We distinctly remember the date, March 6, 2009. The S&P 500 index traded down to 666 as the financial markets attempted to find a bottom following the collapse of Lehman Brothers on September 15, 2008. Developed world central banks responded to the weakness in financial markets with unprecedented ZIRP (zero interest rate policies) and, in some cases, NIRP (negative interest rate policies) through the massive purchase of sovereign bonds and other securities. The result, asset inflation across most financial assets. Eight years and eight months later, the S&P 500 index is at 2587 or an increase of 3.9X from its nadir.
The increase in stock valuations has made it quite challenging for investors with a value discipline. The search for earnings yield often requires expanding one’s geographical scope. Those waiting for a pullback to purchase stocks have been disappointed as even minor corrections have become like unicorn sightings. We suspect prospective returns are unlikely to match retrospective returns.
Leverage and unfunded medical retiree liabilities remain a long term concern.
Given all of the above, we are taking a more hedged approach in our stock portfolio.