Business Times of Edmond, Oklahoma February 2020 - Page 28

BUSINESS MATTERS NICK MASSEY A stute I nvestor Was Your Portfolio Up by Record Amounts in 2019? Maybe Not! I f someone asks you how your investment portfolio did in 2019, a fair question might be, “Compared to what?” In most cases, 2019 looks pretty incredible. But part of the reason 2019 looks so great is because most markets collapsed in the 4th quarter of 2018, allowing 2019 to recover from a relatively low number. Most major US stock markets were up anywhere from 21% to 33% in 2019. That’s pretty big and certainly one of the best years ever. But looking at market returns on a calendar-year basis alone can be misleading. We like to put things in a neat little package and do the same with investment returns. It’s as if we hit the reset button on Jan. 1st each year and measure the next 12 months. Looking at the S&P 500 on that basis shows a 2019 gain of about 28%, or about 31% if you include dividends. But what if we look at results starting Sept. 20, 2018, until the end of 2019? September 20, 2018 was the previous all- time high for the S&P 500 until it was surpassed in 2019. You might recall that after Sept. 20, 2018, almost all markets took a brutal 20% dive in the 4th quarter and pretty much everything got hammered. We spent a good part of 2019 just getting back to the old highs and that felt like a long slow grind. By the way, a 20% decline requires a 25% rise just to break even. 28 February 2020 | The Business Times To use a sports analogy for all you football fans; if your team was on the 50 yard line and you got driven back to the 30 yard line, then gaining the next 20 yards isn’t all that impressive when all you did was get back to where you were. Where you start doing your measuring makes all the difference. Let’s consider another example many people remember quite painfully — the 2008 financial crisis. The S&P 500 fell 37% in 2008. But we can’t forget that it peaked in November 2007 and finally hit bottom in March 2009. That was a slide of 51%! Worse yet, even though the S&P 500 was up 26.5% in 2009, 15% in 2010, and 2.1% in 2011, the index finally got back to its old high 36 months later in March 2012. Ouch! Bull markets are properly dated when they break out of earlier trading ranges to reach new highs that are above their prior high-water marks. The current bull market dates back to March 2013, and not to March 2009. Yes, if you bought at the very bottom, you recorded big gains. But most people didn’t. And if you rode the decline and recovery, all it did was bring you back to where you were before the crash. Many investors have commented to me their surprise that despite headlines celebrating enormous market gains, they don’t seem to be a whole lot richer than they were a little more than a year ago. You probably recall the previous highest value of your portfolio in September 2018 much more vividly than the slow grind that simply amounted to a recovery during the following six to nine months. It might help to annualize 2018-19 markets to understand why investors might feel a little let down. Rather than thinking of these two years as minus 6.2% and plus 31%, it might be better to look at gains across those two years. In the case of the S&P 500, the gains total 24%, or 11.4% on an annual basis. Not bad and certainly above average, but by no means outstanding. Sorry. Don’t get me wrong. I’m not complaining and we’ll certainly take the gain. But maybe it’s not worth popping out the champagne. The good news is that markets that have had double-digit gains tend to keep rising faster than usual. The real question is whether that streak continues in 2020 after a decade of surging equity markets. That, I’m afraid, is anybody’s guess. For our thoughts on that question, give us a call. We’ll be happy to discuss it with you. NICK MASSEY is President of Massey Financial Services in Edmond, Okla. Nick can be reached at www.nickmassey.com. Investment advice offered through Householder Group Estate and Retirement Specialists, a registered investment advisor.