By: Greg Stewart, CIO
By all accounts, it’s been an interesting year so far – and we still have a couple months left!
In many respects, it’s been one of the toughest periods I can remember in my 25 years working directly with the financial markets.
Yes, in the past, we’ve had equity markets that swung heavily into negative territory and stayed there for a while. However, what’s unusual with 2022 is that, unlike many other market downturns, there haven’t been safe assets available to buffer the downside for investors.
Even the standard 60/40 portfolio that has long been considered a “boring but safe” industry standard, just posted its worst January-September return in 48 years!
Not only has the S&P500 had a year to date return (as of early October) below 25%, long term treasury bonds, once a bastion of safety, have experienced a slightly more extreme downturn of of as much as 29%.
Most asset classes, whether domestic (large or small cap), developed international markets, emerging markets, treasuries, bonds, REITS, or any other, have been in negative territory, with a median downturn of 22%. Real estate prices are starting to trend downwards as interest rates increase. Even commodities, which were providing high returns earlier in the year, have now begun giving up ground.
There’s been almost no place to hide… emphasis on the word almost.
For the first time in a long time, cash is no longer trash.
While not necessarily keeping up with current inflation, we are now finding six month treasury bills paying over 4% (which looks pretty good next to -20%).
That said, the big question still on most people’s minds is: Where do things go from here?
We’re now in the last quarter of the year, a time period that historically has generated positive returns roughly 80% of the time. It’s generally been a great place to earn some money, and typically one of the best times to be a buyer of equities.
Of course, history doesn’t always repeat itself – but it does often rhyme, as Mark Twain once said. Whether we’ll see the emergence of similar past patterns will only be known for certain when we’re looking backwards at the year that was 2022 – a difficult year that, no matter how you shake it, required strategic, tactical management to survive and thrive.
While short-term investors have had a tough time in 2022, most of the investors we have the pleasure of supporting are focused on the long-term, looking out 10 years, 20 years, and even farther into the future.
So, while managing portfolios during really difficult markets may be hard work on our end, the majority of our investors understand that despite the current environment, the sun will rise again, as it has in the past. Most importantly, they appreciate the benefit of being long-term owners and accumulators of outstanding stores of wealth.
From our vantage point, despite negative returns in nearly every part of the market, we have found it wise to never be totally out of our primary holdings. Instead, we make tactical decisions to reduce or increase risk, always seeking opportunities in unexpected places and always prepared to move into the momentum of the most favorable wave.
