The Roller Coaster Year

There is no doubt we will look back on 2011 and remember it quite aptly as a "roller coaster" year for the markets. Quite often that term is loosely applied to periods during which the market endures wild swings, which certainly describes 2011. But in this case the US markets met the complete definition of "roller coaster", which is that we returned to the ‘station’ at pretty much the same place where we began. Personally, I could have done without the ‘ride’ – in hindsight I would have been fine just sitting at the ‘station’.

This year’s fun has already begun – we have entered into a Leap Year and a Presidential Election year, and rejoice – we have about forty more weeks of political mud-slinging and the accompanying media circus! Our economy is improving, but not nearly as fast as people would like; consumer sentiment rose for the fourth month in a row in December, initial unemployment claims have started to fall and the unemployment rate is starting to decline. But there are still some obstacles that are preventing us from seeing a better business environment; a few of these obstacles are undoubtedly of a political nature; this election season we’re experiencing more than the usual allotment of political dysfunction and partisan politics.

Unfortunately, we are all well aware of what the market "feels" like today. The average mindset is extremely short-term and low confidence is causing investors to overreact to every piece of news for fear that the latest piece will be “the big one”. News flow in financial markets--much of it alarming, since scary news always gets better ratings--gives investors a multitude of opportunities to behave badly. The best strategy? Distract yourself!

A systematic, rules-based approach can be very helpful in this type of environment and that is the path I chose to pursue years ago. The most useful evidence, in any event, is often tallied from the actions of investors, as opposed to the opinions of pundits and the success of any strategy, more than anything else, is dictated by how well one can follow it over the long-run. Here’s looking at a great 2012!

In the for what it is worth category, according to Jason Goepfert of Sundial Capital Research:
“…wash years like 2011 are typically followed by big gains in the following year. The median market move following a year in which the S&P gains or loses less than 3% is a 12.3% gain”

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