The Elusive, White Whale

If you have a certain proclivity to stay focused on the financial media, especially over the last week or so, you would have noticed the current rally that seems to have snuck up on most investors.

If you have recently opened your first quarter statement however, you might find this rally a little hard to believe.  But, the fact remains that the American stock market, as measure by the S&P 500, is up 10.38% since the beginning of April and 16.98% since the beginning of March.  And if one wants to get really specific, since March 9^th the S&P 500 is up 28.14%.

This is certainly a welcome sign, as it seems like it has been a long time since we have had some good news to enjoy.  However, most of this increase has gone unnoticed by the media.  The so-called “purveyors of financial wisdom” everywhere are asking themselves “is this rally going to last?”  ”Is this market rally for real?  Is it time to start investing like it is real?”

A “global strategist” at Credit Suisse is predicting that the rally will continue as “catch-up buying” begins to take place, and it will rally the S&P 500 all of the way to 1,000 points.  That is roughly a 15% increase from where it was at the close on May 1, of this year.  Referring to investors, the strategist states that “after missing the rally, they’re piling in now.”

Another “market strategist,” this one from LPL, proclaims that “it is now time to get back into equities.”

Statements like these show us that market timing continues to be many investors’ “elusive, white whale.”  If we go with the thought that we can capture specific days and times - or know when the markets are going to turn up or down - we will surely suffer the same fate as Captain Ahab in Moby Dick.  When taking a look at the big picture, attempting to time the market is simply an exercise in futility destined to take us “to the depths of the sea”.

The evidence overwhelmingly favors investors who diversify and take a long-term, strategic point of view.  Over a 20-year period, the most recent Dalbar study shows that while the S&P 500 averaged 11.8%, the average investor saw returns of only 4.3%.  Why?  We believe it is because the average investor continues to chase THE whale in hopes of finding the “right time” to get back in.  Is now the right time?  It may be.  Is this the start of a bull market?  It’s too premature to tell.  What we do know for sure is that the dramatic recovery over the past two months is a powerful illustration of the unpredictable nature of the stock markets.  And it is a shame that many investors have missed out on the recent 28-plus percent increase in the S&P 500.  Fortunately, the clients of Aubry & Eustice have realized these gains - and then some.

What should an investor do?

1. Invest for the future, not the present

2. Diversify

3. Be Patient

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