The first quarter of 2015 saw continued gains in most areas. The S&P 500 (U.S Large) Index rose 0.95% for the quarter, posting its 9th quarter in a row of gains. A broader defined U.S. stock market fund which includes small and value stocks returned 1.61%. (Matson Money U.S Equity Fund)
Fixed income was in a similar boat as the Free Market Fixed Income Fund was up 0.78%
International Comes Back
These returns were trumped by the much hated international sector of the market. If you can recall last year almost every international sector was a negative for the year. But this quarter was obviously a different story with the Free Market International Equity Fund (International Large and Small) boasting a 3.72% return, more than tripling the S&P year to date.
Market Timing
All of those investors that ditched international after its poor year last year are already starting to see their mistake. U.S stocks have seen the biggest outflow of money since the memorable month of October 2008. Too bad they already missed a huge buying opportunity when international was low, and missed the run up as well.
The following is a direct quote from Matson Money in their first quarter statement.
“A couple of years or even months of gains or losses often turn investors who have planned on a thirty-year investment time horizon into investors with only a yearly/monthly time horizon. When investors see losses, they want out; when they see gains, they want in. The tendency of investors to extrapolate recent trends in stock prices is well documented. A 1998 study by Clark and Statman found that investment newsletter writers become optimistic after increases in stock prices and pessimistic after decreases. This inclination to make decisions based only upon recent stock movements is a natural, human emotion-based error. However, these types of emotional reactions to the market force investors to break from the proven rules of prudent investing: buy low/sell high. Resisting the temptation to take action because of an emotional reaction is an aspect for which an investor’s self-control is an important first line of defense. The experience and knowledge of an investment adviser combined with an upfront agreement between adviser and investor can provide a necessary second line of defense when self-control isn’t enough. ”
by Jimmy Hancock
References
1. Matson Money. “Account Statement.” Letter to James Hancock. 1 Apr. 2015. MS. N.p.