Wednesday, April 14, 2010


Merriam-Webster defines complacency as "self-satisfaction when accompanied by unawareness of actual dangers or deficiencies."  This may fit the average institutional investor who according to a recent survey by Citigroup have a consensus of S&P 500 return for 2010 of 11% with a greater chance of a sharp upside move than one that is sharply downward.

A few facts:   Dow Jones Industrial Average (DJIA) close on Friday, September 12, 2008 (before the Lehman Brothers bankruptcy announcement over the weekend) was 11,422.  The DJIA then bottomed on March 9, 2009 at 6,547 and has since recovered to yesterday's close of 11,019. 

There were certainly bargains to be had by purchasing (or even holding) at the lows, but what about now?  We see much to challenge returns over the next many years, including huge levels of global debt and a retrenching consumer.  In our view a well diversified portfolio that doesn't merely count on returns from an increasing stock market is more important than ever.  We caution all, starting with ourselves, not to let the significant recovery in stock prices dull our senses as to the risks going forward.