Skip to main content

The Best of Times, the Worst of Times

Image
By
Below is a brief article from Weston Wellington of Dimensional Fund Advisors, reviewing the markets over the last year and concurrent headlines from the media. It always helps to keep things in perspective and not get caught up in the financial pornography that is put upon us.

-Kevin Kroskey

---------

For the twelve-month period ending May 31, 2011, equity investors around the world enjoyed the equivalent of blue skies and bright sunshine while the economic news was partly cloudy at best. Among forty-five developed and emerging-country stock markets tracked by MSCI, all but four had double-digit total returns (in US dollar terms), and twenty-six had returns of 30% or more.

If someone had told us a year ago that global markets would stage such a broad-based rally, we would have been inclined to think that trends in employment, housing, and financial distress were about to take a pronounced turn for the better. It seems hard to argue they have done anything of the sort. Somehow, despite gloomy financial page news that keeps repeating itself, equity prices marched substantially higher.

The moral of the story? Investors should be skeptical of their ability to predict future events and even more skeptical of their ability to predict how other investors will react to them.

Last Year's Headlines
This Year's Headlines
"Europe Crisis Deepens as Chaos Grips Greece"
Sebastian Moffett and Alkman Granitsas. Wall Street Journal, May 6, 2010		"Greek Woes Fuel Fresh Fears"
Marcus Walker and Hannah Benjamin. Wall Street Journal, May 10, 2011

"Fearful Investors Are Pulling Out"
Adam Shell. USA Today, May 20, 2010
"Fear Wins: Stocks Resume Long Slide"
Adam Shell. USA Today, June 16, 2011
"Housing Prices Remain Weak"
Sara Murray. Wall Street Journal, May 26, 2010
"Home Market Takes a Tumble"
Nick Timiraos and Dawn Wotapka. Wall Street Journal, May 9, 2011
"Fear Returns—How to Avoid a Double-Dip Recession"
Cover story. Economist, May 29, 2010
"The World Economy—Sticky Patch or Meltdown?"
Cover story. Economist, June 18, 2011

"Spill Tops Valdez Disaster—Deep Trouble: There Was 'Nobody in Charge'"
J. Weisman, G. Chazan and S. Power. Wall Street Journal, May 28, 2010		"Japanese Nuclear Crisis Is Ranked at the Level of Chernobyl"
Mitsuru Obe.Wall Street Journal, April 12, 2011
"Discouraging Job Growth Batters Stocks"
Don Lee. Los Angeles Times, June 5, 2010
"Jobs Data Stoke US Recovery Fears"
Robin Harding, S. Bond and M. Mackenzie. Financial Times, June 4, 2011
"Economic Outlook Darkens"
Jonathan Cheng and Justin Lahart. Wall Street Journal, June 2, 2010
"Stocks Plunge Amid Fears That Global Economy is Slowing"
Christina Hauser. New York Times, June 11, 2011

"Bond Fund Managers See Signs of a Bubble"
Sam Mamudi. Wall Street Journal, June 8, 2010
"Why Are Investors Still Lining Up for Bonds?"
Jeff Sommer. New York Times, May 29, 2011
"Rapid Declines Rattle Even Optimists"
E.S. Browning. Wall Street Journal, June 14, 2010
"Investors Shaken by the Fear Factor"
James Mackintosh. Financial Times, June 18, 2011

Labels:

Popular posts from this blog

Diversification: Disciplinarian of Disciplinarians

By
Disciplined diversification works when you do and even when you don't want it to. Diversification in effect forces you to sell the thing that has been doing so well in your portfolio and to buy the thing that hasn't. While this makes rational sense, it is emotionally difficult to execute. Think back to the tail end of 2008--were you selling bonds and cash to buy stocks? Most likely you weren't unless your advisor or some sort of automatic trigger did it for you. Carl Richards of www.behaviorgap.com provided a good reminder of how diversification works in a recent NY Times blog post. The diversification he discusses here is more so related to equity asset-class diversification but also touches on the three basic building blocks--equities, bonds, and cash. He doesn't discuss alternative asset classes -- an asset class that doesn't fit neatly into the three basic categories -- being used to further diversification, but that's a detailed topic for another day. ...
Read more

Should We Go Back on the Gold Standard?

By
If you watched the Republican presidential debates, you might have noticed that a number of  candidates yearn for a return to the gold standard—that is, that every dollar issued by the government would be backed by a comparable value in gold bars that were stashed away in a government vault. Sen. Ted Cruz of Texas argued that the dollar should have a fixed value in gold, and Sen. Rand Paul of Kentucky added that printing money without backing in the precious metal destroys the value of our currency. Mike Huckabee, former governor of Arkansas, thinks that if not gold, then the dollar could be pegged to a basket of commodities. All are mostly concerned that printing money will cause runaway inflation.   But there may be several problems with this return to the fiscal system of the late 1800s and early 1900s. One is that inflation has barely budged even as the Federal Reserve Board was piling one QE stimulus on top of another, and the government was adding records amoun...
Read more

Medals Per Million

By
By now, you've seen the final medal count at the London Olympics, and no doubt felt a stirring of national pride.   American athletes took home 104 total gold, silver and bronze medals, comfortably ahead of China (87), Russia (82), Great Britain (65), Germany (44), Japan (38), Australia (35), France (34), South Korea (28) and Italy (28).   Does that mean that we Americans--so often accused of being a nation of couch potatoes--are the most athletic people in the world?   Total medal count is one way to measure, but it may not be the best.   Another measurement would take into account the relative number of medals compared to a country's total population: Olympic medals per capita, or (to avoid many decimal places) the number of medals each nation took home per million people in its population. Medals per million gives us a very different ranking.   By this measure, citizens of the Caribbean island of Granada are by far the most athletic, with 9.5 Ol...
Read more