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Context

We are a few days removed from the shenanigans of last week, which isn’t to imply that they are over but a little distance is a good thing. Much has been made about the falls in the local market but this commentary lacks context and if we simply look at falls on the local market in the form of drawdowns then the market didn’t look too healthy last week.

Screen Shot 2015-09-01 at 9.39.21 am

The chart above looks at drawdowns on the S&P/ASX200 since the unfolding of the GFC and it looks pretty shitty. The fall of last week was spectacular in its speed and volatility but it needs to be viewed within the wider framework of what has happened to the market post the GFC. Looking at the market post the GFC shows something that every investor should already know – the performance of the local market has been ordinary. A quick comparison between the S&P/ASX200 and the S&P500 highlights this marked gap in performance.

Screen Shot 2015-09-01 at 10.06.06 am

There was a brief period post the GFC where the local market outperformed the US but this outperformance evaporated quite quickly. This chart does highlight that market performance is everything in the world of stock selection – there is little point in persisting with a market that generates so little upward momentum. This brings me back to the performance of the local market last week – consider the chart below and then reflect upon whether the fall of last week was out of character for the local market.

Screen Shot 2015-09-01 at 9.49.16 am

As can be seen the market dropped out of its upwardly drifting channel a few months ago and was drifting down without the added impetus of the panic of last week. All last week did was add a little spice to proceedings.

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