Be patient…it’s a phrase I find myself muttering to my 7-year old son almost daily. Unfortunately, it is often met with groans or protests. Being patient requires not getting what we want when we want it, which most times is RIGHT NOW! But sometimes you can have your cake and eat it too, even if the person baking the cake was adamant that there would be no treats.
If you have every asked me the question, “What do you think the market will do this year?” you most likely received a smile and the most professional and informative non-answer I could conjure. It’s not that I don’t want to answer, it’s just that I don’t put much faith in my, or anyone’s else’s ability to predict such things. There are certainly times when I think the probability of a certain outcome is high, but even that doesn’t mean my timing would be right. To put a bow on this point, Bloomberg surveys 19 Wall Street strategists at the beginning of each year and asks them this very question. The result for 2018: zero predicted the market would go down. The average prediction was for a gain of 8%. Does that make these people inept? Not at all. It just shows that predicting the future can be more difficult than we would like to believe.
It isn’t often that you get back-to-back years in financial markets that are almost complete opposites. But alas, here we are. For our astute readers, you may notice this title has been recycled from the first Market Insight of 2018. For those who need a quick refresher, that piece was about how one could have thrown a dart at a list of major asset classes for 2017 and hit one with positive performance every time. Well, it you get that dart back out and repeat the exercise for 2018, you will find negative returns on every throw. 2018 was the antithesis of 2017, culminating with the worst December since 1928 in terms of returns for the S&P 500.
Week Ending Dec 7, 2018: HCM Market Insights: "The Twelve Days of Christmas"
As the year draws to a close, HCM would like to present 12 charts that we find interesting or relevant to the current market environment. We hope you enjoy this holiday edition of our Market Insights.
One of the great mistakes many investors make, both amateur and professional, is to see the markets through the lens of a "scientific study". Science, simply defined, "is the intellectual and practical activity encompassing the systematic study of the structure and behavior of the physical and natural world through observation and experiment". The financial markets, however, are neither physical nor natural. And, because many investors react emotionally, behavioral sciences are considered more relevant when building strategic investment options, than the physical sciences.
September 2011. That was the last time the S&P 500 had a monthly performance worse than -6.83%, which is what we just experienced in the month of October. Had it not been for the strong rally over the last few days of the month, that number would have been approaching numbers not seen since the financial crisis in 2008. Market corrections are fairly normal, happening 56 times since World War II. But this will be only the second year ever- the other being 1990 -that the S&P 500 will have had two separate 10%+ corrections in the same calendar year.
Week Ending Oct 19, 2018: HCM Market Insights: "Trick or Treat?"
As you may have noticed, the Mega Millions jackpot is currently north of $1 billion dollars (yes, with a B!). Let’s be honest, the odds are certainly not in your favor. In fact, they are so outrageously not in your favor that you have a better chance of being killed…..by a falling coconut! Now that we clearly have your attention, let’s talk about something that is going to happen with certainty over the next few weeks and how it could make a difference in which direction the market goes from here. And no, I am not talking about Halloween.
At the start of 2018, optimism was plentiful and the expectations for continued global growth had many pundits believing that 2018 could be a repeat of 2017. As a quick refresher, returns in 2017 were stellar across the board with all major asset classes earning double digit returns. The first few weeks of 2018 looked like a seamless continuation of the prior year, but something got in the way towards the end of January. That something was US interest rates.
When was the last time you picked up your cell phone? There is a good chance it has been in the last hour. The answer to the question may seem inconsequential, but it can tell us a lot about how behavioral biases can directly affect your decision making process, both in investing and in life.Some recent research has suggested that being on our devices (phones, computers, and tablets) can be bad for our health in the long run. However, our brains are hardwired to discount that information and satisfy the need for instant gratification, whether that is checking email, opening an app or just seeing if anything has happened in the world over the last 10 minutes. The behavioral finance term for this concept is hyperbolic discounting. It is defined as the need for people to choose smaller, immediate rewards rather than larger, later rewards.