2018 Market Review – Another Viewpoint

2018—Not as bad as it seemed…

Not long ago I was walking through a city park.  High on a tree was a sign showing the high-water mark from the last great flood.  The analogy struck me…

We as investors always remember the high-water mark of our portfolio’s value.  Never mind that we didn’t liquidate it at that value (and pay the tax).  We just remember how high it was.

Today, we fret over the loss of 20% as measured by the Dow Jones (DJI) or S&P 500 indices.  Remember, for the calendar year the S&P was -6.24% and the DJI was -5.63%.  A ten steps forward one step back event!

Our industry is one of “old sayings” some of these include: “BLASH” buy low and sell high, “never catch a falling knife” and “the trend is your friend” to name a few.  Another (and one of my favorites) is: “markets go up on an escalator and down on an elevator”.

We have been on a very long escalator (since March 2009); however, nothing lasts forever.  And since the last week of September (the high-water mark…), we have been on the elevator!   The Stock market, as measured by the S&P 500, was down 20% from its Sept 20th high of 2,930.75, by definition a “bear market”.

In the last 91 years, the S&P 500 increased in value 60 times.  Two years the index was flat and 29 years it was negative (lost value).  Out of those 29 years with incremental losses, 2018 was the seventh least negative year.  It did not rate in the bottom 20!   As far as negative years, it was way better than average!

“If you spent 2018 mainlining misery about global warming, inequality, toxic politics or other anxieties, I’m here to break your addiction with some good news: The world got better last year, and it is going to get even better this year.” Said Greg Ip in the January 2nd, 2019 Wall street Journal.

He goes on to explain; “Nathan Rothschild was surely the richest man in the world when he died in 1836,” economists Max Roser and Esteban Ortiz-Ospina wrote in 2017. “But the cause of his death was an infection—a condition that can now be treated with antibiotics sold for less than a couple of cents.  Today, only the very poorest people in the world would die in the way that the richest man of the 19th century died.”

Poverty around the world is plummeting; half the world is now middle class; and illiteracy, disease and deadly violence are receding. These things don’t make headlines because they are gradual, relentless and unsurprising. That is why they are worth highlighting.

The problems the world faces are far smaller than those it has already overcome and can be solved the same way: not by betting on miracles but by patiently applying knowledge and tools we already possess.

As of September, more than half the world—3.8 billion people—are middle-class or rich, Homi Kharas of the Brookings Institution and Kristofer Hamel of World Data Lab found. They define middle class as consuming between $11 and $110 a day, in 2011 dollars adjusted for varying costs between countries. At this level, households devote ever more of their incomes to discretionary items such as motorcycles, refrigerators, movies or vacations.

Money and well-being aren’t the same, but Mr. Kharas and Mr. Hamel note that moving from poor to middle class does correspond to a big jump in happiness.

Count your blessing, we live in the best time in the history of the world and it is getting better every day!

We are not trying to minimize reality, just trying to keep it in perspective!

As always, call with questions.