![]() Which means, if one wants/needs to earn 3% on the fixed income side of the portfolio, you have to venture into corporate credit, with varying degrees of risk. Treasury paper, where one really doesn’t need to worry about default risk. This is depicting the yield on the safest of bonds, U.S. Look at the table below, which shows the path of the yield on the 10-year Treasury Note, back to 1968. ![]() For diversified portfolios with a bond component, the math is making it more difficult to achieve even reasonable levels of income without taking on more and more risk. Money market rates at brokerage firms have declined to effectively zero in just two months. The other side of that coin is that we are now dealing with the lowest interest rates in history. Before we all go celebrating on how great it is to get such a low rate, let’s remember there is another side to the coin, and it affects everyone with savings, not just someone who happens to own a home (side note-about 40% of all homeowners have no mortgage). Last week, one of our clients closed escrow on a refinance we recommended and the interest rate was 2.875%, saving them thousands of dollars per year in payments. I purchased my first home in 1987 in Placentia, CA for $167,000 and took out a mortgage with a 9.25% interest rate on a 30-year fixed loan. Looking at it through that lens, I’d say it’s definitely not Wasted Time. And often, that journey is two steps forward, and one step back (and sometimes, more than one step). ![]() Investing, like any worthwhile endeavor, is not just about the end game, but the journey. A 50% loss means one has to gain 100% to get back to even. The more you lose, the more you have to gain back to recover. There is one sure thing, though, regarding the math, and it’s not symmetrical. Everyone can be a bit different in that regard. And therein lies the psychology, and one’s time horizon. The common theme, though, is that after each decline, stocks eventually recovered to new highs. There was a -34% decline, followed by a 44% rally, but no new high (though I should note the NDX 100 is the only index which has made a new high). At present, it has been a little over 4 months since the S&P 500 peaked in February. The 2000 peak took 8 years to gain back, while the 2007 top took another 6 years. After the 1973 peak in stocks, it took nearly 6 years to recover. Unfortunately, there’s no way to know what lies ahead. Said another way, stocks historically have been making new all-time highs about once every four days. In the analysis that NDR did, they found that in the past, the stock market has spent about 41% of the time recovering from a loss, another 34% falling, and just over 25% of the time making new wealth. ![]() In 7 of those 11 drops, it took only one year for the S&P 500 to recover all of its losses. Since 1950, there have been 11 instances prior to February of this year when the S&P 500/Dow Industrials dropped from a previous all-time high. This chart does not reflect dividends, but on a price-only basis, the Dow did not recover these losses until the mid-1950s. The largest decline in history is very visible on the left side of the chart, when stocks fell over -80% during the 1929-32 time period. In essence, our client was asking, when stock prices decline, how long does it take to recover? Several years ago, Ned Davis Research ( produced the chart below, which shows the Dow Jones Industrial Average back to 1901. In other words, it really wasn’t Wasted Time. I could be wrong on this, but in examining the lyrics to the song, it appears to be about a past relationship that fizzled, that it’s time to move on, but with the realization that the time spent in the relationship actually had some redeeming value. Last week, a client had innocently asked “So, when do you think we’ll get back to where we were in February, before COVID came along?” The right answer is, I have no idea, but it did get me thinking, and then I remembered a study Ned Davis had done on this subject, and that made me think of Wasted Time, and presto, I’ve got something new to write about. What does Wasted Time have to do with the financial markets? I’m glad you asked. With Wasted Time, partway through the song, the band unveiled a curtain so the crowd could see the nearly 40-member orchestra that was accompanying them on the piece. In late September last year, my wife and I flew to Las Vegas for a few days to see the band at the MGM Grand Arena, where they played the entire Hotel California album for the first time ever, along with many of their other hits. The song was on their epic 1976 album Hotel California. Those are the closing lines of one of the most beautiful songs the Eagles have ever produced, written by the duo of Don Henley and the late Glenn Frey.
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