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Quarterly Investment Review: Q3 2015

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We are more often frightened than hurt: and we suffer more from imagination than from reality.  ~Seneca

I am an old man and have known a great many troubles, but most of them never happened. ~Mark Twain


The third quarter was not a good quarter for world stock markets—It’s nice to have it in the rearview mirror. Emerging market stocks fell nearly 18% in the quarter, International developed stocks fell 10% and U.S. large cap stocks were down 6%. No portion of the equity market escaped the decline.

However, as should be expected, diversification provided cushion to the equity market drop. Managed futures, bonds and REITs all produced positive returns in the quarter and hedge funds fell less than stocks.

So while the third quarter wasn’t a whole lot of fun, it does highlight an important point: Things often feel worse in real time than they do after the fact. It’s easy to anticipate that the current trend will continue inexorably. As Seneca wrote, “We suffer more from imagination than from reality.”

For example, consider the following chart. As we progress through the quarter, a lot of bad headlines crop up.

Source: Dimensional Funds. MSCI ACWI Index. MSCI data © MSCI 2015, all rights reserved.


Each headline felt pretty bad on the day it came out and it’s easy to extrapolate them into something bigger. But for those who stayed the course, the markets are already reversing a lot of the pain felt last quarter—with world stocks already up more than 9% so far in October (as of 10.23.15).

How Bad Was Last Quarter?

Quarters like the last one are going to happen from time to time. But, how bad was it really? Where did it rank historically?

Turns out, a quarter like last quarter’s -6.4% return on the S&P 500 is quite common. Using the S&P 500 so that we could go back to 1926, a quarterly return of 0% to -10% occurred in nearly one out of four quarters.


The other question that comes up is: does a drop like the one we had create opportunities? Well, we might sound like a broken record, but our answer is the same. At the extremes, market drops may create opportunities to get more aggressive and take advantage of the situation, but we aren’t there yet.

To put this in perspective, consider the experience during the financial crises. The were three straight quarters, Q3 2008 – Q1 2009, where the S&P 500 index lost more than the -6.4% drop last quarter.

To create the buying opportunities we are looking for, it would take a more meaningful and persistent drop in the markets than what occurred last quarter.


A quick recap:

  • Stock markets were down around the world in the third quarter.
  • However, this type of decline is very normal, occurring nearly 25% of the time.
  • Diversification, as is expected, helped performance in the quarter.
  • The drop was not significant or persistent enough to create opportunities to get more aggressive.



If you are a client and have any questions regarding anything covered in this quarterly investment review, please send us an email or give us a call.


If you’re not a client of Cordant, we focus on managing wealth for current and former employees of Intel. If you want to learn more about how we work with our clients you can do so here or feel free to give us a call at 503.621.9207.



Click here for disclosures regarding information contained in blog postings.

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Cordant, Inc. is not affiliated or associated with, or endorsed by, Intel.

Published on October 27, 2015

Isaac Presley, CFA

Isaac Presley, CFA

Isaac Presley is the President and Director of Investments for Cordant, a wealth management firm serving current and former Intel employees. To learn more, you can read Isaac's full bio.

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