October 17, 2014
Dear Clients and Friends:
Recent weeks in the investment markets have reminded us a bit of airline travel. One minute you’re cruising along en route to your destination, and just when you begin to feel comfortable that the flight will be smooth from start to finish, unexpected bumps get your attention. “Hi folks, from the flight deck, we seem to be heading into some ‘choppy air,’ so please return to your seats and fasten your seat belts...” Eventually, the turbulence subsides and the flight lands safely – and surely nobody reached for a parachute and jumped out from 35,000 feet!
Long-term investors need to approach market “turbulence” exactly the same way. Though clearly unsettling, it is an inevitable part of the journey to one’s financial goals. Since the mid-1940s, the S&P 500 Index has experienced a 10% market “correction” (or worse!) an average of every 18 months. As of today, the Index has gone more than 3 years without such a correction, and reached all-time high levels less than 5 ½ years from the depths of the financial crisis. In fact, the S&P’s quick loss of “altitude,” while unnerving, measures less than 8% as of October 15, 2014 - a pullback for sure, but not even a classic “correction.” For more detailed insights on the “anatomy” of market declines, click here:
Could conditions get worse before they get better? Undoubtedly, they could. In just the past few months, growing concerns over ISIS, Ebola and weakening growth in Europe and China have almost made us forget yesterday’s worries over potential defaults in Greece, the “fiscal cliff” in our own back yard, and other challenges to peace and global economic stability. These headlines, while important in their own right, too often serve as convenient excuses for short-sighted traders and market pundits to look for the nearest emergency exit. Thoughtful investors, like seasoned travelers, should know better. It’s important to keep those seatbelts fastened, but also to know that with an experienced crew onboard and a time-tested “flight plan” in place (i.e., a well-diversified and prudently balanced portfolio), the flight will land safely. The challenge, of course, is to stay focused on the horizon and one’s ultimate destination, rather than the periodic bumps along the way.
Best wishes for a relaxing weekend, and we’ll look forward to talking with you soon.
Sincerely,
Stedmark Partners