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Don’t Let Talk of Market Cycles Take You for a Ride

KEY TAKEAWAYS Many investors inform their sentiment about markets by looking for cycles in returns. Rolling returns give a false sense of cyclicality because of overlap among consecutive periods. Investors should avoid basing market expectations on this illusion of predictability. Investors can be both motivated and well-equipped to see patterns in stock returns. Motivated, because successfully predicting market movements can be lucrative, and well-equipped, because evolution has programmed humans to err on the side of seeing patterns even when they’re
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Investing Through Emotions

Rising inflation, interest rate movements, ongoing trade wars, COVID-19 variants, bear market predictions, the Russian attack on Ukraine and heightened geopolitical uncertainty, …that’s a lot to think about. The first quarter of 2022 reminds us all how much uncertainty can fill the world at any given moment— and how little control we have over it all. This perceived lack of control can lead to feelings of anxiety and stress in our everyday lives. One of the best coping techniques is
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Volatility Lessons: Should We Expect More Market Declines?

The S&P 500 ® Index recently completed its worst 100 day run to start a year since 1970 one of many signs of a volatile market that has stressed investors. A strong gain for the index over the week ending May 27 created some breathing room from bear market territory, but investor anxiety likely remains. With continued concerns related to inflation’s impact on consumer spending and company earnings, potential effects from the Federal Reserve’s (Fed’s) rate hikes, and the oft
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Dipping Points

Through January 27, 2022, U.S. stocks were down a little more than 10% from the end of 2021 (1). If not for a strong session on Friday, January 28, U.S. stocks would have had a fourth consecutive week of negative returns. Like rough waters at sea, choppy markets can lead to anxiety and discomfort, and inevitably everyone wonders how long we will have to wait for things to calm down. When volatility increases, it is perfectly natural to worry about
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All-Time-High Anxiety

KEY TAKEAWAYS Financial journalists periodically stoke investors’ record-high anxiety by suggesting the laws of physics apply to financial markets—that what goes up must come down. But shares are not heavy objects kept aloft through strenuous effort. They are perpetual claim tickets on companies’ earnings and dividends. If stocks have a positive expected return, reaching record highs with some frequency is exactly the outcome we would expect. Investors are often conflicted about record-high stock prices. They are pleased to see their
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‘Everything Screams Inflation.’ How to Interpret the Headlines

KEY TAKEAWAYS After last year’s economic shocks, we shouldn’t be surprised to see prices rebounding. But the potential for inflation is one among many factors investors take into account when agreeing on a price at which to trade. A look at headlines from the past 50 years shows the difficulty of timing markets around inflation expectations. Investors may be better served sticking to a long-term plan. How quickly things change. Two years ago, the New York Times reported, “Federal Reserve
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Stay Invested to Reap the Harvest

Historically bad to historically good Value investors who chose to stay the course through the last few years were finally rewarded for their discipline! Although it’s hard to believe, if we back up just a few months, the one-year period ending September 2020 was the worst return ever for small value stocks relative to larger, more growth companies, with small value underperforming by a whopping 52%. The three-year returns were also abysmal, with small value underperforming large growth by nearly
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A Regression to Long-Term Means?

“A Man’s inability to see the power of regression to the mean leaves him blind to the nature of the world around him.” Michael Lewis, The Undoing Project: A Friendship That Changed Our Minds.   Reviewing historical annual long-term equity premiums and returns, we can conclude the following: US Small companies outperform US Large Companies by 2.02% International Small companies outperform International Large companies by 4.91% US Value companies outperform US Growth companies by 3.18% International Value companies outperform International
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Planning for Uncertain Times

With last month’s election and ongoing health and economic concerns related to COVID-19, uncertainty remains high, as it has for most of 2020. Unfortunately, this is likely to continue well into 2021 on health, financial and societal fronts. As investors, it’s never enjoyable to navigate periods like this, so we wanted to step back and reinforce our perspective on financial markets as we head into the close of 2020 (and if you are anything like me, it can’t come quickly
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Why Investors Might Think Twice About Chasing the Biggest Stocks

As companies grow to become some of the largest firms trading on the US stock market, the returns that push them there can be impressive. But not long after joining the Top 10 largest by market cap, these stocks, on average, lagged the market. • From 1927 to 2019, the average annualized return for these stocks over the three years prior to joining the Top 10 was nearly 25% higher than the market. In the three years after, the edge
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