|
Fourth Quarter 2011
Quarterly Investment Commentary
Remarkably, after all of the volatility we experienced in 2011, the S&P 500 index ended the year exactly where it started, with its 2% return coming from dividends. Smaller- and mid-cap stocks closed the year down 4.2% and 1.7%, respectively, despite also posting double-digit fourth quarter gains.
The turmoil in Europe dragged foreign stocks down 11.8%. Ongoing concern about global growth, along with periodic mini-fire sales of assets percieved as vulnerable , drove emerging market stocks sharply lower; they ended 2011 down 18.8%.
High quality bonds were on the other side of the risk-induced volatility, with sharp flight-to-safety rallies that helped net the Vanguard Total Bond Market Index a 7.6% gain for the year. International bonds returned 6.3% in 2011, while emerging markets bonds, which are perceived as riskier, lost 1.7%. Floating-rate loans finished the year up 1.5%.
All of our model portfolios trailed their benchmarks for the year. In our Equity portfolios, active managers underperformed in aggregate, which continues to suggest that a macro-risk-oriented trading mentality rather than an assessment of company fundamentals seems to have driven stock prices this year. ...
.
The Value of Perspective
I am deeply ambivalent about the extreme short-termism of contemporary society. It’s not that I don’t like having real-time access to my bank accounts and investment portfolio – because I do. It’s that having real time access to everything from financial data to information about what our friends are currently having for lunch makes me worry about how well we deal with it all. In most cases, I suspect that our natural inclination to be distracted by the chatter and patter of novelty overwhelms our sense of what is important – of what is actually going on over the long term – to our own detriment.
Think of it as one more way in which the modern condition imposes a need for forbearance and discipline on a largely unreflective and highly distractible species. It’s a lot like food behavior. For most of human history, people didn’t have to think about balancing their caloric intake with their physical activity. They ate when they could get food and learned to be efficient about physical work because food was scarce and the activity required for survival was great. But our eat-a-lot-and-work-as-little-as-possible instincts are now killing us – literally. Similarly, having evolved in an analog world in which changes were largely gradual, our survival instincts cause us to pay close attention to things in the environment that pop and glitter. Yet these days the dancing widgit on the web site or the simulated ticker tape on the screen usually serve only to suck our attention away from the fundamentals of the product we’re looking to buy or the investment choice we want to evaluate. It’s like a denial-of-service attack on our brains. Ironically, our well-being can frequently be best served by doing things that don’t come naturally to us: eating less, exercising more, and paying less attention to short-term bling. ...
|
