As disappointing an investment year as 2011 was, who would have guessed that the first quarter of this year would turn out to be the best quarter in US – and probably global – equity markets in 14 years. The MSCI All World Index Index (which includes the US and is a reasonably close proxy for the equity portion of most client portfolios) was up 11.56% for the quarter, and those returns were reflected in client portfolios to the degree of each client’s equity exposure.
Since early March 2009, the S&P 500 stock index has more than doubled, going from 683 at its low to 1408 as of this March’s market closer, essentially rendering the ups and downs little more than background noise. Since last summer’s swoon, the index is up nearly 30 percent.
After 44.6 million (literally 44.6 million – you can Google it yourself) articles, blog posts, and news stories referencing a Greek debt default in the last three years alone, and what I’m sure have been countless hours of hand-wringing over what a Greek debt default might mean for global markets, Greece – for all intents and purposes – did default on its sovereign debt on March 9th. Of course, it wasn’t called a default, but rather a “debt restructuring,” with holders of Greek bonds getting 26 cents on the dollar, but regardless of what you call it, make no mistake: it WAS a default. And yet the sun still rose the next morning, business went on, people continued to buy and sell the things they wanted and needed, and the Dow Jones Industrial Average closed at 12,922 just three trading days before it would eventually close above 13,000 for the first time in four years. The world did not end.
One important lesson in all of this, of course, is that it’s difficult to predict returns, and that has proven especially true of these lengthy – albeit painfully turbulent – market updrafts that have restored much of the wealth that was lost in the Great Recession of 2007 – 2009. That said, after a strong first quarter, the lesson should also be viewed in reverse: it’s hard to know what the markets will offer for the rest of the year, and there will certainly be additional downdrafts ahead (as we’re seeing already in the first ten days of April so far), but none of what is going on at any particular moment tells us much, if anything at all, about what may lie ahead.
The second – and perhaps more important – takeaway is this: that there always has been – and always will be – some Greek-style crisis (or crises) on the horizon, and historically, the worrying and hand-wringing have usually been the worst part of such events. (This would be a corollary Peter Lynch’s great quote: “Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves.”) So, while we ponder what the second quarter may hold – Spain and its debt situation seem to be on the radar screen as I write this, as are concerns that the Federal Reserve may be a little less loose-fisted with its monetary support – it’s worth keeping in mind the amount of ink spilled and hours spent on the possibility of a Greek default, and where the market ultimately was the day after the curtain fell on that episode in market history.
And, while we’re on the topic of Greece, here’s a tidbit that puts Greece in perspective: According to Goldman Sachs’ Jim O’Neill, China’s growth creates the equivalent of a new Greece every 90 days.
That’s all I have to say for the moment. Please let me know if you would like to talk any of this over or if there is anything we can do for you. As always, I appreciate the opportunity to be of service.