Market Bulletin: Keeping Bear Markets in Perspective (audio included)

A series of macroeconomic and geopolitical events are rocking world markets and encouraging investors to find refuge in safe assets. The phenomenal gains posted in 2020 and 2021 are quickly fading. However, there is no reason to panic. Not only are markets still trading higher than after the pandemic crash, but the current environment presents opportunities that should reward long-term investors.

Volatility is our friend

Volatility is unnerving. However, it offers the opportunity to accumulate shares of quality businesses at a discount. As Warren Buffet famously said: “Be fearful when others are greedy, and be greedy when others are fearful.”

If 2020 and 2021 were the years of extreme greed, then 2022 is undoubtedly the year of extreme fear. Thus, rather than panic sell our positions, we are scouring the markets for undervalued equities. When we identify them, we buy them with the intent of holding them for the next few years.

Is this crisis different?

Every downturn feels like déjà vu. In fact, the cycle is always the same.

First, the media bombards us with bad news. Then, we start to believe the world is ending. Once the markets dip, we follow the herd and submit our sell orders, hoping to limit our losses.

This is precisely what causes markets to tank and bottom. It is the wrong approach.

Think about it: we have experienced world wars, great depressions, nuclear arms races, banking collapses, hyperinflation, natural disasters, and more.

Each and every time, the markets bounce back and reach new highs.

Betting that things will never recover is a very risky proposition and history proves that this is a losing call.

Why would this crisis be any different than the last 10?

As always, the markets will go down, trade sideways for a few months (or, at worst, several years), then go back up. If you still fear the worst, just zoom out and look at the long term trend.

Despite multiple corrections, recessions and crashes, the S&P 500 is up 3,400% since 1982.

We believe in the long-term prospects of the global economy. Therefore, we urge our clients to remain invested despite the current turmoil.

When will things get better?

Witnessing the market’s persistent decline is uncomfortable.

Of course, it is natural to conclude that we will enter a prolonged bear market. However, we must remember that on top of the Ukraine war and the Fed’s fight against inflation, this is an election year, and the political rhetoric is exacerbating the situation.

Eventually, these crises will be resolved and the world will go back to business as usual, at which point the rally will begin. You want to be invested to catch the ride back up.

Am I too optimistic?

Maybe, but history reminds us that optimists usually win the wars.

Bernard Baruch, one of Americas richest and most powerful men, famously said, "Market Bears don't live on Park Avenue." The point is that it is never smart to bet against the ingenuity, flexibility, and resilience of people. When the barn burns down, we suffer and mourn. Then, in a couple of days, we and our neighbors build a new barn. It is ever thus.

Balance is Key

Obviously, I can’t promise an immediate turnaround or outperformance during troubled times. The truth is that nobody can predict the market’s movements, and even the most seasoned investors can’t make the right calls all the time.

That being said, we implement disciplined investment strategies and construct diversified portfolios to ensure that you can weather these tough times.

Patience is a virtue, and we know that this strategy will reap rewards in the future.

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