We’re all aware that the US stock market has gone through numerous bear markets and has rebounded in each case. In fact, from 1802-2010 U.S. stocks generated a 7.9% annual return despite periodic set-backs (Research Affiliates, 2011.) What probably doesn’t get enough attention is a point that Rob Arnott makes in his March 2011 Newsletter:
The United States and its equity markets enjoyed good fortune. It was not invaded and occupied by a foreign power. It did not suffer a government overthrow… just ask Russian investors their return on capital after the Bolshevik Revolution! As Ben Graham might caution, beware the difference between the loss on capital (a drop in price, from which we can recover) and a loss of capital (100% loss, from which we cannot). Russia’s stock market wasn’t alone in the 20th century as three additional top 15 markets in 1900—Egypt, Argentina, and China—suffered a 100% loss of capital while Germany (twice) and Japan (once) came very close.
One of the points that Harold, John, and I discussed on our recent podcast on “Under-appreciated Risks” was the risk of having too narrow of an investment universe. Arnott makes much the same point by stating the following:
Concentrating the majority of one’s investment portfolio in one investment category, based on an unknowable and fickle long-term equity premium, is a dangerous game of “probability chicken.”
The ability to adapt and seek out the strongest trends, regardless of their geographical location or asset class, is the primary reason that I believe that our Global Macro portfolio makes so much sense to be used as a core piece of a client’s portfolio. Click here to access a 14-minute video presentation on this global tactical asset allocation strategy (financial professional only).
To receive the brochure for our Global Macro strategy, click here. For information about the Arrow DWA Tactical Fund (DWTFX), click here.
Click here and here for disclosures. Past performance is no guarantee of future returns.
