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Keep calm. Keep Perspective


Keep calm. Keep Perspective

The best predictor of higher investment returns tomorrow is lower prices today. This is sometimes forgotten – especially when prices are falling and bearishness takes over. At Montgomery Global, we have observed a clear uptick in the degree of general bearishness in the investment community over recent weeks. And while there are plenty of risks on the horizon, it is worth checking in with some longer-term perspective.

Shown below is a chart of the rolling three-month returns of the S&P 500 Index over the last six months. As readers will know, global equity markets have turned down over the last three months. And this is never a pleasant feeling.

Screen Shot 2018-12-20 at 9.20.10 am

Source: Bloomberg

But it’s certainly not the first time in recent history this has happened. Recall in late 2015, global equity markets were down by roughly the same amount as they are today….

Screen Shot 2018-12-20 at 9.20.59 am

Source: Bloomberg

Or back in late 2011, the same story…

Screen Shot 2018-12-20 at 9.21.53 am

Source: Bloomberg

And, of course, no one has forgotten the GFC of 2008 which resulted in far more significant declines in equity prices.

Screen Shot 2018-12-20 at 9.36.51 am

Source: Bloomberg

When prices are falling, this is always uncomfortable . But there is a silver lining: lower stocks prices mean the stocks are now less risky, not more. Lowering stock prices feels bad; but low stock prices should feel great! Lower stock prices today likely mean higher stock returns tomorrow. After all, just look at the S&P 500 following the corrections shown above.

Screen Shot 2018-12-20 at 9.38.01 am

Source: Bloomberg


Andrew Macken is the Chief Investment Officer of the Montaka funds and the Montgomery Global funds. He established MGIM in 2015 in partnership with Montgomery.

This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.

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  1. Lower stock prices means lower risk is an idea I first read about in Howard Mark’s excellent book “The most important thing”.

  2. Very interesting analysis and commentary. And a certain individual named Roger Montgomery has been consistent over the last few months in stating that ‘cash is currently king’ and will offer investors some great value buying opportunities. Sound advice, as always, from the Montgomery team.

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