What drives stock market returns? Economic activity, politics, wars, viruses, inflation, interest rates...the list could go on. Over the long run, the answer is simply two things - (1) company earnings and (2) how much investors are willing to pay for those earnings.  

With everything that has gone on this year, some bright news is that corporate earnings have remained fairly stable, with 5.1% growth through the end of September.  What’s changed is how much investors are willing to pay for those earnings…

There has been nowhere to hide this year. Year-to-date (9/30/2022), the S&P 500 is down 25% and the bond aggregate is down a whopping 15%. It’s the worst-performing period for a balanced portfolio since 1931!

There are some risks in life that are permanent. If you live in a hurricane-prone area and don’t have hurricane insurance, you are taking a risk that could lead to a permanent loss. That is a real risk.

The financial advising world often talks about investment risk in the context of market fluctuations up and down. We categorize investors as risk-averse if they are unwilling to deal with bouts of volatility. What we are measuring is the perceived risk – the risk that values may temporarily decline in value.

When we are in the middle of a bear market, sitting on our hands can be unbearable. This is also the time when you’ll start hearing about market timing strategies. I was recently listening to a market analyst describe timing the market as a simple supply and demand equation.

It sounds simple enough, but I know the data does not support this. So, I decided to stress test it. I back-tested the following strategy – one that follows a popular strategy following recent market trends…

Earling this year after a down day in the stock market a headline read “Dow falls more than 500 points…” These attention grabbers are designed to do just that – grab your attention and then sell ad space while your anxiety rises.

It reminded me of the book I read a few years ago, Factfulness, in which the author talks about the importance of bringing in the denominator to any statistic…

Some of the best things in life come with a significant cost. 

At the top of my list is being a dad. Zeke’s face, as he comes barreling across the living room to tackle me, will never get old. But being a dad cost me time with friends, time with Emily, and time by myself.  

A great family vacation comes at the cost of a hectic few days upon reentry into reality.  

And the 8th wonder of the world – compound interest – comes with the cost of immense volatility and sometimes long periods of time where no money is made…