Managing money is not the easiest of jobs these days. The market averages have declined significantly from their peaks. Of course, that has happened before. It's never pleasant though not especially unusual or alarming. (In 2022, the S&P500 declined 18% from its peak in a few months…it is down just half that much now.) The Trump administration’s proposed and enacted tariff policies and threats are also not unprecedented nor should anyone be surprised - Trump’s first term featured tariffs as a major policy initiative as well….

On Thursday, the S&P 500 entered correction territory, defined as a decline of at least 10% from its peak. That peak was reached only in mid-February, less than a month ago. The other major averages have suffered similarly. A decline like that is not a shocking turn of events or even surprising…particularly after the last two years’ substantial gains. Valuations were stretched as we’ve commented before. Often that is accompanied by a rise in speculative investing – e.g. meme stocks, quantum computing companies, and marginal crypto tokens. The decline was/is a reminder to investors that, in the end, share prices have to have earnings underpinnings, legitimate growth prospects, and a clear path to ever growing profitability…

The markets had a bad week, putting a cap on a difficult month. That the averages turned down shouldn’t have come as a surprise following two years of 20+% gains and a further rise at the start of the year. It was a set up for at least a bit of a reversal. With consistent equity gains over a prolonged period of time, it is easy for investors to become complacent….

I looked back at a number of my previous columns discussing the market and the movements of stock prices and market averages. I think the knowledge that was being offered from the experience of being an equity market investor is that market action often gives the impression of being driven by emotions. In fact, the instantaneous reaction to various bits of news, and of more importance here the often only slight deviations from market expectations, is driven by computerized trading algorithms…

On Monday this week, while out for my regular morning stroll with Olive, our beloved family ShihTzu, I was listening to a remastered Acquired episode about Taiwan Semiconductor Manufacturing Corporation, originally recorded in 2021. [A quick aside – if you are not familiar with Acquired podcasts, they are really worth checking out…couple of smart guys with incredible research and a very engaging manner.]  The hosts were extolling the phenomenally successful development of TSMC. With 50% (and growing) market share, they suggested it was hard to imagine how things could not continue similarly. They did note the geopolitical risk to the company of a Chinese invasion of Taiwan or some other  interference. Then, almost as an aside - I rewound it to make sure I heard correctly – there was a comment about a threat from something else, for instance a paradigm shift or the emergence of…wait for it...something much cheaper…

I listened recently to an interview with Cliff Asness, a successful hedge fund manager. Before embarking on his investment career, Asness, a bit of a math geek, earned an MBA and a PhD at the U of Chicago, in the process studying and working closely with Eugene Fama. Fama is a Nobel laureate renowned for his postulating of the ‘efficient market’ theory. In simple terms, that theory suggests that asset prices (e.g. stock prices) reflect all available information and therefore prices are what they should be. Asness does not subscribe to that theory and allowed as how he even heard Fama say as much himself – in effect, prices are not always ‘correct’…