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What a Difference a Year Makes
December 2019
Lessons Learned
November 2019
What a Difference a Year Makes
We are in for a much more pleasant holiday season than we faced last year at this time. A year ago, the market was down almost 20% in the fourth quarter through Christmas Eve and had dropped over 10% in just the middle two weeks of December. Jerome Powell had just led the Federal Reserve to the fourth interest rate increase of 2018. Regardless of the market drop, Powell seemed to have a ‘what, me worry?’ attitude. He said that the balance sheet reduction was on autopilot. Throughout 2018, we feared that the Fed was an unwitting enemy of both the markets and the economy, and that became clear at year end. Powell tempered his tone, and the Fed embarked on what seemed like an interminably long pause until it cut rates at the end of July.
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Usually, the lessons that will help us most as investors are the hardest to learn and practice because most useful lessons pertaining to investments are counterintuitive. One is that “group decisions” are many times poor and late. Both individual securities and active investment strategies go through cycles where they outperform and underperform. It is difficult to step up and purchase a security after a period of underperformance, and it is easy to come up with many justifications to purchase a security after a period of outperformance. Buy high and sell low is the rule followed by most inexperienced, emotional investors, trend followers, and pure momentum investors. This is not a way to beat the market.
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