{"id":2647,"date":"2019-05-14T10:56:19","date_gmt":"2019-05-14T17:56:19","guid":{"rendered":"http:\/\/springwaterwealth.com\/?p=2647"},"modified":"2019-05-14T10:56:19","modified_gmt":"2019-05-14T17:56:19","slug":"what-does-market-volatility-look-like","status":"publish","type":"post","link":"https:\/\/springwaterwealth.com\/what-does-market-volatility-look-like\/","title":{"rendered":"What Does Market Volatility Look Like?"},"content":{"rendered":"

It\u2019s often said that investors have shorter memories than a full stock market cycle, so they are perpetually surprised by market booms and corrections.<\/p>\n

But most investors over the age of, say, 35 today probably remember what is euphemistically referred to as the Great Recession \u2013 the bear market of 2007-09.<\/p>\n

Nevertheless, let\u2019s refresh our collective memories. Most of the major market indices reached all-time highs in September 2007. After that, investors were rocked by wave after wave of bad news, that started with defaults on low-credit mortgages but quickly turned into a complete market meltdown. Liquidity more or less evaporated, major financial institutions were on the brink of insolvency, and economists rightly wondered whether we were entering another depression.<\/p>\n

A few of the more subdued headlines from the period below:<\/p>\n

\u201cMarkets in Disarray as Lending Locks Up\u201d
\nWashington Post, September 18, 2008<\/p>\n

\u201cCiting Grave Financial Threats, Officials Ready Massive Rescue\u201d
\nWashington Post, September 25, 2008<\/p>\n

\u201cBailout Plan Rejected, Markets Plunge, Forcing New Scramble to Solve Crisis\u201d
\nWall Street Journal, September 30, 2018<\/p>\n

\u201cMarkets in Panic Mode\u201d
\nLos Angeles Times, November 21, 2008<\/p>\n

\u201cNew Fears as Credit Markets Tighten Up\u201d
\nWall Street Journal, March 9, 2009<\/p>\n

In early 2009, President Obama failed to get a larger stimulus bill passed, and the bailout of the US automakers went through. The Dow Jones Industrial Average, which had hit an all-time high of just over 14,000 in October 2007 and dropped to just over 9,000 at year-end 2008, bottomed out at just over 6,500 on March 9,2009. That represented a \u201cpeak to trough\u201d decline of over 53% in about 18 months.<\/p>\n

As an investor, what would you have thought in March of 2009? Next stop, \u201cDow Jones 2,000\u201d? Joking aside, there were respected market observers who were convinced that the market no longer had a floor, and that with liquidity so scarce, valuations were almost irrelevant.<\/p>\n

Let\u2019s now look at monthly returns for a mutual fund that we use in many of our clients\u2019 portfolios, DFA US Small Cap Value (ticker symbol DFSVX). As the name suggests, this is a fund managed by the leading investment manager Dimensional Funds, which is invested in small US companies whose share prices seem to be undervalued.
\n
\nOctober 2008<\/strong>
\n-22.1%
\nUh oh. What\u2019s going on here? What\u2019s a \u201cCDO\u201d?<\/p>\n

November 2008<\/strong>
\n-13.0%
\nUh oh!
\n
\nDecember 2008\t<\/strong>
\n+5.3%
\nWhew. Now we can get back to a booming market.<\/p>\n

January 2009<\/strong>
\n-14.3%
\nWas last month a \u201cdead cat bounce\u201d?<\/p>\n

February 2009<\/strong>
\n-12.7%
\nWhy isn\u2019t my broker returning my calls?!<\/p>\n

March 9, 2009<\/strong>
\nSell my stocks, I\u2019m going to save what I have left\u2026
\n
\nMarch 2009<\/strong>
\n+10.4%
\nAnother dead cat bounce, not gonna fool me again.<\/p>\n

April 2009<\/strong>
\n+19.7%
\nArrgh! I can\u2019t ever get my market timing right!<\/p>\n

\"\"<\/a><\/p>\n

If you\u2019re confused by this graphic, what it shows is a return on DFSVX of about +52% in less than two months\u2026<\/p>\n

So, what is the point of all of this?<\/p>\n

First, that investing in the stock market \u2013 with the expectation that you will be able to earn returns in excess of inflation over time \u2013 requires to you tolerate a lot of volatility in the short-term. The average annualized return on DFSVX over the 19-year period from January 2000 to December 2018 was about 9.5%. As you saw above, there were months \u2013 not years, but months \u2013 where the fund rose or fell in price by more than double that. That\u2019s the definition of volatility.<\/p>\n

Second, that market-timing is really a folly. Back in March of 2009, all of the economic news was bad. You would be hard-pressed to find any reputable market observer or economist who was publicly urging investors to \u201cbuy\u201d. Yet April 2009 represented the best month for stocks in over 75 years. And since that point, notwithstanding a few bumps in the road along the way, the Dow Jones has risen to over 24,000, an increase of nearly 290%.<\/p>\n

We will leave you with one final adage, namely that \u201cIt\u2019s not about timing the market, but about time in the market\u201d.<\/p>\n

The chart below shows all of the bull and bear markets since 1926. <\/p>\n

\"\"<\/a><\/p>\n

PLEASE SEE<\/strong>\u00a0important disclosure information at\u00a0www.springwaterwealth.com\/blog-disclosure\/<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"

It\u2019s often said that investors have shorter memories than a full stock market cycle, so they are perpetually surprised by market booms and corrections. But most investors over the age of, say, 35 today probably remember what is euphemistically referred to as the Great Recession \u2013 the bear market of 2007-09. Nevertheless, let\u2019s refresh our […]<\/p>\n","protected":false},"author":2,"featured_media":2656,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_et_pb_use_builder":"","_et_pb_old_content":"","_et_gb_content_width":"","_mi_skip_tracking":false,"footnotes":""},"categories":[6],"tags":[21,86,87,117,140],"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/springwaterwealth.com\/wp-json\/wp\/v2\/posts\/2647"}],"collection":[{"href":"https:\/\/springwaterwealth.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/springwaterwealth.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/springwaterwealth.com\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/springwaterwealth.com\/wp-json\/wp\/v2\/comments?post=2647"}],"version-history":[{"count":0,"href":"https:\/\/springwaterwealth.com\/wp-json\/wp\/v2\/posts\/2647\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/springwaterwealth.com\/wp-json\/"}],"wp:attachment":[{"href":"https:\/\/springwaterwealth.com\/wp-json\/wp\/v2\/media?parent=2647"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/springwaterwealth.com\/wp-json\/wp\/v2\/categories?post=2647"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/springwaterwealth.com\/wp-json\/wp\/v2\/tags?post=2647"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}