ASI Wealth Management & Consulting Services - Q1 Quarterly Market Review
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The Q1 2016 market review reports on global capital market performance, highlighting modest returns across stocks and bonds, with emerging markets outperforming developed markets. The document includes performance data of various asset classes, a timeline of significant market events, and emphasizes the importance of long-term investment perspectives. Key takeaways noted are positive returns in real estate investment trusts and mixed performance in commodities, particularly a decline in energy prices.
![Past performance is not a guarantee of future results. Indices are not available for direct investment. Index performance does not reflect the expenses associated with the management of
an actual portfolio. Market segment (index representation) as follows: US Stock Market (Russell 3000 Index), International Developed Stocks (MSCI World ex USA Index [net div.]), Emerging Markets
(MSCI Emerging Markets Index [net div.]), Global Real Estate (S&P Global REIT Index), US Bond Market (Barclays US Aggregate Bond Index), and Global Bond ex US Market (Citigroup WGBI ex
USA 1−30 Years [Hedged to USD]). The S&P data are provided by Standard & Poor's Index Services Group. Russell data © Russell Investment Group 1995–2016, all rights reserved. MSCI data ©
MSCI 2016, all rights reserved. Barclays data provided by Barclays Bank PLC. Citigroup bond indices © 2016 by Citigroup.
US Stock
Market
International
Developed
Stocks
Emerging
Markets
Stocks
Global
Real
Estate
US Bond
Market
Global
Bond
Market
ex US
1Q 2016 STOCKS BONDS
0.97% -1.95% 5.71% 6.94% 3.03% 4.16%
Since Jan. 2001
Avg. Quarterly Return 1.7% 1.3% 2.9% 2.9% 1.3% 1.2%
Best 16.8% 25.9% 34.7% 32.3% 4.6% 5.5%
Quarter Q2 2009 Q2 2009 Q2 2009 Q3 2009 Q3 2001 Q4 2008
Worst -22.8% -21.2% -27.6% -36.1% -2.4% -3.2%
Quarter Q4 2008 Q4 2008 Q4 2008 Q4 2008 Q2 2004 Q2 2015
Market Summary
Index Returns](https://image.slidesharecdn.com/qmrq12016asi-160428165440/85/ASI-Wealth-Management-Consulting-Services-Q1-Quarterly-Market-Review-4-320.jpg)
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ASI Wealth Management & Consulting Services - Q1 Quarterly Market Review
- 2. Q1 Quarterly Market Review First Quarter 2016
- 3. This report features world capital market performance and a timeline of events for the past quarter. It begins with a global overview, then features the returns of stock and bond asset classes in the US and international markets. The report also illustrates the performance of globally diversified portfolios and features a quarterly topic. Overview: Market Summary World Stock Market Performance World Asset Classes US Stocks International Developed Stocks Emerging Markets Stocks Select Country Performance Real Estate Investment Trusts (REITs) Commodities Fixed Income Global Diversification Quarterly Topic: Free Throws Quarterly Market Review First Quarter 2016
- 4. Past performance is not a guarantee of future results. Indices are not available for direct investment. Index performance does not reflect the expenses associated with the management of an actual portfolio. Market segment (index representation) as follows: US Stock Market (Russell 3000 Index), International Developed Stocks (MSCI World ex USA Index [net div.]), Emerging Markets (MSCI Emerging Markets Index [net div.]), Global Real Estate (S&P Global REIT Index), US Bond Market (Barclays US Aggregate Bond Index), and Global Bond ex US Market (Citigroup WGBI ex USA 1−30 Years [Hedged to USD]). The S&P data are provided by Standard & Poor's Index Services Group. Russell data © Russell Investment Group 1995–2016, all rights reserved. MSCI data © MSCI 2016, all rights reserved. Barclays data provided by Barclays Bank PLC. Citigroup bond indices © 2016 by Citigroup. US Stock Market International Developed Stocks Emerging Markets Stocks Global Real Estate US Bond Market Global Bond Market ex US 1Q 2016 STOCKS BONDS 0.97% -1.95% 5.71% 6.94% 3.03% 4.16% Since Jan. 2001 Avg. Quarterly Return 1.7% 1.3% 2.9% 2.9% 1.3% 1.2% Best 16.8% 25.9% 34.7% 32.3% 4.6% 5.5% Quarter Q2 2009 Q2 2009 Q2 2009 Q3 2009 Q3 2001 Q4 2008 Worst -22.8% -21.2% -27.6% -36.1% -2.4% -3.2% Quarter Q4 2008 Q4 2008 Q4 2008 Q4 2008 Q2 2004 Q2 2015 Market Summary Index Returns
- 5. 125 145 165 185 205 225 Jan Feb Mar “China Market Drop Leads to Worries of Further Turmoil” “Dow, S&P Off to the Worst Starts Ever for Any Year” “Oil Skids to 12-Year Low” “Iran Sanctions End as Deal Takes Effect” “Bank of Japan Introduces Negative Interest Rates” “US Budget Deficit Falls to Lowest Level since August 2008” “Nikkei Posts Largest Weekly Percentage Drop since Financial Crisis” “British Pound Sinks to Seven-Year Low on ‘Brexit’ Fears” “US, China Agree to Sanction North Korea on Nuclear Program” “US Economy Starting 2016 on Solid Footing” “Net Worth of US Households Rose to Record $86.8 Trillion in Fourth Quarter” “Global Currencies Soar, Defying Central Bankers” “S&P 500 Turns Positive for the Year” “US Dollar on Track for Worst Quarter since 2010” These headlines are not offered to explain market returns. Instead, they serve as a reminder that investors should view daily events from a long-term perspective and avoid making investment decisions based solely on the news. Graph Source: MSCI ACWI Index. MSCI data © MSCI 2016, all rights reserved. It is not possible to invest directly in an index. Performance does not reflect the expenses associated with management of an actual portfolio. Past performance is not a guarantee of future results. World Stock Market Performance MSCI All Country World Index with selected headlines from Q1 2016
- 6. These headlines are not offered to explain market returns. Instead, they serve as a reminder that investors should view daily events from a long-term perspective and avoid making investment decisions based solely on the news. Graph Source: MSCI ACWI Index. MSCI data © MSCI 2016, all rights reserved. It is not possible to invest directly in an index. Performance does not reflect the expenses associated with management of an actual portfolio. Past performance is not a guarantee of future results. World Stock Market Performance MSCI All Country World Index with selected headlines from past 12 months 140 160 180 200 Mar-2015 Jun-2015 Sep-2015 Dec-2015 Mar-2016 Long Term (2000–Q1 2016) 0.000 50.000 100.000 150.000 200.000 250.000 2000 2005 2010 2015 Last 12 months “Nasdaq Composite, S&P 500 Close at New Highs” “Home Building Surges to Best Pace since 2007” “Eurozone Finance Ministers Reject Greek Request for One-Month Bailout Extension” “Iran, World Powers Reach Nuclear Deal” “US Oil Prices Fall to Six-Year Low” “US Consumer Prices Rise for Sixth Straight Month” “US Second Quarter GDP Grows 3.9%” “IMF Downgrades Global Economic Outlook Again” “Paris Attacks Leave More than 100 Dead” “European Markets to Finish 2015 among World’s Top Performers” “Dow, S&P Off to the Worst Starts Ever for Any Year” “British Pound Sinks to Seven-Year Low on ‘Brexit’ Fears” “Net Worth of US Households Rose to Record $86.8 Trillion in Fourth Quarter” “S&P 500 Turns Positive for the Year”
- 7. Looking at broad market indices, emerging markets outperformed developed markets, including the US. Developed markets REITs recorded the highest returns. The value effect was positive in the US and emerging markets but negative in developed markets outside the US. Small caps outperformed large caps in the non-US markets but underperformed in the US and emerging markets. 8.60 7.79 5.71 5.12 3.03 1.70 1.64 1.35 0.97 0.60 0.05 -1.52 -1.95 -2.57 S&P Global ex US REIT Index (net div.) MSCI Emerging Markets Value Index (net div.) MSCI Emerging Markets Index (net div.) Dow Jones US Select REIT Index Barclays US Aggregate Bond Index Russell 2000 Value Index Russell 1000 Value Index S&P 500 Index MSCI Emerging Markets Small Cap Index (net div.) MSCI World ex USA Small Cap Index (net div.) One-Month US Treasury Bills Russell 2000 Index MSCI World ex USA Index (net div.) MSCI World ex USA Value Index (net div.) Past performance is not a guarantee of future results. Indices are not available for direct investment. Index performance does not reflect the expenses associated with the management of an actual portfolio. The S&P data is provided by Standard & Poor's Index Services Group. Russell data © Russell Investment Group 1995–2016, all rights reserved. MSCI data © MSCI 2016, all rights reserved. Dow Jones data (formerly Dow Jones Wilshire) provided by Dow Jones Indexes. Barclays data provided by Barclays Bank PLC. World Asset Classes First Quarter 2016 Index Returns (%)
- 8. US Stocks First Quarter 2016 Index Returns The broad US equity market recorded slightly positive performance for the quarter. Value indices outperformed growth indices across all size ranges. Small caps underperformed large caps. World Market Capitalization—US 53% US Market $22.0 trillion 1.70 1.64 1.35 0.97 0.74 -1.52 -4.68 Small Cap Value Large Cap Value Large Cap Marketwide Large Cap Growth Small Cap Small Cap Growth Ranked Returns for the Quarter (%) Period Returns (%) * Annualized Asset Class YTD 1 Year 3 Years** 5 Years** 10 Years** Marketwide 0.97 -0.34 11.15 11.01 6.90 Large Cap 1.35 1.78 11.82 11.58 7.01 Large Cap Value 1.64 -1.54 9.38 10.25 5.72 Large Cap Growth 0.74 2.52 13.61 12.38 8.28 Small Cap -1.52 -9.76 6.84 7.20 5.26 Small Cap Value 1.70 -7.72 5.73 6.67 4.42 Small Cap Growth -4.68 -11.84 7.91 7.70 6.00 Past performance is not a guarantee of future results. Indices are not available for direct investment. Index performance does not reflect the expenses associated with the management of an actual portfolio. Market segment (index representation) as follows: Marketwide (Russell 3000 Index), Large Cap (S&P 500 Index), Large Cap Value (Russell 1000 Value Index), Large Cap Growth (Russell 1000 Growth Index), Small Cap (Russell 2000 Index), Small Cap Value (Russell 2000 Value Index), and Small Cap Growth (Russell 2000 Growth Index). World Market Cap represented by Russell 3000 Index, MSCI World ex USA IMI Index, and MSCI Emerging Markets IMI Index. Russell 3000 Index is used as the proxy for the US market. Russell data © Russell Investment Group 1995–2016, all rights reserved. The S&P data are provided by Standard & Poor's Index Services Group.
- 9. International Developed Stocks First Quarter 2016 Index Returns In US dollar terms, developed markets outside the US lagged both the US equity market and emerging markets indices during the quarter. Small caps outperformed large caps in non-US developed markets. The value effect was negative in non-US developed markets using broad market indices. Large cap value indices underperformed large cap growth indices. The opposite was true in small caps; small cap value indices outperformed small cap growth indices. 0.60 -1.35 -1.95 -2.57 -3.45 -5.36 -5.78 -6.21 Small Cap Growth Large Cap Value Ranked Returns (%) Local currency US currency 37%International Developed Market $15.1 trillion World Market Capitalization—International Developed Period Returns (%) * Annualized Asset Class YTD 1 Year 3 Years** 5 Years** 10 Years** Large Cap -1.95 -8.44 1.69 1.62 1.80 Small Cap 0.60 1.99 5.54 3.84 3.09 Value -2.57 -12.34 0.07 0.37 0.76 Growth -1.35 -4.52 3.24 2.81 2.77 Past performance is not a guarantee of future results. Indices are not available for direct investment. Index performance does not reflect the expenses associated with the management of an actual portfolio. Market segment (index representation) as follows: Large Cap (MSCI World ex USA Index), Small Cap (MSCI World ex USA Small Cap Index), Value (MSCI World ex USA Value Index), and Growth (MSCI World ex USA Growth). All index returns are net of withholding tax on dividends. World Market Cap represented by Russell 3000 Index, MSCI World ex USA IMI Index, and MSCI Emerging Markets IMI Index. MSCI World ex USA IMI Index used as the proxy for the International Developed market. MSCI data © MSCI 2016, all rights reserved.
- 10. Emerging Markets Stocks First Quarter 2016 Index Returns In US dollar terms, emerging markets indices outperformed developed markets, including the US. Value outperformed growth across all size ranges. Small cap indices underperformed large cap indices. 4.69 2.73 0.80 -1.22 7.79 5.71 3.66 0.97 Value Large Cap Growth Small Ranked Returns (%) Local currency US currency 10%Emerging Markets $4.2 trillion World Market Capitalization—Emerging Markets Period Returns (%) * Annualized Asset Class YTD 1 Year 3 Years** 5 Years** 10 Years** Large Cap 5.71 -12.03 -4.50 -4.13 3.02 Small Cap 0.97 -9.20 -2.69 -2.56 5.08 Value 7.79 -12.56 -6.46 -5.86 2.96 Growth 3.66 -11.60 -2.66 -2.48 2.99
- 11. Select Country Performance First Quarter 2016 Index Returns -3.73 -5.01 -5.36 -10.16 27.87 27.02 22.88 20.88 17.40 15.90 14.85 14.56 13.34 12.74 12.56 11.26 8.30 8.20 7.32 7.09 5.24 4.43 4.15 Brazil Peru Colombia Turkey Hungary Russia South Africa Thailand Chile Poland Malaysia Indonesia Mexico UAE Philippines Taiwan Czech Republic Korea Qatar India Egypt China Greece Ranked Emerging Markets Returns (%) -0.16 -0.80 -1.15 -1.41 -2.18 -2.21 -2.63 -3.61 -3.66 -4.85 -5.68 -7.85 -10.74 11.85 9.29 5.71 3.26 2.79 2.53 1.29 0.77 0.23 0.09 Canada New Zealand Singapore Netherlands Australia Norway Portugal US Sweden France Austria Denmark Ireland Hong Kong Germany Belgium UK Finland Spain Switzerland Japan Israel Italy Ranked Developed Markets Returns (%) Canada recorded the highest country performance in developed markets, while Israel and Italy posted the lowest returns for the quarter. In emerging markets, Brazil and Peru recorded the highest country returns, while China and Greece recording the lowest. Past performance is not a guarantee of future results. Indices are not available for direct investment. Index performance does not reflect the expenses associated with the management of an actual portfolio. Country performance based on respective indices in the MSCI World ex US IMI Index (for developed markets), Russell 3000 Index (for US), and MSCI Emerging Markets IMI Index. All returns in USD and net of withholding tax on dividends. MSCI data © MSCI 2016, all rights reserved. Russell data © Russell Investment Group 1995–2016, all rights reserved. UAE and Qatar have been reclassified as emerging markets by MSCI, effective May 2014.
- 12. Real Estate Investment Trusts (REITs) First Quarter 2016 Index Returns REITs in developed markets posted very strong performance for the quarter. US REITs outperformed broad market US equity indices. 59%US $625 billion 96 REITs 41%World ex US $432 billion 243 REITs (22 other countries) Total Value of REIT Stocks 8.60 5.12 Global REITs (ex US) US REITs Ranked Returns (%) Period Returns (%) * Annualized Asset Class YTD 1 Year 3 Years** 5 Years** 10 Years** US REITs 5.12 4.88 11.09 11.99 6.17 Global REITs (ex US) 8.60 2.53 3.46 6.58 3.49 Past performance is not a guarantee of future results. Indices are not available for direct investment. Index performance does not reflect the expenses associated with the management of an actual portfolio. Number of REIT stocks and total value based on the two indices. All index returns are net of withholding tax on dividends. Total value of REIT stocks represented by Dow Jones US Select REIT Index and the S&P Global ex US REIT Index. Dow Jones US Select REIT Index used as proxy for the US market, and S&P Global ex US REIT Index used as proxy for the World ex US market. Dow Jones US Select REIT Index data provided by Dow Jones ©. S&P Global ex US REIT Index data provided by Standard and Poor's Index Services Group © 2016.
- 13. Commodities First Quarter 2016 Index Returns Commodities were mixed during the first quarter. The Bloomberg Commodity Index Total Return gained 0.42%. Precious metals led the index with gold returning 16.40% and silver returning 11.87%. Energy was the worst-performing complex. Natural gas fell 21.81%, while unleaded gas declined 11.81%. WTI crude oil was down 11.58%. Grains were slightly positive. Soybean oil gained 10.44%, but corn fell 3.33%. Livestock was mixed. Lean hogs gained 7.30%, while live cattle fell 2.51%. Period Returns (%) Asset Class YTD 1 Year 3 Years** 5 Years** 10 Years** Commodities 0.42 -19.56 -16.87 -14.15 -6.16 * Annualized -0.19 -0.21 -0.45 -1.18 -2.51 -3.33 -4.19 -8.46 -11.58 -11.81 -21.81 16.40 12.32 11.87 10.44 7.30 4.88 2.10 1.28 0.54 Gold Zinc Silver Soybean Oil Lean Hogs Soybean Copper Sugar Heating Oil Wheat Aluminum Brent Oil Coffee Live Cattle Corn Nickel Cotton WTI Crude Oil Unleaded Gas Natural Gas Ranked Returns for Individual Commodities (%) Past performance is not a guarantee of future results. Index is not available for direct investment. Index performance does not reflect the expenses associated with the management of an actual portfolio. All index returns are net of withholding tax on dividends. Securities and commodities data provided by Bloomberg.
- 14. Fixed Income First Quarter 2016 Index Returns 1.78 3.38 2.38 3.33 10-Year US Treasury State and Local Municipals AAA-AA Corporates A-BBB Corporates Bond Yields across Issuers (%)Interest rates across the US fixed income markets generally decreased during the quarter. The yield on the 5- year Treasury note fell 55 basis points (bps) to 1.21%. The yield on the 10- year Treasury note declined 49 bps to 1.78%. The 30-year Treasury bond declined 40 bps to finish at 2.61%. The yield on the 1-year Treasury bill dipped 6 bps to 0.59%, and the 2-year Treasury note declined 33 bps to 0.73%. The 3-month T-bill increased 5 bps to yield 0.21%, while the 6-month T-bill decreased 10 bps to 0.39%. Short-term corporate bonds gained 1.16%, intermediate-term corporate bonds returned 2.76%, and long-term corporate bonds returned 6.83%.1 Short-term municipal bonds returned 0.71% while intermediate-term munis gained 1.55%. Revenue bonds slightly outperformed general obligation bonds for the quarter.2 Period Returns (%) Asset Class YTD 1 Year 3 Years** 5 Years** 10 Years** BofA Merrill Lynch Three-Month US Treasury Bill Index 0.07 0.12 0.07 0.08 1.15 BofA Merrill Lynch 1-Year US Treasury Note Index 0.36 0.40 0.29 0.32 1.74 Citigroup WGBI 1-5 Years (hedged to USD) 1.14 1.52 1.47 1.86 3.00 Barclays Long US Government Bond Index 8.06 2.80 6.04 9.52 7.88 Barclays US Aggregate Bond Index 3.03 1.96 2.50 3.78 4.90 Barclays US Corporate High Yield Index 3.35 -3.69 1.84 4.93 7.01 Barclays Municipal Bond Index 1.67 3.98 3.63 5.59 4.86 Barclays US TIPS Index 4.46 1.51 -0.71 3.02 4.63 * Annualized 0 1 2 3 4 US Treasury Yield Curve (%) 1 Yr 5 Yr 10 Yr 30 Yr 3/31/16 3/31/15 12/31/15 Past performance is not a guarantee of future results. Indices are not available for direct investment. Index performance does not reflect the expenses associated with the management of an actual portfolio. 1. Barclays US Corporate Bond Index. 2. Barclays Municipal Bond Index. Yield curve data from Federal Reserve. State and local bonds are from the Bond Buyer Index, general obligation, 20 years to maturity, mixed quality. AAA-AA Corporates represent the Bank of America Merrill Lynch US Corporates, AA-AAA rated. A-BBB Corporates represent the Bank of America Merrill Lynch US Corporates, BBB-A rated. Barclays data provided by Barclays Bank PLC. US long-term bonds, bills, inflation, and fixed income factor data © Stocks, Bonds, Bills, and Inflation (SBBI) Yearbook™, Ibbotson Associates, Chicago (annually updated work by Roger G. Ibbotson and Rex A. Sinquefield). Citigroup bond indices © 2016 by Citigroup. The BofA Merrill Lynch Indices are used with permission; © 2016 Merrill Lynch, Pierce, Fenner & Smith Incorporated; all rights reserved. Merrill Lynch, Pierce, Fenner & Smith Incorporated is a wholly owned subsidiary of Bank of America Corporation.
- 15. Global Diversification First Quarter 2016 Index Returns $0 $10,000 $20,000 $30,000 $40,000 $50,000 $60,000 $70,000 $80,000 $90,000 12/1988 12/1993 12/1998 12/2003 12/2008 12/2013 Growth of Wealth: The Relationship between Risk and Return Stock/Bond Mix These portfolios illustrate the performance of different global stock/bond mixes and highlight the benefits of diversification. Mixes with larger allocations to stocks are considered riskier but have higher expected returns over time. 0.05 0.22 0.33 0.38 0.38 100% Treasury Bills 25/75 50/50 75/25 100% Stocks Ranked Returns (%) Asset Class YTD 1 Year 3 Years** 5 Years** 10 Years** 100% Stocks 0.38 -3.81 6.10 5.80 4.63 75/25 0.38 -2.64 4.69 4.51 4.01 50/50 0.33 -1.61 3.20 3.12 3.20 25/75 0.22 -0.71 1.65 1.62 2.20 100% Treasury Bills 0.05 0.06 0.03 0.04 1.03 * AnnualizedPeriod Returns (%) 3/2016 100% Stocks 75/25 50/50 25/75 100% Treasury Bills Diversification does not eliminate the risk of market loss. Past performance is not a guarantee of future results. Indices are not available for direct investment. Index performance does not reflect expenses associated with the management of an actual portfolio. Asset allocations and the hypothetical index portfolio returns are for illustrative purposes only and do not represent actual performance. Global Stocks represented by MSCI All Country World Index (gross div.) and Treasury Bills represented by US One-Month Treasury Bills. Globally diversified allocations rebalanced monthly, no withdrawals. Data © MSCI 2016, all rights reserved. Treasury bills © Stocks, Bonds, Bills, and Inflation Yearbook™, Ibbotson Associates, Chicago (annually updated work by Roger G. Ibbotson and Rex A. Sinquefield).
- 16. Free Throws Dave Butler offers a sports example to help investors apply discipline in a stressful market “What do you regard as the most difficult period in the financial markets during your 25 years in the investment business?” I am often asked this question, usually by people who already have a framework and opinion as a result of living through one or several market downturns. For example, many older advisors and their clients regard the 1973–1974 bear market as the toughest period in their investment lifetime. Middle-aged investors may consider the tech boom and bust of the late 1990s and early 2000s to be the bellwether event for a generation of investors who assumed they could get rich on one great stock pick. Today, just about everyone remembers the 2008–2009 global financial crisis, having experienced the anxiety of declining investment accounts themselves or knowing someone who did. The market decline in early 2016 has much of the same feel as past events. Times like these are never easy for clients or advisors, who must confront their concern that “things just might be different this time.” When in the midst of a market decline, it is natural to sense that the volatility is lasting longer and is worse than anything before. As a result, advisors spend a lot of time talking to their clients in an effort to alleviate elevated concerns and fears. How do we find the words that might help minimize the fear and anxiety advisors’ clients feel about their investment portfolios and retirement security? As you know, no single word or story can ease their concerns—and certainly not overnight. The more effective course may be for advisors to steadily lead clients down a path from worry to calm through a conversational approach that emphasizes the importance of sticking with their plan. LINKING PROCESS TO DISCIPLINE I had the opportunity a few weeks ago to speak at an advisor’s client event in California. As I was driving to the event, I thought about how to make the presentation conversational and ensure the concepts of process and discipline resonate with the audience. The audience was a sports-oriented crowd, and I had about 15 minutes to get across one important concept that might help them navigate the choppy markets. Then I remembered an article I read about world-class athletes and their approach to success. The author described how the greatest athletes, from Olympians to all-star professionals, focus on process rather than outcome when competing at the highest level. I thought about this in context of my own college athletic experience, which, although not at the Olympic level, involved the same need for calm and focus during high-pressure moments in a basketball game. Imagine yourself playing in a championship basketball game. Your team is trailing by one point. You are fouled just as the game clock goes to zero. You have two free throws. Make both and you win. Miss them and you lose. What do you do to contain the pressure and focus on the task? The great athletes look to process. While each process may be different, each one reflects a personal routine a player has performed thousands of times in practice. For instance, you start your routine as you approach the free throw line; you take a deep (CONTINUED ON PAGE 16) Adapted from “Free Throws,” Advisor Community column, March 2016. Dimensional Fund Advisors LP is an investment advisor registered with the Securities and Exchange Commission. All expressions of opinion are subject to change. This information is intended for educational purposes, and it is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, products, or services.
- 17. Free Throws (continued from page 15) Dave Butler offers a sports example to help investors apply discipline in a stressful market breath and imagine the ball going through the hoop; you step to the line and find the exact spot (usually a nail right behind the painted line) where your right foot will anchor; you look at the back (or front) of the rim and notice the paint peeling or the net missing a connecting loop— or anything else to help you concentrate and calm your mind; and you take the ball from the referee and continue your routine. You dribble twice and flip the ball in the air, take a couple of knee bends, find the grooves on the ball, and spread your fingers across it. You feel the texture of the ball, the rough orange leather and the smooth black rubber on the grooves, and finally time the motion so that your body, the release of the ball, and the follow-through of your hand are all in perfect synch as the ball elevates and descends to the basket. The effective athlete does not hope for an outcome or get nervous or scared as the moment approaches. He or she immediately falls back on the tried and tested routine performed countless times in a more serene environment (practice). Following the routine dulls the noise of the crowd and brings clarity of mind. The same lessons apply to the seasoned investor. A chaotic market is akin to what the visiting team experiences in a gym, where opposing fans and players are doing everything possible to distract you. You stay focused on a routine burned into your nature through coaching and repetitive practice. The components of the seasoned investor’s routine are similar: the investment policy statement, the regular review of family goals and liquidity needs, and the regular calls an advisor makes during good and bad markets. These and other actions are all part of the process developed to summon that muscle memory needed in stressful times. Just as the great athlete navigates through the moments of pressure in any athletic event, the actions are part of the routine that allows the individual to navigate through a chaotic market like we have today. I believe there are many stories and anecdotes that parallel the basic needs of an investor, but it is up to the advisor to find one that resonates with a particular client or audience. The example could involve a great violinist, a world- class chef, or even a gardener. In each case, there is a story of discipline behind the person who continually works to perfect the craft and a reminder of how a successful investor can do the same. Statistics and data are the bedrock for the insights we gain about the capital markets, but it is often the conversational story that can help clients of advisors focus on the simplest and most important tenets of investment success. Regardless of the market or time period, advisors can encourage their clients to maintain the discipline needed to follow a process, which can lead to a great investment experience.