This was an email from Asia Fund Weekly. Some reasonable points
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January 29, 2016

Market Flash
Okay. First, the accepted Wall Street analysis seems to be that the stock market is moving in lockstep with the price of oil. Oil goes down (which, the equation would suggest, means China is slowing, which means global growth is in trouble), and hence, stocks go down, too. Then, oil goes back up, because, well, maybe China isn't slowing that much, and stocks go up, too.

So, how do you explain that on Wednesday, oil went up and stocks went down? Easy. The relationship between oil's price and the market's price is not lockstep. It's not even close. The only way you can make that claim is if you play with the numbers. Plus, other factors are having their impact on Wall Street, like the Fed. But let me get back to that in a moment.

First, on oil. Priced at today's $33 or so per barrel, oil is way, way down from the more than $100 price of 18 months ago. That's huge, but not unusual. Every decade over the last 40 years has seen at least one period when the price of oil fell 60% or more. In the '80s, oil fell 67% at one point; in the '90s, oil fell 72%; in the 2000's, oil fell 76% at one point; and in the 2010s, oil is down 80%. And for all the wild ups and downs in oil, over the past 40 years, the S&P 500 index has increased 19-fold, and that's before you add in dividends.

So, what happened Wednesday after Tuesday's big rally? Well, the Fed meeting ended with no changes to the current policy. There were few, if any, surprises in their post-meeting minutes, and yet traders, with fingers poised above the "sell" button, just hit it and went home. Is this any way to run a stock market? The fact is that the Fed did what most of us thought they'd do: nothing. Done. Move on. There are much more important issues to think about.

So, should we be worried about the January decline in the stock market? Not if you're an investor. We've been here before. An 11.1% decline from the high set in May 2015 (which is where we were at the end of Thursday's trading day—and we're doing quite a bit better after today's nice rally) is not that big of a deal. It might feel like one right now, but check out the graph below, showing the pace of the S&P over its almost 60-year history. We chose to show it on a logarithmic scale to better illustrate moves in percentages rather than in points. What you see is that other than the tech bubble bursting and the financial crisis of 2008, it's very hard to distinguish a 10% decline over that long history. Oh yes, we've had many. In fact, you may be able to see all nine bear markets (which are markets declines of 20% or more) in the graphic. But what's the trend? And how long did those bear markets last? Not long, actually. Could you have timed your way into and out of them? No one's done it before—so I don't know why people think they can do it today.



This is not to say that we are headed for a bear market. The truth is that it's impossible to know. But I wonder if you remember the almost bear market of 2011. In October 2011, we were less than a 1% decline away from the textbook definition of a bear market. Do you remember why? For one thing, the government was in turmoil over the budget, U.S. Treasury bonds were downgraded by S&P, and Greece was a mess. Do you remember being worried or wanting to sell everything? It's a good thing you didn't. At the very beginning of that downturn, in April 2011, the S&P 500 was at 1363.31. Wednesday night, the S&P closed at 1882.95. That's a 38% gain, or 7.0% compounded (ignoring dividends), from the absolute peak of the market prior to that 2011 downturn. If you'd sold, when would you have bought back in? I doubt you'd have done so at the bottom. That's why market timing is so hard, and no one's able to do it with any consistency.

As we've discussed over many weeks and months, we've simply entered into a period of higher volatility than we've seen in the prior four years. Sometimes that volatility works for us to the upside. Sometimes to the downside. It feels worrisome, but it's absolutely normal.

A Sneak Peak of the February 2016 Independent Adviser
An old market chestnut says that “as goes January, so goes the rest of the year.” This so-called “January Barometer” gets trotted out every time the year starts with a decline (you almost never read about it when January is in an uptrend). Don't pay it any heed. There are a lot of reasons to be optimistic, even after a historically poor January, as long as you're invested with the right managers. Join us before the issue is published on Monday, February 1.

Here are some of the other things you'll find in the February 2016 issue:

In a year like 2015, when most stock funds' returns hovered around zero, inking a win in any investment competition was tough. However, our 2015 Hot Hands fund managed to eke out another win, edging out Total Stock Market Index for the year. Find out what our Hot Hands momentum strategy is, and why the 2016 fund could be especially poised to sail past the index.
Every year, when December turns to January, mutual investors ask themselves if they should rebalance their portfolios. Vanguard loves rebalancing—it's one of the "disciplined investment principles" that their Personal Advisor Service follows in managing client portfolios. I did thirty years of backtesting on a range of different rebalancing strategies (both according to the calendar and according to current allocations). I'll give you the final word on what strategies are a waste of your time and give you my favorite technique for keeping your portfolio balanced.
Vanguard says that the multimanager format, which it first adopted in 1987, "can reduce portfolio volatility, provide potential for long-term outperformance, and mitigate manager risk." But Vanguard has been trimming back the headcount on two of the funds I see as poster children for excessive multimanagement. Has Vanguard finally figured out what I've been saying for years—that too many cooks spoil the multimanaged fund broth?
As always, my Performance Review of all the funds in Vanguard's stable with up-to-date statistics and Buy/Sell/Hold ratings. Find out how I rate all of Vanguard's offerings.