Friday, Dec 10th 2021

Staying in the market moment


“Past performance is no guarantee of future results.”

These are the most famous words in the investing world.

This disclaimer most often serves as a reminder that no investor’s period of success or failure should be relied upon to make decisions in the present. In markets as in life, what’s past is past.

As we communicated to clients earlier this week, we view volatility and the market’s recent challenges as a time for our strategies to shine. We consider moments like these to be ripe with opportunity, so long as we keep our hands steady and our approach consistent.

Every day, some of the smartest and most talented people in the world wake up, sit down at their computers, and try to figure out where the price of stocks, bonds, cryptocurrencies, and an array of other financial instruments will go next.

The reason these folks come back to this problem, day after day, year after year, is because it cannot be solved. No one can ever know for sure what will happen next in markets. But to paraphrase the words of Benchmark’s Matt Cohler, the job of an investor is not to see the future, but to see the present clearly.

This lesson is simple in theory. Yet like anything worth learning, putting this lesson into action remains difficult in practice.

Recent market conditions, for instance, have been a challenge to see with much clarity. Every story driving market actions right now seems both connected and separate. Investors appear to fear the Omicron variant, Chinese regulators, the Federal Reserve, recent IPOs, and software company valuations—among other things.

Each of these fears stands alone, telling its own story of harder times ahead or previous eras misunderstood by investors. Yet each of these worries may also become intertwined with every other, each pocket of fear creating another, drawing false connections between disparate worries.

And in these moments, we think a boilerplate reminder to clients that the past makes no promises about the future may serve as a self-help guide for investors.

Just as strong prior performance may offer an investor a false sense of certainty about their decision making, so too can poor prior performance make this same investor get down on themselves and doubt their process.

But if we work hard to understand the present conditions of any market, and trust the outcomes we believe our process may create, then we can accept our past performance for better and worse and go forward with clear minds — it’s no indication of the future anyway.

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