By Shannon Jones, CFA, CFP®
Benjamin Graham, Warren Buffet’s famed mentor, said, “In the short run, the market is a voting machine, but in the long run, it is a weighing machine.” We weigh firms’ past performance, current financial and leadership strength, and future business prospects to make long-term investment decisions. Although we stay apprised of risks to our investments, we are not in the business of voting on the day’s market narrative.
Our long-term view is informed by experience and data. By staying fully invested over the past 15 years, an investor would have earned 118% more than a speculator who missed the ten best days. That span included the Global Financial Crisis, a US-China trade war, Covid-19, and Brexit.
Moreover, only 20% of corrections since 1974 led to bear markets. The market’s best days tended to follow those moves with the S&P 500 gaining, on average, 24% over the 12 months following a correction’s bottom. (1)
Valuations, Interest Rates, and the Fed
JGP’s portfolios are constructed for a range of outcomes, from continued rate hikes to unexpectedly benign Federal Reserve policy. JGP’s holdings are generally less susceptible to market volatility since we own firms with proven business models who generate cash for shareholders today.
In 20 of the major geopolitical events since WWII, stocks fully recovered losses in an average of 47 days after the associated drawdown. What if this time is more like the World Wars of the first half of the 20th century? Not to worry, markets gained 43% during WWI and 50% during WWII. The recent churn in bond yields and sector/style rotations has also followed historical patterns giving us further confidence in our approach.
Our process is tried and true. We keep ample liquidity, own quality, remain diversified, and remain patient. These are the moments we contemplate when we formulate plans with our clients. Our portfolios are prepared for a range of outcomes and constructed with the humble understanding that predicting tomorrow’s market move is a fool’s errand. Investors buying and holding durable businesses through similar times have been consistently rewarded by the folly of speculators. In our opinion, we expect this time will be no different.
(1) A correction is defined as a 10%+ decline. A bear market is defined as a 20%+ decline.