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Investment Newsletter - Q4 2015 

As the markets conclude the worst quarter in a few years, we hope you are handling that as well as could be expected. You will see below our take on this, as well as our looking to keep this in historical perspective. If you have any questions on this or anything else, feel free to reply back.

A brief overview of recent market activity and expectations follows below. Our current investment topic is: The Power of Compounding Growth.  

You will find past investment articles, and recent stock market commentary and reviews, by clicking on the relevant Quick Links on the right, or peruse past investment topics by clicking the Articles tab above or directly on our website. If there is a topic of interest you would like to see covered in the future, please reply back to this email to let me know, or click here.

Investment Topic:
The Power of Compounding Growth
For our investment topic, we focus on what has been called "The Eighth Wonder of the World", and that is the power of compounding growth. To learn more, and see an example that shows how powerful it truly is, please click here

Our Perspective on Recent Market News and Activity
Our synopsis of recent market activity, a look ahead, and putting it all in perspective:

  After a seeing a significant spike in volatility, the 3rd quarter ended on a negative note with a broad market selloff and the S&P 500 index now posting negative -5.29% year to date return.   

   While market volatility is quite unsettling for most investors, it is important to understand that investing is based on the law of averages.  In order to achieve market returns consistent with historical data, we must by definition be prepared to endure the inevitable short term market declines to extract the maximum benefit of long term gains.   Each downturn leaves investors questioning whether or not they are witnessing some type of market anomaly not consistent with historical market data.   

   As we can see from the data provided by JP Morgan research, the S&P 500 index has been positive for 27 out of 35 years, and the average intra-year market decline since 1980 has been -14.2%. What this tells us is that market volatility and their corresponding corrections are quite the norm, yet still unpleasant when in the moment. 

   The most current economic data seems to indicate a significant risk of global recession led by the recent negative news about the Chinese economy. It is quite possible the market has been simply discounting this risk as opposed to concerns over the long anticipated interest rate increase by the Fed, which is still yet to occur. There have been both some recent positive and negative signs in recently released US economic data. The Consumer Confidence Index for September rose unexpectedly to the second highest level seen since the recession of 2008.  Personal Consumption data also remained firm, demonstrating that the consumer is still active. However a disappointing Labor Force Participation report fell below expectations.

    While we are not necessarily convinced the recent downturn is in fact complete, ultimately, forecast of short term economic changes remain irrelevant in the context of long term financial planning and wealth management.  We have never subscribed to the notion that anyone can consistently time financial markets, as it is impractical to presume anyone can consistently predict the right time to enter and exit any asset class.  There are simply far too many variables that affect market outcomes in the short term.  


Major Market Indices


Below is the Q3 '15 performance of some of the major indices:


Index Q3 2015 YTD
US Treasury 3 Month T-Bill
0.01% 0.02%
Barclay's US Aggregate Bond Index
1.23% 1.13%
Barclay's Municipal Bond Index
1.65% 1.77%
S&P 500 Index
Dow Jones Industrial Average -6.98% -6.95%
MSCI EAFE (International Equities)  -10.23% -5.28%
MSCI Emerging Markets -17.90% -15.47%
Russell Mid Cap 
-8.01% -5.84%
Russell 2000 Index (Small-Cap Stocks)
-11.92% -7.73%
Bloomberg Commodity Index
-14.47% -15.80%
Credit Suisse Long/Short Equity*
*this data is as of 8/31/15
-1.91% 3.10%
Morningstar REIT Index 3.09% -2.84%

Quick Links

Our current  investment topic: 
The Power of Compounding Growth

Recent reports and/or articles of interest:

Stay Connected
There's No Need to Fear Stock Market Corrections
  (see the Quick Link on the side for the full article with graphs and charts, or click here.

Individual investors react very poorly to stock market corrections. Many individual investors sell when the market declines out of fear it will never come back. The data, which we will present in this post, actually says the opposite. Not only will the market come back, but it will do so a lot sooner than you might think.

Over the past 50 years there have been 14 market corrections and 11 bear markets. The industry standard definition of a market correction is a peak-to-trough decline of at least 10% and the definition of a bear market is a peak-to-trough decline of at least 20%. For the purpose of this analysis we rounded up declines to determine corrections and bear markets.

It Doesn't Take That Long to Wait Out a Correction

The mean time to recovery was only 107 days, which is not that long of a time to exercise patience. Interestingly, it took on average around the same amount of time to recover as it did to decline. Yet numerous research organizations, most notably DALBAR, have found that individual investors consistently run for the exits whenever the market drops, which on average costs them 4% per year!

Bears Have Stamina

Bear markets take much longer to recover, hence the need for far more patience - yet recover they do. The mean time to recovery for bear markets was 738 days, but that was highly influenced by the six years it took to recover from the bear market in the 70s. Even the financial system meltdown in 2008 required less time to recover.

In contrast to corrections, which took about the same amount of time to recover as they did to create their maximum losses, bear markets take twice as long to recover as it took to reach a trough. This suggests investors take longer to get over bigger losses.

It Pays to Stay Invested
If you plan on saving over the long term then even a bear market should not stop you from adding to your investment account. As a matter of fact, investing in a bear market can significantly increase the value of your holdings at retirement because, in effect, you got to buy at a discount all along the way.

Despite all the corrections and bear markets over the past 50 years, an investor who started investing on January 1, 1965 would have seen a compounded return of 6.6% over the ensuing 50 years. That's far in excess of the compounded inflation rate of 3.6%.

It Can Pay To Fight Your Instincts
There is very little about investing that makes intuitive sense. You're better off investing in a falling market than a rising one. You should sell your winners and buy more of the losers. You can't time the market. Ignoring market corrections and bear markets is yet another example of an investing best practice that just doesn't feel right. But just because it doesn't feel right doesn't mean you should do the wrong thing. The data is just too clear to ignore.

On the Investment Horizon
Upcoming Key Dates on the Economic Calendar 
  • First Friday of each month: Unemployment report for the prior month, released at 8:30AM.
  • Tuesday October 27 - Wednesday, October 28: The Federal Open Market Committee (FOMC) meets, and releases their announcement on Wednesday at 2PM.
  • Thursday, October 29: GDP announcement at 8:30AM.
  • Friday, November 13: Consumer Sentiment, released at 10:00AM
  • Thursday, November 26: Stock market closed in observance of Thanksgiving.
  • Friday, December 25: Stock market closed in observance of Christmas.
  • Thursday, January 1: Stock market closed in observance of New Year's Day.
  • Tuesday December 15 - Wednesday, December 16: The Federal Open Market Committee (FOMC) meets, and releases their announcement on Thursday at 2PM. 
  • Wednesday, December 16 at 2:30PM: Fed Chair Janet Yellen to hold her quarterly press conference to explain the FOMC's latest quarterly economic projections. 

If you desire an appointment, have any questions on any of this material, or any other financial subjects may relate to your own financial circumstance, please reach out to us at the contact information below:






Brian Cohen, CCO; email:; phone: 631-923-2487
Joe Favorito, CFP®; email:; phone: 631-930-5336

Direct office email: 

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