Market Commentary for the week of March 9, 2009

1979. 1996. 1953. 1949.

Investors were punished last week with references to those, and other, years, as the markets sought comparison to, or solace from, the pain they are enduring from portfolio declines, record unemployment, and economic stagnation.

Enough already!!

While it is sometimes helpful to draw comparisons from historical data, the only thing we know about the future is that “we don’t know.”

Even my own quantitative science is derived from the notion that patterns repeat, and that statistical probabilities can be measured. But even in a world of mathematical computation and absolutes, all we can create is a scale of probabilities. Portfolio management, itself, is the art of balancing those probabilities so as to manage risk and to achieve client’s goals and expectations for upside performance.

But historical references place too much emphasis on absolute comparisons, in my judgment, as if we know that these thresholds, will/might provide the same results.

In the meantime, your portfolio, your dreams, are paying the price.

Hold on or jump ship?
If investor skepticism gets any worse, we will be establishing our own historical precedent for inertia, making 2009 one of the worst ever. The public is looking for guidance and hoping that something, someone, can pull this economy back from a recession.

In conversations with clients and colleagues, I am struck by the uneasiness and pessimism which abound. Our collective mood is not upbeat, although we suspect that an end to the misery is near. Perhaps these are the times to search for opportunity?

Stay.
Although any kind of sustained upside rally is elusive, there is enough cash on the sidelines to expect that it might be directed back into investments. We know, anecdotally, that money market and savings rates have modestly begun to increase. That money is presently being held for a “rainy day”, but might also be thought of as potential fuel for a bull trend in equities. Indeed, the will to invest might be temporarily suspended, but most people believe that they would come back if given sufficient incentive. It is foolish to try and “time” the market, which is why I believe in earnings-driven sector allocation.

No one, today, thought they would be living comparisons to previous negative historical inflection points. In fact, at the root of many portfolio ills was the belief that it was “different this time,” and such negative historical comparisons could not “happen again.” But, alas, that notion, itself, became the anchor that immobilized rational thought.

We know the markets will recover. That is both a historical and quantitative reality. Vilify the recent past, if you must, but prepare for an opportunity that is thus far unseen.