2019 Second Quarter Review…. Financial Market Roller Coasters
Quarterly results for financial markets often resemble my favorite roller coaster at Arnold’s Park Amusement Park on the shore of West Lake Okoboji. It’s a local landmark having weathered the decades and being a mandatory experience for generations of families. Every nook and cranny of its circuit having been endlessly discussed and debated. I would hazard to guess that by now over a million passenger circuits have been made over the old wood structure. A million shrieks of fear, a million laughs for joy and a million memories made.
When the ride is over, oddly, no one has actually gone anywhere. Sure they climbed the heights to “The Point of No Return”, banked downward to the left, followed by a hard right and a series of banks, rises and falls all to the sounds of screaming passengers and the creaks and pops of the wood superstructure. Then a slow deceleration to the original point of departure. Anxious new riders enter from the left while satisfied survivors exit to the right, happily returned to the exact place their adventure began.
When reflecting on or measuring investment performance over any given quarter often what we get is the roller coaster effect. During the second quarter we tumbled down some tracks and climbed some tracks (which is to say, we experienced volatility), but we didn’t much go anywhere. Suits me fine - that’s the way things are meant to be. Financial markets are not places where people should go to avoid volatility, but rather a place where volatility is accepted and welcomed as a natural outcome of the marketplace. A rational person is inclined to ask; “so what’s the point of that”?
The point of the exercise is that we accept volatility to get three things; 1) liquidity, 2) income and lastly 3) growth. It’s important to note that like volatility, income and liquidity arrive rather quickly. Liquidity is immediate. Buy something on an exchange and you are free to sell the same as soon as you please, even before your first trade settles (a common practice of traders - not so of investors). Income comes almost as quickly. Bonds accrue income from settlement forward (often in one day) and most blue chip stocks pay a dividend every three months. In all of our Iowa Wealth Management models, income is accruing and being paid to our investors every month, or as we like to point out, we pay our clients well to wait for growth. If you care to measure income or liquidity, a three month period of time is a reasonable yardstick. The trouble arises when you try and measure growth over such a short period of time.
Some quarters markets rise and other quarters markets fall, and investors should never expect otherwise. The true investor knows that growth in the value of a portfolio is best measured over a market cycle (averaging about seven years) or even better over one generation of a family. Wise investors accept volatility to garner the immediate advantages of liquidity and income while waiting for their growth. Measure your wealth long-term and you get the most marvelous of experiences…. a roller coaster that actually takes you somewhere.
Past performance is no assurance of future results. Iowa Wealth Management is a registered investment adviser with its principal place of business in the State of Iowa. Opinions expressed are those of Iowa Wealth Management and are subject to change, not guaranteed and should not be considered recommendations to buy or sell any security.