What quiet times can do for a market. 2017 was a year of sit back relax and watch the markets melt higher, at-least for some market participants.
However, only just 2 years ago the market was everything else but quiet. We had the China devaluation, multiple fears within Europe (Brexit, banks), fears of a US recession, an earnings recession, collapsing oil prices, surging oil prices, FED hike or not, Trump being Trump, unfortunate terrorist attacks, and many other issues at hand. All of which have proven to be short term fears and have not gotten in the way of a resilient market.
This makes today's volatile behavior no fluke. But how should we really think about things?
Dating back to the inception of what now is called the S&P 500 in 1957, the market has continuously made buy and hold investors look brilliant. As we stand this morning of April 10th, we are 6-10% below all-time highs, with this all-time high being made just 2 months ago.
Saying it bluntly, the only buy and hold investors that have ever lost money since 1957 were the buyers of two months ago, and they are only down ~6-10%.
Nice stats Sean, but why is this important you might ask.
Well, the United States of America has witnessed multiple recessions, a collapse of our banking system, multiple wars, presidents assassinated, the dot com bubble, natural disasters, and so on, yet the businesses that make up the stock market and the consumers that purchase from these businesses continue to bounce back.
That's the honest truth of investing.
The stock market is composed of many great businesses that give us a real opportunity to analyze and judge the sustainability of their business models. The companies that can sustain all these headwinds overtime, come out stronger on the other side. As the companies' earnings compound over years, the value of these businesses will compound as well. That's the honest truth since 1957.
As you may know by now, how we invest, how we think about businesses, and our view of risk is unique to the marketplace. We combine both fundamentals ( analyzing the business in its entirety), along with technical analysis (analyzing movements in price). In our view, this combination allows for us to manage both short term price risk along with long term business risk. At Avory & Co. we believe risk is best defined as the risk of the business, and overtime the strength or weakness of a business will become evident. 2008 was a perfect example where the valuations of many businesses collapsed in the face of financial uncertainty, however the durable companies survived and only a couple years later were well above their 2008 highs.
Have a good one!
Sean D. Emory
Avory & Co. Founder & Chief Investment Officer
Disclaimer: This is not a recommendation for purchase or sale of any securities.
AVORY & CO. IS A REGISTERED INVESTMENT ADVISER. INFORMATION PRESENTED IS FOR EDUCATIONAL PURPOSES ONLY. PLEASE SEE FULL DISCLAIMER HERE