All Quiet on the Western Front

After nearly two years of relative uncertainty, marked with brief moments of extreme pain, U.S. equity markets are enjoying a long run of relative calm. The S&P 500 has now posted 5 months in a row of positive returns and is up 7.66% through the end of July. Over the same time period the venerable Dow Jones Industrial Average has produced a 7.38% total return, with dividends reinvested.

Despite these figures, satisfaction lies far away, lounging without a care in the world for us. Anxiety runs higher than average as the collective heart of our collection of hearts seems to skip a bit with each new blurb, soundbite, earnings release, and blogpost (not this one, of course). One could very reasonably assume that up markets should produce up feelings. Very often they do. Yet our feelings are not so peppy, but rather taut like a violin string played very high for just long enough to snap. Consider:

If we look to our left, we see a broken European system forging ahead as if nothing is amiss. Unemployment rates in Spain remain at 20%, above 12% in Italy, and still in double digits in France. On our right we see a burgeoning domestic debt load, growing like a Greek tragedy with a terrific 2nd act (“Hello Entitlement Benefits! We thought you’d gone away while our heads were in the sand!”) And, if we get down on our bellies and squint just a bit, we can see the teeny-tiny interest building in our savings accounts. 800 pennies for 1,000 dollars should be the name of a Gaelic soul band, not the annual interest on our savings accounts.

What should we conclude from these competing weathervanes? Are the positive returns enough to keep the system going or will economic realities begin to cave in? Can financial optimism overcome economic realism?

A bellicose reader might observe that markets are always fraught with uncertainty, making today’s circumstance unexceptional. He might continue that the nearly unlimited universality of information brought about by the internet has made it fashionable to always be pessimistic. After all, the world is a big place, there must always be something wrong somewhere.

And, perhaps, he is right. But, perhaps, that’s only because we are asking the wrong question. Instead of asking whether or not we should be purchasing new investments, we should be reminding ourselves of timeless principles. Those truths that remain relevant in all circumstances.

We should remind ourselves of one such truth today, during a brief respite from volatility. In periods both of rosy returns and unending losses, it remains true that there are things you can control and things you cannot. Maintaining a steady eye on both makes all the difference. Markets have gone up. Good! I must realize that I did not make it so. Markets have gone down. Oh no! I must accept that I did not make it so.

If we do not accept that we cannot control markets, we are destined to be controlled by them. Conversely, if we accept that we hold no sway over the market’s whims, we can decide what it is that we would actually like to own. When we know what we own and why we own it, we can confidently move forward as prudent investors.

As is oft repeated, but not digested nearly enough: We will continue to look for opportunities to invest capital consistent with an acceptable level of risk.


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