Where’s the Bottom?
As the markets continue to fall people are wondering when it all is going to end but unfortunately, there is no consensus opinion as to when the fall will end. As of the close of business on 5-17-2022 the Dow, S&P 500 and the NASDAQ were all down more than 10 percent since the start of the year with the NASDAQ leading the decline with losses of more than 20 percent. As financial pundits begin to weigh in on the markets and make predictions, who should you believe? The answer to that question is anyone’s guess but history is likely your source for the best answer. As the saying goes, history does not repeat itself, but it rhymes and therefore it makes sense that market cycles repeat although for varied reasons.
There have been periods in history when the financial markets have stumbled out of the gate with mounting losses continuing through the summer or fall months. In 1953 we experienced comparable price declines at the start of the year with declines maxing out in September of that year at nearly 15% with markets rising through December. In 1960, price declines continued a similar pattern of decline before hitting a bottom in October with price declines of nearly 13 percent before rising through the end of the year. Again in 1962, prices fell throughout the year and bottomed with a price decline of nearly 27 percent in June before starting to rise through the end of December.
What is history telling us? It appears that declines could continue through October or end as early as June of this year. History has the advantage of incorporating investment and economic fundamentals as well as investor and consumer psychology with 100 percent accuracy as events have already occurred. Financial pundits on the other hand are excellent with their fundamental analysis but their predictions can never account for investor and consumer psychology with any accuracy as investors and consumers do not make rational decisions in aggregate. So, predictions using sophisticated methods are never accurate as the underlying assumption is that people always make rational decisions which is never the case in aggregate.
Fortunately, history also tells us that markets tend to have above average returns following years in which the markets have experienced major declines as was the case after 1953, 1960 and 1962. Following each of these years, the S&P 500 experienced total returns of 52.62, 26.89 and 22.80 percent, respectively. With the right investment strategy in place, it is possible to take advantage of these periodic and normal price declines in the financial markets. As individual as well as institutional investors make investment decisions that are not in their best interests for a variety of reasons, savvy investors can take advantage of these missteps to create opportunities to outperform the market.
At Investoristics, we continue to stick to employing an investment strategy grounded in the fundamentals which has resulted in significantly higher returns than the overall market while maintaining a lower risk profile. Please do not hesitate to contact us for more information at Investoristics.com.
