Market Turbulence 

"Ladies and gentlemen, the captain has turned on the fasten seat belts signal.  Please return to your seats and make sure your seat backs and tray tables are in their full up right position."

[Editor's note: this morning's email will be longer than most week's 250 word limit.]

Wow - what. a. week.

First, we had the worst Christmas Eve market performance - ever.

Then, we celebrated Christmas.

Then, the Dow Jones had it's single largest daily point climb, ever (not in percentages, however), up over 1,000 points.

Then, the market looked like it was going to give it all back yesterday, only to climb over 850 points intra-day to finish up 189 points after dropping as much as 600 points earlier.  

It reminded me of the airline announcement you hear on airplanes during turbulence.  

Let's take a look back at what exactly happened, and what (if anything) we should do.  

Below is a chart of the the year-to-date return of the S&P500.
Some indexes crossed into into a bear market territory (a decline of 20% from the tippy top to the lowly bottom) late in mid December, but the Dow Jones and the S&P S&P500 both, at this point, stubbornly have held off by a half percent or so. The year-to-date return of the S&P500 (as of Thursday) is -5.1%, which is somewhat remarkable given what December has looked like.    

Next is a chart of the same S&P500 over the past 3 years, with the maximum drawdown shown (showing when and how much it moved from the top to the bottom). 
Next is a chart of the same S&P500 over the past 10 years, same maximum drawdown.  
And finally, a 20 year chart of the same S&P500 over the past 20 years, same maximum drawdown.  
So what's my point in showing all of this?  That Yes, the recent downturn hasn't exactly been fun to watch - but it's a normal part of the investing long-game.  And that over a long enough time period, the stock market still remains a rewarding place for a long-term investor (vs a short term speculator).  

Why did this happen?  Take your pick - but it's impossible for anyone to say why or how much any of the following actually contributed.  Trade wars, oil prices, interest rates hike, Brexit version 2.0, threats of recession, copper prices, large truck orders (yeah, some economists actually peg to that).  

What should we do?  Any long time reader might know this answer - but it hasn't changed: we don't do anything*.  

Doing nothing is sometimes the most difficult thing to do, because we feel we should DO something.  But we really don't know what's next.  Maybe the market does head further south - maybe it already hit it's lowest point and reset itself for the next long bull market run - maybe we see these whip-saw trading days for a few months until the market figures out what it wants to do.  

But unless our personal goals or timelines have changed, we stay the course.  We buckle up, return to our seats, and return those tray tables to their full upright positions and recognize that sometimes when we fly, we hit turbulence.  

*There are some technical things we can do - which some in the Fident family can attest to this week, such as tax-loss harvesting strategies or Roth IRA conversions on lower account balances - but the bigger picture of asset allocation remains unchanged.  
Interesting Resources 

1. A Wealth of Common Sense - Buying When Stocks Are Down Big
Ben Carlson unpacks some historical context to really bad quarters in the stock market the whole way back to 1926 - meaning looking at 370 quarters in total - and what the ensuing 1 year, 3 year, and 5 year returns looked like afterward.  The average one year return has been 25.6%, the average three year return 37.9%, and the average five year was 91.3%.  Compelling case for holding the course when things get choppy. 

2. Coldplay - Christmas Lights (music video)
This is just a beautiful song - and I wanted to share it.  

3. Dimensional Fund Advisors - Here's the Prescription (pdf I can send if requested)
DFA runs some figures historically how important it is to stay invested in the market over the long haul - looking at the S&P500 index from 1990-2017.  The total period had an annualized return of 9.81% - and shows how if you miss single best trading days (which are all but impossible to predict ahead of time) how that return goes down.  The chart below shows the research.  If you're curious to read the whole piece, reply back to this email and I'll send you over the PDF version of it (not available to the general public).  
As I said back in February - I realize it's hard.  I'm in this with you.  If any member of the Fident Family does need to connect, don't ever hesitate to reach out and share your concerns or emotions.  They're real - but aren't always the best reasons for making changes. 

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