Courage Required To Ride Out Volatile Markets

By | January 25, 2016

Scalper1 News

By Brian Levitt, Senior Investment Strategist As investors contend with the worst start to a year for the equity markets in recorded history, we focus on one of our favored principles of sound investing: Courage. Winston Churchill once said, “Courage is rightly esteemed to be the first of human qualities because it is the quality which guarantees all others.” Anything in life worth achieving requires consistent courage and fortitude. Investing is no different. Today’s market news and challenges, while daunting and significant, pale in comparison to events of the past such as the Great Depression, two world wars, 9/11, and the 2008 financial crisis. Every generation faces challenges that often appear both unique and overwhelming at the time but when viewed through the sobering lens of history are judged to be neither (Exhibit 1). Markets historically continue their inexorable climb. Why? Because in spite of our challenges and shortcomings, the human race is remarkably resilient and people are masterful inventors and innovators who always strive to create a better place for themselves and society at large. Financial markets have always reflected the improving human condition. Fact: Corrections Happen Often Market corrections happen fairly often, even in good years. 1 From 1981 to 2015 the S&P 500 Index experienced at least a 5% intra-year decline every year but one (1995). The average annual correction over the past 34 years has been 14.4%! In spite of these declines, equities posted positive total returns in 29 of the last 35 years, with an annualized return of more than 11%. As Exhibit 2 illustrates, volatility does not equal loss, unless of course you sell. History shows it doesn’t take very long for market corrections (declines of greater than 10% but less than 20%) to reverse and return to prior peaks. The mean time to market recovery has only been 107 days, 2 or shorter than the National Football League season, which always seems to go by way too fast (Exhibit 3). While true bear markets (declines of greater than 20%) do take longer to recover, it should still be of little consequence to long-term investors. A $10,000 investment made 50 years ago, on January 1, 1966, would be worth over $2.2 million today, even with all the corrections and bear markets of the last half-century. In the words of the Greek philosopher Plato, “Courage is knowing what not to fear.” It remains sound advice for investors, who should have the courage to know not to fear market swings. Compelling wealth management conversations is a program designed to help provide philosophical and historical context and perspective to keep investors “buckled in” and stay the course during uncertain times (and when have times not been uncertain), while providing a framework to help identify the best opportunities going forward. Click to enlarge 1 Source: Bloomberg, 12/31/15. Past performance does not guarantee future results. 2 Source: Ned Davis Research, 12/31/15. Past performance does not guarantee future results. 3 Source: Bloomberg 12/31/15. Past performance does not guarantee future results. Mutual funds are subject to market risk and volatility. Shares may gain or lose value. Carefully consider fund investment objectives, risks, charges, and expenses. Visit oppenheimerfunds.com or call your advisor for a prospectus with this and other fund information. Read it carefully before investing. OppenheimerFunds is not affiliated with Seeking Alpha. ©2016 OppenheimerFunds Distributor, Inc. Scalper1 News

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