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Let’s put things in perspective

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Let’s Put Things in Perspective

We decided this time to send you some charts to help you put things in perspective since the U.S. stock market went down 8% in July and August. Note that the market is still up 5% in the last 12 months and up 70% since March 2009.

The charts attached may help you draw your own conclusions without being manipulated by the media, friends…

In Summary:

·       This summer’s stock decline was nothing exceptional

·       The economy doesn’t look that bad

·       Stocks are not expensive

·       Stocks perform well over the long-term, sometimes right after a major correction and/or spike in volatility

We still think that the chance of another recession may be 20% - 50% before 2014 but the charts should help you to put in perspective what happened this summer.

A huge part of successful investing is just avoiding common errors like panicking. The goal is not to be error-free; it is to be right more than wrong over time. Humans are intuitive creatures, but markets are inherently counterintuitive. Investing, like medicine and many fields of science, is a probabilities game, not a certainties game. Investing requires faith that Capitalism is not perfect in the near term but eventually gets very close longer term.

Sometimes, doing nothing is the best strategy... and it is not easy... When you are tempted to go with your gut, remember that your stone age brain may be good with physical risk, but it is the same one that governs your investment gut - it is not a good investment manager.

As you know, we take a long-term, academic and disciplined approach to investing and we try not to react emotionally to market swings, unlike many individual investors who tend to sell equities and lock in losses during down-turns. The portfolios we recommend are always customized and well-diversified.  Markets volatility and declines give opportunity to rebalance the portfolios.

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This newsletter was first published in September of 2011