A Different Kind of Volatility

It’s not just the stock market that’s seen a spike in volatility. It’s opinions about the stock market from so-called market experts.
 
The rapid-fire change in outlook was driven home for me the other week when two news alerts came out that showed just how fickle views can be. The first headline blared that a global bear market was just getting started. Less than 24 hours later, most everyone agreed the markets were primed to rally in 2019. 
 
The whipsaw of opinion would be funny if it weren’t for the headaches it causes professionals trying to be the voice of reason for clients who understandably fear the unknown. It would be irresponsible for me to add to the noise of short-term predictions by offering up yet another guess dressed up with investment buzzwords. Instead, I’ll leave you with the chart below that shows how shares of small companies have performed after other sharply negative quarters.
 
4Q18 was 11th Worst Small-Cap Return Since 1940
Heartland Advisors Value Investing Small-Cap Returns Chart
Source: Furey Research Partners, CRSP, and Russell®, as of 12/31/2018
CRSP: Derived from US Stock Database ©2019 Center for Research in Security Prices (CRSP), the University of Chicago Booth School of Business, and includes all equity securities in NYSE, Amex, NASDAQ and NYSE Acra that existed during the time period. In this chart, CRSP 6-8 decile index returns (1940 to 1978) and Russell 2000® Index returns (1979 to 2018) represent Small-Caps. All indices are unmanaged. It is not possible to invest directly in an index.
Past performance does not guarantee future results.
 
Do these numbers mean that we’ll see a double-digit rebound in the coming weeks and months? Honestly, no one can say. What they do suggest, in my view, is that investors who have taken a longer view, or have avoided falling victim to the never-ending cycle of analysis, have historically done pretty well for their clients. 
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Author

Heartland Advisors Value Investing Relationship Manager Michael Kops

Michael Kops

Kops is a Vice President and Partner. He has 15 years of industry experience, 9 at Heartland.

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Past performance does not guarantee future results.

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