The relentless power of markets
Investing is not a ‘set and forget’ process. Good investing requires one to be open-minded to evolutions in the approach through a constant process of challenge.
One of the convictions of our philosophy is to accept that stock and bond markets work well, that they reflect all available information and are therefore difficult to outguess – we call this, a systematic approach to investing. This has served investors fantastically well in the recent past, although it was not so long ago that traditional stock picking and market timing strategies were the best thinking available to us – times change.
We continue to monitor the evidence regularly, but the numbers remain firmly in favour of a market led approach to investing.
7th May 2025
A long-term focus can help investors put falling markets in perspective.
During the period starting 1 January 1950 and ending 31 December 2024, there were 11 periods of 20%-or-greater declines, commonly called a ‘bear’ market in the main US stock market index, the Standard & Poors (S&P) 500. While the average bear market decline of 33% per year might have been painful to endure, missing out on the average bull market’s 265% return could have been far worse.
Cumulative returns in S&P 500 Bull and Bear Markets
Bear markets are also typically much shorter than bull markets. Bear periods have averaged 12 months, which can feel like an eternity, but pale in comparison with the 67 months of average bull markets — another reason why trying to time investment decisions is ill-advised.
Reporting performance through the periods that stock markets fall can mask the rewards of long term investing. For many of our clients, investing for their retirement and then passing wealth down to the next generation can easily be over periods of thirty years or more and it is expected in the timescales you will see a number of bear markets but also participate in the growth of bull markets.
At the core of our approach sits a portfolio that avoids second guessing market prices, but instead utilises low cost, highly diversified funds that aim to deliver the market level of return through time with a high degree of certainty. The chart below demonstrates such an approach has led to good risk adjusted outcomes in recent years.
The example shows our portfolios compared to a sensible peer group of multi-asset funds one could reasonably have bought off the shelf in the UK. The majority of which, to this day, employ a combination of market timing and stock picking strategies, mostly to their detriment.
Multi-asset fund manager comparison
Source: Albion Consulting produced for Old Mill. Data from Apr-11 to Dec-24.
The chart measures the average annual performance, on the left against the risk taken to deliver that return along the bottom. Our portfolios shown by the orange line show we are giving high performance given the level of risk taken.
The data also shows the percentage of managers each of the portfolios has beaten given the level of risk taken.
Source: Albion consulting
It can be tempting at times of uncertainty and volatile markets to want to act, perhaps moving into ‘safety’ until things settle down, or to ‘buy the dip’. The reality is that market falls are expected to happen from time to time and factored into your robust financial plan. The challenge is that the timing and magnitude are unpredictable in nature. As Paul Samuel, famous economist and Nobel Laureate once remarked:
Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas.
We will continue to monitor the theory and evidence. For now, riding the ups and downs of markets continues to provide the best chance of investing success.