Steven Romick FPA Funds Commentary – The Importance Of Full Market Cycle Returns
The full market cycle can be defined as a peak-to-peak period that contains a price decline of at least 15% from the previous market peak, followed by a rebound that establishes a new, higher peak.1 Few publications or data providers publish, let alone highlight, full market cycle returns, yet we believe understanding them can help the return of your portfolio over the long-term.
Warren Buffett, in Berkshire Hathaway’s 2013 Chairman’s Letter, wrote “Over the stock market cycle between year ends 2007 and 2013, we overperformed the S&P. Through full cycles in future years, we expect to do that again. If we fail to do so, we will not have earned our pay. After all, you could always own an index fund and be assured of S&P results.”2
Because Berkshire Hathaway’s book value compounded better than the S&P 500 over this time, it doesn’t matter that Mr. Buffett underperformed in 4 of the 7 years (after 2014, now 5 in 8 years). And yet, Mr. Buffett’s shareholders are still ahead of the S&P since 2007.3 This supports our view that it is relevant to have a portfolio manager do well over time rather than at a moment in time.
HITE Hedge's alpha-only funds returned 0.62% for the second quarter, bringing their first-half returns for 2022 to 8.5%. The funds have grown their assets under management to more than $725 million as of Aug. 1. The firm has added about $200 million in assets since the beginning of the year, moving it closer to its Read More
Some managers may perform well in a bull market, while others may outperform in a bear market. FPA aspires to manage successfully throughout entire market cycles. Thoughtfully analyzing performance is an important aspect of choosin