I want to chat with you a bit today about recent market performance, which as you know has been historically weak. If you are a long time listener you are well aware of two facts: 1. Investment in equities carries risk; a risk that prices decline, sometimes more severely than others and second, that over a long term investment horizon, equities have had net positive returns; returns that are far greater than those from riskless investments. What we’ve been experiencing during the past 3 weeks is the risk of owning equities. How long this downturn will last is unknowable but we do know that at some point, prices will recover. What history has shown is that the steeper a decline, the more sudden and violent the recovery. What is immediately apparent is that the track of stock prices is higher over time. It’s also clear that over a short period of time, anything can happen. It’s fair to say that long term gains are built upon short term volatility. We’re in one of those volatile periods right now.

If you’ve been listening to TV or radio or reading papers or following financial news on the Internet, and who hasn’t?!, you’ve likely heard assertions that January’s performance is a harbinger of full year results. The fact is that there is no demonstrable correlation between what happens at the beginning of the year and the rest of that year. And as you’ve heard us say over and over, no one can predict the future. What’s behind the equity selloff may or may not be what the press is blaming; in our investment philosophy, it just doesn’t matter what causes a market decline or advance. Prices represent the collective opinions and expectations of all market participants at any given time and even more importantly, current action is not a predictor of future performance. While watching values decline is far from a pleasant experience, the fact that we have a consistent investment philosophy that doesn’t change because the markets go down helps us to endure and look beyond uncomfortable times.

Most investors don’t have a consistent investment philosophy; they react to news or their interpretation of events and anticipation of good or bad influences on equity prices. In addition, a truly fully diversified portfolio is somewhat of a rarity outside those who share our investment philosophy. An inconsistent approach to investing can lead to two of the least desirable outcomes for any investor: first, selling out when prices decline and thereby failing to participate in the inevitable rebound or second, staying invested through a selloff but then watching the markets recover while their concentrated portfolio fails to fully participate. What we can be certain of is that as markets recover we’ll be on board.

Book Review: 'The Investment Answer'

A Wall Street veteran with terminal cancer shares his secrets.

What kind of investment book would a person write who was a Wall Street insider for over 25 years? If you're thinking something like How I Became a Master of the Universe in Ten Easy Steps, you would be wrong. At least if you're talking about Gordon Murray who, with co-author Dan Goldie, has given investors a real gift: the inside story of what investing truly is and how those who follow the prescriptions in their book, The Investment Answer, can have a successful and positive investment experience. The Investment Answer is also the kind of investment book that Murray, who has terminal cancer, chose to co-write in the time left remaining to him. That makes this book truly unique because Murray, who I met in 2005, has no axes to grind and so is entirely free to bring to the field of investing the kind of focus and clarity one gains when faced with such a condition. (Murray's paper on the interplay between Wall Street and Main Street, written five years before the market meltdown in 2008, is by far the most clear and concise that I have ever read.