Wounds that never heal
The analysts at GMO (Grantham Mayo Van Otterloo) produced an interesting chart they
called "Wounds that never heal". They were trying to measure the time required for
equity markets to achieve a long-term average real return of 6% after a bear market (real
return means nominal return adjusted for inflation). By adding the bear market losses to
bull market returns, you get a sense for how long it takes to get back to long-term average
return expectations.
This is another way of looking at the time for markets to recover from a bear market. It
also confirms that people who invest in stocks at market tops sometimes have to
wait decades for the portfolio returns to catch up to the long-term averages that are
initially hoped for. GMO's choice of a 6% long term equity return is significant because it is
to what many financial planners use in their planning software.
This is a key reason why we are underweight equities at this point in the Fed tightening
cycle. We sincerely hope to avoid the pain of capital losses and reinvest our bonds and
cash at more attractive valuation levels.
Chief Investment Officer
Lloyds Intrepid Wealth Management
Lloyds Intrepid LLC is doing business as Lloyds Intrepid Wealth Management. Lloyds Intrepid LLC offers investment advisory services in the State of Texas where registered and in other jurisdictions where exempted. Registration does not imply a certain level of skill or training. Lloyds Intrepid LLC and its advisers do not provide legal, tax or accounting advice. Lloyds Intrepid LLC formulates retirement plans, investment strategies, portfolio construction and investment due diligence for clients with signed investment advisory agreements with us. The information contained herein has been obtained from sources believed to be reliable, but the accuracy of the information cannot be guaranteed. All opinions and outlooks are subject to change.
© 2023 Lloyds Intrepid LLC
Comments