Putting Our Market In A Historical Perspective

Undoubtedly, 2016 will go down in history as one of the most surprising, unpredictable and tumultuous years in recent memory. We started the year with an economic slowdown in China sending shockwaves throughout world markets, followed by a surprise Brexit vote sending Europe in a tailspin and a long-winded election cycle in the US dominated the airwaves and culminated in a widely unexpected and frankly shocking win by Mr. Trump. Unrest in many regions in the world and increased terrorism threat after the horrific terrorist attacks in Paris, Nice, Istanbul and beyond have made us all feel unsafe and on edge. In Europe, we are witnessing the rise of right wing movements led by ultra-nationalists and euro-skeptics in the EU that capitalized on these fears and a deep-seated sentiment of frustration and angst that large swaths of populace, the working class as they call it. They have feel forgotten for a generation, overlooked by their governments, economically ostracized by technology and free trade, a feeling exasperated by large waves of migrants from the middle east and Africa.

However deep and strong, the issues that worry investors today, aren’t new. Staying focused despite the day-to-day distractions of the market is never easy especially during periods of economic and political uncertainty. Investors who Remain committed to their investment strategy and plan, even when it’s tempting to head to the sidelines, are far better positioned to achieve their short and long term goals. Case and point is January 2016, when the S&P had its worst start in history trading as low as -10% by mid-February, investors who bailed then missed a great recovery where the S&P is up in a little over 10% by year end. It’s just simply impossible to forecast short term moves and best to stay disciplined and focused on your strategy.

Below is a chart of the market over the last 45 years showing the S&P and all the corresponding headlines from “The Times” magazine. It’s obvious that despite all the uncertainty of several wars, the impeachment of a US president, various financial crisis’ and heinous terrorist attacks--and the list of worries goes on, patient and disciplined investors were handsomely rewarded.

Learning from the lessons of time chart
Left click to open image.

As we step into more uncertainty with a Trump presidency and an ever more fragile and fragmented society and world, here’s few ways that can help you manage the volatility & instabilities.

Don’t let emotions drive your decisions:
Emotions can lead to irrational decision making and impulsive decisions that compromise the realization of your stated goals and aspirations. Before reacting impulsively, make a list of your concerns, revisit your goals and revisit your strategy. If your goals and/or priorities have changed, or if your strategy is no longer appropriate then that is the time to discuss with me or your advisor.

Understand your tolerance for risk:
Risk is an inherent part of investing. You can limit it, you can defend against it but you cannot eliminate it. The really important thing is to have a well-informed understanding of how much risk is within your portfolio and what you can tolerate. Working with your advisor on figuring out your tolerance is perhaps the most important step in designing the long-term strategy that is most suited for your needs.

Be Diversified:
Despite everyone’s best efforts, it’s virtually impossible to guess in advance which asset class will have the best return in any given year. Spreading your investment dollars between different asset classes in an important tool to manage investment risk.

Stay Invested:
Investors who stay the course have historically been rewarded for their patience. When you look at market performance over decades rather than just a year or two, you will find that while it may contract, it also expands, with the large gains often concentrated in a handful trading days that you don’t want to miss.

Work with Your Advisor:
Identifying your goals and aligning those goals with your own risk tolerance is one of the most important steps to designing an effective investment strategy. When you work with us, we can offer a much-needed perspective and help identify and hopefully minimize the consequences of impulsive and irrational decisions. Most importantly, we can share our knowledge and resources to help provide you with gainful insights into markets, new opportunities, while grasping the impacts of larger economic issues and specific strategies.

Don’t go at it alone when you can have a trusted partner.

By Hatem Dhiab
Managing Partner


Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
Investing involves risk including loss of principal. No strategy assures success or protects against loss

Gerber Kawasaki, 2716 Ocean Park Blvd. #2022 Santa Monica, CA 90405. Contact us at (310) 441-9393.