A few of our clients have called in the last couple of weeks asking why their portfolio had taken a loss in October.  All of the clients cited various media sources that were spewing about how great the markets have been.  They asked, with all of this wonderful news, why did my portfolio take a loss in October?  The answer is rather straightforward, and that is because global equity markets were largely down, and fixed income was relatively flat; but we see deeper issues that we can’t help but address.

Media feeds off of fear mongering and elation.  At least, that’s our take on their cheap magazines and 24-hour “Action News” stream.  I think most of us accept this fact or at least have come to understand how that machine works.  Nonetheless, not all investors are tracking markets very closely.  Rather, they tend to catch the emotional “wind” of the media.

From an investment perspective, one month’s returns is too short of a time span to measure any meaningful metrics.  Reviewing performance over such a short period magnifies the experienced volatility. Below is a graph that shows the returns of the S&P 500, measured on a monthly basis, for the last 30 years. The point of showing this is to illustrate the volatility experienced month over month, for 30-years.

Over the short-term, we expect to see more volatility, and over the long-term we expect for things to be much smoother.  To be a good and disciplined investor, we need have the right expectations and the right understanding of how markets work.  The long-term approach is important for so many reasons.  In today’s blog, a long-term horizon makes for a smoother and more successful investment experience.

*Returns data from Center for Research on Security Prices (CRSP).