In his recent Q&A session with Francis Gannon, Chuck Royce discusses the importance of staying invested. Here’s an excerpt from the session:
Royce: The patterns that Frank discussed not only suggest a low probability of poor small-cap performance over periods of three years or longer, but they also indicate that the cost of waiting or trying to time a bottom—whether for the market or the economy—can be high.
We know better than to try predicting outcomes for the markets or the economy, but we routinely examine past performance patterns to help us make sense of the present as we prepare for the uncertain days ahead.
The Russell 2000 fell 31.9% from 11/8/21 through the current bottom on 6/16/22, which places it precisely at the average of Russell 2000 downturns of 15% or more since the index’s inception.
Over that 44-year span, only three bear markets went markedly deeper than this one by falling at least another 10%. Each of these downturns was exacerbated by a monumental negative event: the Great Financial Crisis led to small-cap losses of 58.9% from 7/13/07-3/9/09; the bursting Internet Bubble saw the Russell 2000 down 44.1% from 3/9/00-10/9/02; and in the Covid pandemic the small-cap index declined 41.8% from 8/31/18-3/18/20.
As difficult as these markets were, each presented investors with an important opportunity to build their small-cap allocation because in each case the subsequent recovery was robust—but it was much more rewarding for those who stayed invested. Regardless of what happens in the near term, then, we see the current period of uncertainty as a highly opportune time to actively invest in select small caps for the long run.
You can read the entire discussion here:
Q&A Chuck Royce & Francis Gannon
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