Last week we got a brand new niece, Hazel Elizabeth. She is both healthy and beautiful. Our toddler is very excited that there is another cousin to play with (someday soon). It struck me when we were meeting her for the first time that Hazel, her cousin Eleanor and our daughter Cora all have what might be considered “old fashioned” names. So I checked (it turns out the Social Security Administration has an amazing database of historical name usage):
All three of the girls’ names peaked in popularity roughly 100 years ago (give or take 20 years). And all three are making a comeback in the last decade. We are very cyclical as a society. Baby names, fashion, design, and politics (among other things) swing like a pendulum over time. It is simply our nature – we often reject the patterns and behavior of the generation before us, and eventually a subsequent generation starts right back at the beginning.
Of course financial markets are the same over long periods of time. Philosophies, sectors and asset classes gain and lose favor over secular cycles. You can see this everywhere:
Small cap vs. large cap outperformance cycles:
US vs. foreign stock outperformance cycles:
Growth vs. Value stock outperformance cycles:
Stock vs. bond outperformance cycles:
Are you picking up the trend here? Cycles come and go. There isn’t much predicting when exactly that will happen. Someone will say that the large/small cycle is “seven years on average” but that has zero bearing on how long the current or next cycle will be. It’s just the average of history. So if your current portfolio mix is overweight US and overweight small caps and you think you’re a genius, give it time. Pretty soon you’ll feel like an idiot. And you’ll only be proven correct in that regard if you think the shift in the cycle is permanent and you react to it. Eventually, every out-of-favor philosophy and portfolio will come back in vogue. Bet against that and be proven a fool.