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Investment valuation declines precede recoveries

That investment valuation declines precede recoveries is an historic market fact: we published this article for the enlightenment of our clients in October 2008, during the distressing days of the GFC as part of a process to engage with them and help them see aspects other than the negativity of the ‘popular press’ at the time. We have re-posted the article by way of a nostalgic ‘hindsight reflection’.

Investment markets are no different from any other asset in that ‘valuation’ is a point-in-time measure and should therefore serve as a reminder that time in the market may well prove to be the better philosophy than is timing the market. To the extent that investment valuation is being monitored, it is useful to remain aware of the original timeframes set for the investment goals to be achieved through the strategy – and it is primarily in that context that investment valuation declines need to be a concern.

Failing Memory excludes past market recoveries!

‘Fundamentally, the Australian economy is in much better shape than previous recessionary episodes. Whilst time can dim our memories, the environment and financial strains that existed in the early 1990s were a greater risk to the Australian economy than the current global slowdown.’

As investors fret over the uncertainty in both the global and local economy I was reminded by an experienced central banker that it always feels worse in the present. His words were to the effect – the current episode always feels worse because we know how past episodes finished whilst the script is still not complete. In sporting parlance we are watching the game live rather than reliving old memories, a recipe that increases the stress and tension of the moment.

Investment valuation is a point-in-time measure that should serve as a reminder that ‘time in the market’ may be of greater importance than attempts at ‘timing the market’.


Declines precede recovery

With the weakness seen in the Australian economy since March 2008 there have been some comparisons raised with previous periods of hardship in Australia – namely the 1993 and 1982 recessions. Talking to market participants who did work the though markets of early nineties, most (including myself) would conclude that the current episode certainly feels more serious. We need to be reminded, however that time heals old wounds and a side by side comparison is needed to make a more objective conclusion – and from that, take reassurance that previous investment valuation declines have preceded recoveries.

To read more of this October 2008 article from J B Were Asset Management, click the following link: FailingMemory-JBWere-article.

To take advantage of investment valuation volatility (remembering that inevitably declines precede recovery) have your investment portfolio reviewed by one of the experienced adviser team at Continuum Financial Planners Pty Ltd: a meeting can be arranged by phone (on 3421 3456); or by completing the website Contact form.

[We originally published this article in October 2008: it has been updated/ refreshed occasionally since then, most recently in December 2020.]

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