Wednesday, July 24, 2013

Climateer Line of the Day: Markets, Anchoring Bias and Shaker Melody Edition

Simple* truths:
The S&P 500 is up 19% for the year so far.  Anchored against the long run average of stock market returns – somewhere in the 7-11% range – and you’d think we are due for a pullback.  But anchored on the thought that we’ve barely managed a 2% compounded return since January 2000, and you’d say we have a lot of catching up to do.  Both are true.  Neither has anything to do with where stocks will trade in the future.... 
'Tis the gift to be simple, 'tis the gift to be free
'Tis the gift to come down where we ought to be,
And when we find ourselves in the place just right,
'Twill be in the valley of love and delight.
-Simple Gifts, traditional Shaker melody

*ignoring autocorrelation, momentum, mean reversion, dependent vs independent trials....simple.