Excerpt from London Capital Management‘s Monthly Investment Commentary for March 2009:
As Inevitable As Spring Following Winter
The market declines and extreme volatility have tested the mettle of even the most battle-hardened investors, and the headlines continue to trumpet only the most depressing of news. This has left many investors asking ‘when is it going to end?’, or in other words, ‘when are we going to see the market bottom’?
The bottoming process is the stage at which markets have hit their lowest point and the start of a market recovery can begin. Sometimes these are marked by a quick, sustained recovery and other times (as it appears now) it can take months of equity markets trading within a range and retesting lows before markets find the bottom.
Markets find their bottom not when investors feel excited about a potential bull market to follow, but rather when they feel worry, doubt and concern about the situation at hand. In other words, market bottoms feel terrible! And despite historical evidence that equity markets are more likely to rise and have above average returns over the next five to ten years after a weak period, fear causes many investors to not take full advantage of these upswings.
We cannot predict the exact timing that will mark the absolute end to the recent market declines, but experience tells us it is most likely to happen when investors feel their worst – and right now, we know investor sentiment is at multi-year lows. We also know that at some point the tides will turn and markets will start to recover – it’s as inevitable as spring following winter. The question is, how will you be invested when that change happens?
Photo credit: “winter grass” by D’Arcy Norman