Stan's World - Sound Familiar?

John Zeltmann |

September 30, 2022

You may wonder whether or not John and I recycle paragraphs from old memos when we write to clients every time there’s a stock market downturn. We don’t, but we understand the perception. If you’ve been a client through a few downturns, you may have observed that many of our communications repeat the same themes: try to stay calm; stay the course; market cycles repeat; and getting in and out of the market (a.k.a., market-timing) to try to avoid losses doesn’t work. Frankly, there aren’t a lot of ways to say the same things, hence the repetition. 

This is admittedly a tough time to be an investor, and this is an especially tough time to be an investor determined to ‘stay the course.’ The drumbeat of bad news goes on with seemingly more bad news each day. While I concede it’s difficult to stay positive, my personal optimism stems from knowing the next phase after a down market cycle is an upturn. While I don’t know when it will get better, I know “better” is coming. And I also know that I want in from the beginning because being out of the market and missing even a few incredible days during a momentous market rally could result in missing significant gains. To reiterate; I want in from the beginning, though I don’t know the date that will occur.

Over the years, I’ve had hundreds of conversations with clients about trying to sidestep market downturns. My stock answer is it can’t be done, and when it’s attempted, it’s not done well. Who knows the day (or month) of a market peak? Who knows the day (or month) of a market bottom? On top of that, taxable accounts often hold unrealized gains. When you sell positions with unrealized gains in an attempt to avoid future losses, you’re going to incur capital gains that will generate tax bills.

Adding to the anxiety this year is that in 2008-2009 when the S&P 500 fell nearly 57% from its peak (yes, you read that correctly), interest rates held firm. With bond prices stable, losses on the equity side of the portfolio were offset.

During this downturn, interest rates have spiked, which has created historic losses in parts of the bond market. When even a short-term investment grade corporate bond fund falls almost 9% year-to-date, it speaks to the volatility in the bond market. With equities down, and bonds down, there aren’t many places to hide.

So if the words we use in our memos sound familiar, it’s because they are. If we tell you that markets recover and will ultimately reach even greater highs, it’s because that’s what markets have historically done. And that’s where we get our conviction when encouraging you to stay the course.





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