“It’s a proprietary strategy. I can’t go into it in great detail.” – Bernie Madoff

Although Bernie Madoff was quite vague when asked how he had a strategy that printed money month after month when no one else could match it, as investors we know one thing and that is markets don’t always go straight up.

Burt White, our Managing Director and Chief Strategy Officer, likes to say that volatility is the toll we pay to invest. No one wants to pay a toll, but sometimes you just have to do it to get where you are going. When I lived in Charlotte and would drive back up to Ohio for holidays, I’d have to pay the great state of West Virginia $4.25 three different times on I-77. I didn’t like it, but Santa brought the kids presents up there and I had to do it.

Getting back to the stock market, volatility is that toll that we pay for enjoying longer-term returns. Below is a great chart that sums it up and thanks to our friends at Ned Davis Research for helping us with the data.

Here’s what you need to know regarding the S&P 500:

  • Each year sees more than seven different 3% percent dips.
  • More than three times a year do stocks correct 5%.
  • About once a year on average sees a 10% correction.
  • A 15% major correction happens every year-and-a-half.
  • A 20% bear markets happens about every three years.

Another quote I like is from Regis Philbin when he said, “I’m involved in the stock market, which is fun, but sometimes very painful.” Well, this year has been fun for investors, but last year was quite painful.

After more than a 120% rally off the March 2020 lows, maybe the bear market we saw last year shouldn’t have caught as many investors off guard like it did? We didn’t quite see a 25% bear market happening last year, but we expected as much as a 15% correction at some point. With the historically aggressive Fed, inflation soaring, China lockdowns, the war, and supply chains in disarray, it was a perfect cocktail for a bear market.

The truth though is we get spoiled by the good times and when the rough times hit, we are almost surprised that bad times ever happen. Well, they do happen and it is all part of investing, or the toll we pay to invest. Just know this, volatility and bear markets have happened before and will happen again. The good news though is after the bad times, likely better times will be coming!

By the way, today is Burt’s 29th birthday again. If you know him, wish him a great day!

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