Pointillism: Seeing the Bigger Picture in Today's Markets
Read the April 2021 sequel to this blog, "Pointillism Part 2: We Now See the Bigger Picture in Last Year's Markets."
Losing the Big Picture
Pointillism is a form of art in which the artist uses very small dots of varying colors and patterns to create an image. For fans of the movie Ferris Bueller’s Day Off, there is a scene where Ferris, Sloan, and Cameron step into the Art Institute of Chicago. One of our truant high schoolers, Cameron, stands and stares at Georges Seurat’s “A Sunday on La Grande Jatte.”As the camera zooms in and the big picture fades away, you begin to realize that the painting is actually comprised of millions and millions of small, colored dots. The beautiful lake scene that was before your eyes is gone... and, from such a microscopic perspective, an amalgamation of varied dots is all that remains. The bigger picture is lost.
The Recent Market Correction
Today, as we ponder the market correction, we can find it easy to become like Cameron, focusing on small moments and losing sight of the bigger picture. Certainly, the last month has been financially painful to many and has caused increased anxiety, which I do not want to invalidate or minimalize, particularly for those investors who live off their investment or for those who just started investing.
However, here are some interesting pieces of data to help us all step back and perhaps see a bigger picture of the financial markets. (We use the S&P500 as our “market” definition and aren’t labeling the axis so you focus on the “picture.”)
Since February 21, markets are down 29.14%.
Take a Step Back and Look at the Big Picture
The areas highlighted in blue represent the market since February 21, 2020.
Since the correction on Christmas Eve of 2018, markets are up 1.22%
Since the low of the market in the Great Recession, markets are up 370.56%.
Over the last 25 years, the markets are up 879.66%.
Over the last 40 years, the markets are up 7856.56 %.
Conclusion
You get the point. As you step back, ups and downs become less noticeable and the picture is beautiful. So, with this “correction,” it is time to take a deep breath and make sure you are investing appropriately.
Make sure your investments contemplate your appropriate time horizon. If you are in need of cash in the near term, then you should be in a “risk off” mode.
Understand investment risks thoroughly and address them strategically in your investment portfolio. (Our next blog will focus on “yield chasing,” something we eschew because of the inherent risk underneath, and we see too many investors and advisors doing it... and they have been hurt by it!)
Don’t panic and run to cash. Cash may feel safe, but it can be a silent killer of long-term returns though missed days in the market and inflation. Better yet, look to rebalance into “beat up” assets and take losses while you can for tax savings. This is a time for potential value creation.
Returns after corrections are historically attractive. While there are no assurances that the correction has bottomed out or that it will rebound over the near-term, staying invested and having a longer-term view has historically tended to reward investors.
Finally, remember that higher risk is necessary for higher returns. Nothing is free in the world of investing. You should be compensated for the risks you take. Volatility is a form of risk and provides opportunities to increase expected return over the long-term.
If you are disappointed with your returns and the risk that your current portfolio is experiencing, please give us a call for a data-driven and evidence-based assessment.
