cyclical markets

Fast Times, Slow Times

photo shows a throttle with an image of a tortoise and an image of a hare

Great thinker Burt White recently put the last two years in context: “The fastest bear market ever then became the fastest recession ever that then became the fastest recovery ever.” In fact, the S&P 500 stock index doubled from the low point faster than ever. At the start of the pandemic, with so much fear and uncertainty, the five-week drop was sharp but short.

Then things turned around.

All we had to do as investors was sit tight, rearrange things a little where we saw a chance at a bargain, and wait a short while.

Long-time clients will remember the slow times of the past, when bad weeks in the middle of bad quarters in the middle of bad years seemed to go on forever.

When account balances were lower than the year before.

When it seemed like the economy would never recover.

The human tendency is to believe that current trends or conditions will continue: it makes it difficult to keep the faith in the slow, bad times. But we know how this works, so we keep the faith despite it all. Spring comes after winter. Recovery and growth follow recessions.

The fast times we’ve had recently will inevitably slow down. The next recession, the next bad year is out there. No one knows when. Those who claim to know are so often wrong they can’t be relied upon. We find solace in knowing the tough times may bring us the bargains that make the good times good.

Clients, we will continue to rely on the principles that have served us well over the many years we’ve been at it. Looking for bargains, avoiding stampedes, seeking to own the orchard for the fruit crop. Whether trends are moving fast or slow, up or down, we seek to understand the seasons and the cycles of the market.

We cannot guarantee results, but we’ll still be here doing what we do when times change. Clients, if you would like to reminisce about the olden days or talk about the future, please email us or call.


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On Not Hulking Out

photo shows a ripple on a lake at sunrise

Forget willpower, forget control. What if the big secret in life was just letting things be?

We were reminded the other day of the classic Marvel character the Hulk. There have been too many versions of this giant green guy to count, but his whole deal comes down to losing his composure. “Hulking out” has come to mean flying off the handle, usually in a rage.

When new acquaintances learn what we do for a living, they wonder how much of our time we spend just sitting with upset or aggravated clients: does every new headline set people off? How do we handle all the turmoil?

Clients, you can imagine how I just smile through these conversations! You know that you’ve come to be the best clients in the world by the way we navigate things together. We know how to put short-term downturns in perspective, how to ride the highs and lows with our eyes on the big picture.

Of course there’s turmoil: so much of life is that way! Why would it shake us?

The Hulk reveals his big secret, how he has harnessed his anger to put it to his own uses (in his case, to fight villains of all sizes). It’s not about taming his anger; it’s about living with it.

“I’m always angry,” he says.

Clients, that’s the ticket right there: things are always a little uncomfortable. And we can choose to accept it as part of the deal.

Want to talk pain, gain, or anything in between? Email or call the shop, anytime.


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Minding the Bears

photo shows a rocky mountain trail

One recent morning, I was lucky enough to be hiking on a mountain trail with my sister. The air was crisp and clear, the smell of the pines was thick—a beautiful day.

We came across animal tracks, then more animal tracks, on the muddy parts of the trail.

We knew before we started that there were bears in the neighborhood. (In fact, one might say we were in the bears’ neighborhood!) The tracks seemed to have the shape of claws, with a size and depth that impressed me with a desire to avoid a meeting.

It seemed as good a time as any to turn around, so we did. My senses were on high alert as we began to descend. We reached the trailhead without incident.

Later, I looked up the facts about bear attacks. Only one out of 175 million people worldwide is the victim of a fatal bear attack each year, fewer than two in the whole United States.

The danger I perceived was far larger than the actual risk involved.

This reminds me of where we are in the investment markets. It seems to be the economic equivalent of a beautiful day: the market has had a sharp rebound from the pandemic lows of 2020. Yet some are concerned about the bear (a bear market meaning, of course, a big decline).

Just as there are plenty of bears in the wooded mountains, there are regular declines in the stock market. Some estimate that 10 to 15% declines are routine each year. But fear of the bear often seems to be greater than the actual damage a bear market might do to long-term investors.

Learning to live with the ups and downs, one may benefit from long-term growth in value. But fear of a decline that proves to be temporary—and rarely truly catastrophic—may lead one to sell out long before money is actually needed, with future gains foregone.

Clients, thank you for inviting us to hike the trails of your life with you. If you would like to talk bears or mountains or markets, please email us or call.


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When the Thrill Is Gone

We’ve talked before about how the ups and downs of the market are like being on a rollercoaster. The anticipation, the buildup—those things don’t have to be scary when we understand they’re part of the ride. For some, they’re even thrilling. 

This comparison is a little simplistic, sure. But there are valuable lessons in this image. 

For instance, one difference between the markets and actual rollercoasters is that the peaks and valleys of the stock charts aren’t being designed by skilled engineers. Charts are historical: their goal is to map the ride that happened, not the best possible ride. 

Take this example: as shown in the chart below, this company’s stock price climbed quickly during the tech boom. You can almost hear the coaster gaining steam—nearly vertical.  

graph shows a big climb

The company’s pre-2000 ascent. 

And then, as with all thrill rides, the drop (pictured below). Some investors aren’t sure which fell faster: the price or their stomachs. A rollercoaster engineer would be able to design that part in a way that riders would forgive them the jarring rise and fall.  

But what came next would probably get a rollercoaster engineer fired. 

graph shows a sharp drop

The company’s post-2000 fall. 

After the pop in 2000, the stock price balanced out. No more steep climbs: the thrill ride became a lazy river through the lowlands. Investors who held for the climb, and the subsequent drop, expected another climb. But the thrill was gone; the ride wasn’t the same.  

graph shows a sharp peak and then a mostly stable path

The map of the company’s whole ride. 

Okay, we’ll drop the coaster-cum-lazy-river comparison. You may have realized by this point that what we’ve just described is a historical example of a bubble: an excess of hype that ends with a pop! 

We mentioned that charts are maps of where things have been, so the lesson isn’t necessarily that they tell us where that specific thing is headed next… but they may be instructive in spotting similar rides in the future.  

Is it a thrill we’re game for? Or is it shaping up to be a thrill we’re not interested in, like the pop of a bubble? 

Clients, let us know when you have questions or want to hear more about what this all means for you. 


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The Best Way to Get to Know a Recession

photo shows a foggy bend in a road

Tolstoy’s great novel Anna Karenina begins, “All happy families are alike; each unhappy family is unhappy in its own way.”

This seems like stretching a point. In my life, I’ve had the good fortune to know many happy families, all quite different. But the quote does capture the uniquely lonely feeling that can come with misery.

The market, we believe, operates in much the same way. Bull markets can cover up a lot of performance differences, and although no two bull markets are quite alike, most investors are generally going to be happy regardless.

But each and every recession hurts in a unique way. We just have to wait.

The market behaved very differently in the tech wreck of 2000–2002 than it did in the Great Recession seven years later. And what we see now is different than either of those!

In a conventional recession, heavily cyclical companies like manufacturers get hammered hard. But cyclical companies generally understand the boom-and-bust cycle and plan for it with their savings.

Consumer goods companies on the other hand might take it for granted that people will keep buying food and clothing and other necessities, so they generally do not keep as much cash on hand. The short, sharp shock we experienced earlier in the year took out a lot of retailers that might have weathered a longer, shallower recession.

Homebuilders are normally one of the biggest casualties in a recession, but they are doing booming business now. So are the companies that make the materials they work with. Many big tech stocks, normally volatile and erratic performers, have been scorching the markets.

This is a stark contrast to the 2007 recession, when the housing market cratered and took out a lot of homebuilders, or the 2000 recession, when growth tech stocks got demolished.

In all likelihood, those previous recessions helped set the stage for these sectors’ current outperformance. Going into this downturn “everyone knew” that homebuilders were going to get wrecked because it happened last time.

Perhaps in five or 10 years there will be big opportunities for investing in restaurants or cruise lines as the next recession prompts investors to flee the businesses that got hit hardest in this one. No guarantees.

Every downturn is different, and we have no way of knowing what the future will hold. All we can do is stick to our principles: avoid the stampede and seek out bargains. Sectors that get trashed in one recession may be found in the bargain bin before a different recession. This is why we study and keep our eyes open.

Clients, if you have any questions, please call or email us.


Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.

All investing involves risk including loss of principal. No strategy assures success or protects against loss.

The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

20% – 30% – 40% Off!

© Can Stock Photo / PaulMatthew

Some say the seeds of future gains are planted in the downturns. The future is always uncertain, but the past is not: we know many investments can be owned for less money today than last month or last year.

As we go about our work, we are seeking three kinds of bargains.

  • Great companies available at good prices.
  • Cyclical companies at low points in their cycle.
  • The best bargains in the investment universe, wherever they are.

Often, the companies we most admire seem expensive. We know farmers that are always excited to talk about buying their favorite iconic tractor maker. We hear the same thing from parents about the entertainment conglomerate that makes the movies and runs the theme parks their children enjoy. Downturns sometimes reduce stock prices to attractive levels.

Everyone knows that recessions usually hurt company revenues and profits. We are thinking how the inevitable recovery might improve revenues and profits. That long view improves our appetite for temporarily depressed cyclical companies.

Some of our favorite past bargains have come from the sector politely known as “high yield bonds.” (You and I can use a more descriptive term, junk bonds.) From time to time, at rare intervals over the past twenty years, we have found something we believed to be investable hiding in the junk pile. Times might be ripe for that again.

Now is the time. We are studying and thinking and researching to make the most of it.

Clients, if you would like to talk about this or anything else, please email us or call.

What Comes Next? Three Paths

canstockphoto29922209

Psychologist Shawn Achor wrote about crisis and adversity, recurring features in both the markets and life. Stuff happens, as they say.

Achor says there are three alternate mental paths in the aftermath of crisis.
The first one leads nowhere. We simply expect the crisis conditions to continue. The second one leads downward to more trouble, a continuation of the trend. We humans do tend to believe current conditions or trends will continue.

Finding the third path is difficult when times are tough. Many people do not see it because they do not believe it exists. The third path leads from the challenging conditions to greater strength, capabilities, opportunities and success. Think of it as falling forward.

Studies show those who conceive of failure as an opportunity for growth are more likely to find the third path, and experience that growth. Others have talked about the same concept with words like resilience and grit, or more vividly, post-traumatic growth.

We see this pattern in the investment markets. Although historically the stock market has recovered sooner or later from every downturn, some investors do not recover. Those who can only see the first two paths have a hard time staying invested. If they sell out at low points, believing the crisis conditions will continue or worsen, what might have been a temporary loss becomes permanent.

By the time they see the third path, the market may have already recovered. Their diminished pool of capital can only get reinvested at higher prices, perhaps to repeat the cycle of crisis and loss.

Fortunately, here at 228 Main you clients tend to have productive attitudes toward investing. You can see the third path, which is a big advantage. If you would like to talk about this or anything else, please email us or call.


Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

All investing involves risk including loss of principal. No strategy assures success or protects against loss.

Teaching an Old Stock New Tricks

© Can Stock Photo / alexskopje

Consolidated Edison Company of New York (Con Ed) was listed on the New York Stock Exchange back in 1824. Known then as New York Gas Light, it holds the record for the longest listing on the exchange.

For every single day of those nearly two centuries, every share of its stock was owned by somebody. Through financial panics, recessions, wars, the Depression – through everything – every share of its stock was owned by someone.

It seems curious to us that some investment advisors advocate the belief that the vast majority of investors are incapable of owning shares of stock through the inevitable downturns. (Stocks do go up and down, as we often note.) Yet somebody has to own every share, every day.

These advisors with low expectations of you usually rely on one of two basic approaches.

1. Keep 40 to 60% of your long term assets in bonds or other forms of fixed income. This strikes us as an exceptionally poor idea for many long term investors, because of historically low interest rates, and potential losses from inflation and rising interest rates.

2. Expect to be able to sell out before big declines, and reinvest before big rises. This unlikely outcome is usually sold as a “tactical” strategy. It is a great one, too, but only on paper. Nobody to our knowledge has ever demonstrated a sustainable long term ability to reduce risk while maintaining market returns with in and out trading.

Our experience tells us that many people understand long term investing, and living with the inevitable ups and downs. Many more can be trained to become effective investors. We think you can handle the truth: real investments go up and down.

The thought of forfeiting a significant fraction of potential future wealth by pandering to fear of short-term volatility hits us wrong. We won’t do it here at 228 Main, nor would we pretend we our crystal ball works well enough for in and out trading.

Of course, our approach is not right for everyone. Clients must be able to live with their chosen approach, and not everyone can live with ours. We can handle the 60/40 or 40/60 mix for clients who want less volatility. But the fraction in the market is going to experience market volatility, a pre-requisite to obtaining market returns.

We mean no disrespect to advisors with different approaches. After all, they lack the main advantage we enjoy: working with the best clients in the whole world.

Clients, if you would like to talk about this or anything else, please email us or call.


Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.

All investing involves risk including loss of principal. No strategy assures success or protects against loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.