many clients care much, much more about under-performing all their friends on the golf
course.” 1
Looking more closely at the composition of this incredible bull market, it is crystal clear that investors who ignored risk have realized the highest absolute returns. Disregarding risk while chasing favorites has been a winning combination, leading to a self-fulfilling feedback loop, further engendering momentum obsession. In later stages of mature bull markets such as this, fresh money entering the market has virtually no fear, further propagating the trend. Eventually, though, extended periods of market prosperity incite animal instincts, giving rise to questionable future growth and profitability assumptions and ultimately exposing overly aggressive investors to regret going forward.
Making it even more difficult, emotions such as greed and panic run far hotter at market extremes, ultimately weighing on investors’ long-term focus and, even worse, influencing short-term decision making. Emotional extremes can overwhelm logic, patience and prudence…the cornerstones of a successful long-term investment strategy. To be sure, though, prudence is never up for compromise at Doyle Wealth Management. Emphasizing fundamentals over fads, our resolute goal is to provide our clients with consistent and predictable performance over a full market cycle while remaining true to our disciplined investment process. Here’s to another nine-year run.
1 Institutional Investor
Jeremy Grantham January 2018 GMO Letter to Investor
Image Source: Eva K. – Wikipedia
