Last week it was really nice here in the Denver area. We hit 65F late in the week and the average high was around 50F. The week before that was nice too, getting into the high 50s and average high temps in the high 40s. For me this meant time riding outside in the sunshine, getting good miles in, which is always welcome. Saturday I went for a big ride with some friends. About 5 miles from home, the weather turned in an instant. We came out of a mountain canyon into a cold and nasty wind. Things were changing fast.
Yesterday I woke up and shoveled 15″ of snow off of my driveway, which was, let’s say, not as fun as a bike ride. Today, the sun is back and things are starting to melt off again. Anyone else on the front range reading this is nodding their heads and admitting that this is just winter in Colorado. It’s warm, it’s cold, it’s sunny, it’s a blizzard. It happens. This winter feels like every other winter.
The “average” high in Denver in January is 44F. But everyone here knows to expect days where it doesn’t get over 15F and days when it’s 60F. Here, averages don’t tell you a lot. The average snowfall is 7″ but you could easily get 0″ or 15″. (You could say that our standard deviations are pretty big).
Winter in Denver is a lot like the stock market. Average numbers aren’t super helpful. Stocks might return 9-10% on average, but that isn’t what usually happens. Instead we get years like 2015 when global stocks are down almost -2% or years like 2013 when global stocks were up 23% (MSCI ACWI). Averages are nice for a long-run idea of expectations, but we live in a very short-run mental state. We’d love to expect “average” but doing so will only lead to disappointment. If you expect every day in January in Denver to be in the mid-40s, you’re going to have a bad time.
And, like our weather, markets can change in an instant. Sentiment shifts, global events shake us up, investors overreact to Fed meeting announcements and earnings releases. Don’t come expecting an easy ride, because you won’t find it. Markets don’t offer you a 9-10% return because you showed up looking for it. If you can’t understand that “average” and “normal” are vastly different things, this is not going to be easy on you. This current 10-15% decline is exactly average. It is the very definition of average. Make sure you read this piece from Michael Batnick on “What’s Going On?” to prove this point. The market does nearly EVERY YEAR what it is doing right now. Just because we got a few years where it didn’t (2013-2014) doesn’t mean the game had changed. 10%+ declines during the year are still average, and normal. So there’s that.
Bason Asset Management 