The worst December since the Great Depression

Sapient Investment Committee

December 21, 2018

“Your success in investing will depend in part on your character and guts and in part on your ability to
realize, at the height of ebullience and the depth of despair alike, that this too, shall pass.”
-Jack Bogle, founder of The Vanguard Group

“The investor’s chief problem—and his worst enemy—is likely to be himself. In the end, how your
investments behave is much less important than how you behave.”
-Benjamin Graham, the father of value investing

As we write this letter, the major U.S. stock indexes are wrapping up another down day, another down
week, and are on pace to become the worst December since the Great Depression.1 The Nasdaq
Composite Index and Russell 2000 Index both crossed into bear market territory this week, meaning
losses have now exceeded 20% from their highs back on August 31st, and the S&P 500 and DJIA Indexes
aren’t far behind. Meanwhile, the MSCI World ex US Index crossed the bear market line in the first half
of December. All of this to say – the past few months have been a challenging time for equity investors.

In times like this, as uncertainty rises and market losses begin to dominate news headlines, investors
often start paying closer attention to their portfolios. Times like this are also the driving force behind
Sapient’s lower volatility approach to investing. Market downturns are inevitable – this is the 12th U.S.
market drawdown of 20% or more since WWII, and the 42nd of 10% or more2 – whereas the 9 1⁄2 year bull
market that led up to this point was more the anomaly (the 2nd longest run up since WWII). While
uncomfortable and painful in the moment, these downturns are not overly troubling to us at Sapient for
a few reasons: (1) we are long-term investors rather than short-term speculators; (2) we build
diversified, defensive global portfolios spanning multiple asset classes to help limit losses; and (3)
downturns often create attractive buying opportunities. The latter is particularly true today for investors
currently underweight their targets for equity exposure.

As always, patience and faith in capitalism should serve investors well during this challenging period. All
of us at Sapient thank you for allowing us to serve you, and we whole-heartedly embrace our
responsibility to steward your investment capital with great care. Happy holidays to you and your
families.

1. “Wall Street set for worst December since 1930s as global stocks retreat,” Financial Times, December 21, 2018
https://www.ft.com/content/b10717e0-04f1-11e9-99df-6183d3002ee1


2. Stock Market Briefing: S&P 500 Bull & Bear Market Tables, Yardeni Research Inc, Feb 13, 2018 whitepaper

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