I didn’t think I’d see a Douglas Adams reference today (or ever really) in investment commentary but I’m glad I did because anyone who’s read him knows he’s awesome.
So props to Cameron Crise for giving a nod to “The Hitchhiker’s Guide to the Galaxy” on Thursday.
Some folks of the passive investor variety might have been dismayed on Wednesday to learn that benchmarks can go down as well as up – especially when it suddenly dawns on everyone that, to quote DealBreaker, a “70-year-old man with the emotional intelligence and political acumen of a ferret smoking trucker speed,” is in charge of the world.
But if you’re an active manager investor, “more volatility, a higher risk premium, and moderately cheaper stock prices” might be “cause for celebration” as that “increases your opportunity set.”
So that’s interesting, but the most hilarious thing about what you’ll read below is the extent to which it highlights how increasingly surreal the investment landscape is becoming. Because in the grand scheme of things, yesterday’s 1.8% decline wasn’t shit. But on a 40-day, rolling lookback window, it was a goddamn black swan.
Enjoy. And “don’t panic.”
Via Bloomberg
“Don’t Panic.” Those words were comfortingly emblazoned on the cover of “The Hitchhiker’s Guide to the Galaxy,” and investors would do well to remember them whenever they navigate through a tricky part of the investment firmament.
- Yesterday’s 1.8% decline in the S&P 500 was the worst since September, but just the 66th-worst daily performance of the decade. So why did it feel so bad?
- Obviously there is the political narrative that helped spark it, but then again it’s not exactly like political dysfunction is a new feature of the investment landscape. No, what made yesterday so striking is that the magnitude of the decline hinted at a level of investment risk that had previously been as unobservable as dark matter. Using a 40-day rolling lookback window, yesterday’s decline was a 4.4 standard deviation event, the 6th worst of the decade. That’s more like it!
- The performance of everything from tech stocks to prisons suggests that yesterday was largely about profit-taking. When your biggest or best positions suddenly underperform the market, no wonder it hurts!
- Ultimately, more volatility, a higher risk premium, and moderately cheaper stock prices increase the opportunity set for active investors. If we get another few days like yesterday, whether because of politics or some other factor, that should be a cause for celebration, not panic.
