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EOY 2018: The Year Volatility Returned

Updated: Sep 27, 2022

Remember the “World’s Ugliest Dog Contest”? Well, the 4th quarter of 2018 reminds us of the winner.

It was the culmination of a year that grew more and more volatile with each passing month. On December 31st, the S&P 500 Index (“the market”) logged a 6.2% decline for the year, the worst annual return in a decade (December 2018 checked in with the worst monthly performance since 1931). After nine years of positive returns one could say a negative year was in the making. You probably heard phrases as “This bull market is long in the tooth…it is due for a correction.” There is validity to this thinking, but not many saw the “correction” playing out as rapidly as it did.

At the beginning of the 4th quarter, the market had a year-to-date return of nearly 10%. From there the market gave away that gain plus an additional 6%+…a 16%+ decline in a period that typically sees corrections but also experiences a subsequent rally. So, what has caused such a dramatic shift in the proverbial “investor sentiment?” Could the economy really reverse course this quickly? Is a recession on the horizon? Who knows!

What we do know is that 2018 was an eventful year, both politically and financially. In fact, there are many topics du jour that investors may be concerned about. Here’s a sampling to the right of the headlines we saw daily last year.

All of these topics have or will cause uncertainty for investors and some will drag out longer than others. A few are actually positive for the economy but will still produce short-term thoughts for investors and very likely cause them to take action (right or wrong).

We can’t remember any recent year with so much turmoil. Much of it is self-inflicted, but depending who you talk to, it is deemed necessary. Regardless of the origin of these issues, they have made many investors take a pause and reconsider their current investment strategy/approach.

As long-term investors (as we all should be), we recognize the impact of the above but we cannot lose sight of the longer investment horizon. Despite what we see in the news every day, this world continues to become a better place as the years pass. In fact, the pace of improvement continues to speed up with technological innovation.

While, 200 years is a large sample size, this graphic to the right still clearly demonstrates the improved life we all live today. This big picture view is at the core of why capitalism works and why as long-term investors we are in a good position to succeed.

Even going back to just 1980, nearly 50 out of 100 people lived in extreme poverty. Nearly 40 years later, the figure has improved by 80% with only 10 out of 100 people living in poverty. That is huge! This improvement, as well as the other six on this graphic, are the end result of many successes that occur over a long period of time.

Yes, we will have periods like the 4th quarter of 2018 or even multiple years when we don’t experience the investment growth we have come to expect…but let’s not forget the big picture. Over time capitalism wins out and the world we will live in 10 years from now will be better than today and there’s a good chance the stock market will reflect this. As much as the media encourages you to lose sight of the big picture, never forgot that the stock market is made up of real companies that are making real profits. And as owners of those companies we fully expect to participate in their share price increases.


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