INDEPENDENT INSIGHTS Market insights from an independent perspective


February 5, 2019

Kevin Karpuk CFA

“What you see and what you hear depends a great deal on where you are standing.” - C.S. Lewis
As of the end of January 2019, the S&P 500 is 8% below all-time highs but 15% above its December 2018 lows. Riskier assets such as small cap and emerging markets have experienced more pronounced declines and recoveries. The whiplash you may have felt over the past couple of months has a name: equity investing. Looking at the chart below, you will notice that while volatility has jumped above historical averages a couple of times in 2018, the recent past has looked tranquil compared to other periods since 1990.

The idea that investors are purely rational – i.e. that they do not make decisions based on emotion – has been challenged over the last decade. Behavioral finance, which acknowledges that people do not act robotically, has been vying for the crown of accepted economic theory. An example of behavioral finance is the theory that losses are felt more acutely than gains. Another is a theory called “recency bias,” which means that our memories are short, and we tend to project the recent past into the future.

After 6 years of relative calm in the markets, it is natural to get squeamish when bouts of instability occur. If you compared the market gyrations of the last several months to the placid waters of the last several years, you were indeed in for a shock. However, if you can take a step back and look at the return of the S&P 500 since March 31, 2009 through January 2019, you will notice that earnings have exceeded 15.6% per year. If you had thrown in the towel and sold all your equities at the end of December, you would have missed out on an 8% rebound.

We have long been standard bearers for the mantra that volatility matters. It can destroy long-term wealth, but we also believe that over the long run, taking some degree of risk is vital to growing your assets. Being appropriately invested may mean periods of discomfort during market volatility, but mitigating bad behavioral tendencies with a rational framework can enable you to make decisions that are right for you. Recognizing that you can change where you stand and create a healthy perspective is an important step in maintaining an appropriate investment solution. As always, thank you for reading this issue of Independent Insights. We enjoy your feedback and suggestions.

Kevin Karpuk, CFA Chief Investment Officer

Kevin is Cornerstone’s Chief Investment Officer and is involved with the firm’s Investment Policy and Strategic Planning committees. Kevin joined the company in 2000 after graduating from Lehigh University with a B.S. and M.S. in Economics and earned his CFA charter in 2005. Kevin and his wife Kat support many charitable causes and have established a donor advised fund to propagate their philanthropic interests. They live in Bethlehem with their two cats: Zola and Charlyne, enjoy woodworking, gardening, reading and travel. Kevin is the proud uncle to many nieces and nephews and loves spending time with and spoiling them.

Author's Linkedin Profile

Disclaimer Notice
This material is prepared by Cornerstone Advisors Asset Management, LLC (“Cornerstone”) and is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of the published date indicated on the article and may change as subsequent conditions vary. The information and opinions contained in this material are derived from proprietary and nonproprietary sources deemed by Cornerstone to be reliable, are not necessarily all inclusive and are not guaranteed as to accuracy. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by Cornerstone, its officers, employees or agents. This material may contain ‘forward looking’ information that is not purely historical in nature. Such information may include, among other things, projections and forecasts. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this material is at the sole discretion of the reader.

Any accounting or tax advice contained in this communication is not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties.

The information is provided solely for informational purposes and therefore should not be considered an offer to buy or sell a security. Except as otherwise required by law, Cornerstone shall not be responsible for any trading decisions or damages or other losses resulting from this information, data, analyses or opinions or their use. Please read any prospectus carefully before investing.


reCAPTCHA is required