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Investment strategy
April 18, 2021
4 mins

Acrophobia in Markets?

April 18, 2021
4 mins
David Bailin
Chief Investment Officer
STEVEN WIETING
CHIEF INVESTMENT STRATEGIST AND CHIEF ECONOMIST
Roller coaster behind blossom tree
SUMMARY

At moments like these, investors and those thinking about investing may feel as if they are sitting at the top of a roller coaster, fixated on the drop to come, holding tight to the handle bar.


US shares have gained 18% since October 2020 when many investors had already assumed markets “had gone too far”. Global shares are already at the cusp of another year of double-digit returns (+9.5% year-to-date). While this lowers the scope of the coming-year’s return in US markets, in our view, macroeconomic policies and results, as well as vaccine efficacy and rollouts have broadly justified this appreciation. While investors intellectually understand that formulaic “laws of gravity” do not apply to markets, the fear feels the same.

Facts, Not Gravity

Over many months, we have provided several historic facts to reduce investor fear.   For example, we have written that:

  • US equity returns have been positive in roughly 85% of annual periods.  This is roughly the same share of time the US economy expands, while contraction periods have averaged 15%.
  • Market timing doesn’t work. Missing the top 20 days of US equity returns during the past two decades would have reduced annual returns by 10.5 percentage points, producing losses rather than gains.**
  • Over the past year, missing the single best two days would have reduced the return by a massive 19.3%.
  • US and global equity returns average a correction of slightly more than 10% once per year, on average.  These declines tend to be shorter and shallower during business cycle expansions.
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