Now that April 15th has come and gone, it is time to send this recap of Q1 2009 market activity.
State of the Market
The first quarter of 2009 was a continuation of the roller coaster ride that began in mid 2008. In January and February equity markets around the world suffered steep declines as market participants worried about the depth and breadth of the current recession, the possible nationalization of large banks, and the current administration's false starts in addressing these problems. By March 9, 2009 the US markets had fallen approximately 25%, and many other markets had fallen further. From my perspective, this was a point of severe pessimism and capitulation.
Fortunately, this may have marked a turning point in the public equity markets. Since then stocks saw their best one-month gain in more than six years. From the March 9th low through the end of the quarter US Stocks advanced approximately 18%. This recovery, however, still left most asset classes with a loss for the quarter.
Our portfolios generally did slightly better than the market by the time the quarter was over, but they did so with much less volatility. This was primarily due to our diversifying asset classes (bonds, alternatives) sidestepping much of the January and February declines and the tactical allocations we made in early 2009 (high yield bonds, convertibles bonds, etc.) adding value.
I am happy to report that the markets have continued to improve since the end of the quarter. In fact, as of last week, many of our managed portfolios are hovering around breakeven for the year, and several asset classes are in positive territory year-to-date.
What Should Investors Do Now?
We have long relied on an investment methodology that places a priority on asset allocation and efficient market exposure, and minimizes the role that individual investment managers play in the process. Dimensional Fund Advisors (DFA) has played a key role in our ability to implement this methodology efficiently and cheaply for our clients. They are a best-of-breed provider of asset class-based mutual funds that are specifically designed to capture market returns - no more, no less.
The intellectual horsepower behind DFA is second to none and they have been a voice of reason during this tumultuous time. DFA has packaged that knowledge and reason into a series of video presentations that walk investors through all the questions that now weigh on us so heavily. Are we in uncharted territory? Is the system broken? Why didn’t we see this coming? What should we do now?
If you are asking yourself these questions and are interested in hearing detailed, rational responses, I encourage you to visit this link. There you will find DFA’s multi-part series on what investors should consider as they move forward. (FYI, you can watch each section individually. Parts 4, 5, and 6 are my favorites.)