Single Point of View

Single Point of View is our way to occasionally share planning ideas relating to personal finance. Our goal is to pass along concepts that you may not be exposed to on a daily basis.

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Markets are not always efficient, nor right

Of the 46 previous declines of -10% or more in the stock market (S&P500), a little more than a third (19) became bear markets, defined as a drop of at least -20%.  Most of the -10% pull-backs – as sharp and painful as they are - turned out to be just false signals and momentary detours as the market resumed its upward march within months.  The Market at times becomes divorced from fundamentals, and over-obsessed with ‘headline’ risk.  Over-interpreting the ‘signal’ from these pullbacks is almost always a losing proposition.  Discipline in the face of noise is essential to long term out-performance. I have also observed that every now and then different asset markets go through bouts of over-pessimism or over-optimism. You may hear that a certain asset class (e.g. high-yield bonds) or sector (e.g. pharma) is ‘trading on sentiment’ rather than fundamentals; or that its price reflects an implausibly negative...
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