Perspective
By Thomas Twombly

(n) "the art of picturing objects or a scene in such a way as to show them as they appear to the eye with reference to relative distance or depth." - Webster's Dictionary

In a world dominated by instant information, constant stimulus, and an irrepressible sense of urgency, perspective is one of the hardest things to gain. Email, Twitter, Social Media, the Internet, and what Fareed Zakariah calls "the hungry beast" of the 24-hour news cycle draw us inexorably into the urgency of now.

These mediums force us to look at everything in real time. They lure us into believing that we're missing out if we're not constantly plugged in. Little wonder that we cannot see the proverbial forest for the trees –our noses are pressed into the bark. This is especially true when it comes to investing, and that lack of perspective often leads to long-term mistakes.

So try this exercise. Please take a broad view of the picture below and ask a few questions.

• Does it portray a sense of chaos and unpredictability, or is there a relative sense of order?
• Does is show a series of random, unconnected events, or is there a discernable pattern?
• If you were asked to continue drawing the pattern on the right side of the picture, what might you draw?

This graph shows the rolling 10-year returns of the S&P 500 from December 31, 1927 – December 31, 2010. Each vertical bar represents 10-year period, and shows what a hypothetical $1 million invested in the S&P 500 Index at the beginning of that period would have become by the end of that period.

Each successive bar drops a year on the back end, and adds a new year on the front end – so major market events such as the crash of 1929 and the Great Depression, on the far left, or more recently, the great recession of 2008, on the far right -- demonstrate their impact for years.

Note that the 10-year period between 12/31/1998 and 12/31/2008, the third bar from the right, represents the very worst period in this picture. That decade saw two massive market declines – the tech crash of 2000, the more recent crash of 2008, plus 9/11, Enron, Bernie Madoff, etc. It was a horrible experience. Importantly, despite its 100 % rebound since March 2009, the last two bars remain among the bottom 10 % of all measured periods in this picture.

Viewed in isolation, as the myopic news cycle tends to encourage, is it any wonder that these data points lead people to shun equity investing? After all, two of the last three rolling 10-year periods produced negative results, and the last one produced an average annual return of only 1.42%. No wonder we all keep hearing about "the lost decade." Why in the world would one invest in U.S. equities as an asset class with that type of track record?

Unfortunately, this is precisely the conclusion that many have come to – and perhaps at the worst possible time. In the last few years, a massive amount of capital has been withdrawn from U.S. equities, and instead invested in U.S. bonds – not coincidentally, right after several of the very best rolling 10-year periods for bonds.

With the perspective that a broader view provides, history might suggest that better results may lie ahead for stock investors. A look back to similar low points in the 1930s and 1970s (also times when people decided in droves to shun equity investing) shows that sub-par periods have been followed by improving, and eventually above-average results.

But I want to acknowledge that it's hard to think in 10-year increments when our personal and professional productivity is measured in minutes, days and weeks. So how does an investor make sense of the big picture and make decisions that are right for their future? Though our firm's investment strategies are grounded in research, the heart of our practice is conversation that clarifies long-term goals and opportunities.

For people with patience, discipline and proper perspective, the next several decades – if history is any guide – could be very rewarding for the equity portion of their portfolio. For as Mark Twain once observed: "History doesn't repeat itself… but it rhymes."