When All You Feel is Reward

Think all the way back to the end of May. The S&P 500 had just experienced a 6% monthly loss for the third time in eight months. The stock market had made zero progress since January of the previous year. It was looking like tariffs would soon be raining down on Mexico. The global economy was decelerating. With all of this going on, there was little reason to expect what was about to happen next…

…In the thirteen trading days since the end of May, the S&P 500 is up almost 8%, and once again, we’re at new all-time highs.

All-time highs often lead to extreme emotions, euphoria or despondency, depending on how you’re positioned. And for those people managing risk, all-time highs are a breeding ground for regret. This particular all-time high, like many before it, came from a sharp reversal, resembling the shape of a V. And V-shaped rallies make a mockery of risk management.

Risk management is one of those amorphous terms so what I mean by it, for the purposes of this post, is pretty much anything other than a 100% U.S. stock (plain beta) portfolio. When the Dow Jones Industrial Average is at an all-time high and other pieces of your portfolio aren’t, it feels like risk management is holding you back. And the hardest thing about managing risk is reminding yourself it’s working even when it feels like it’s not. It’s easy to forget that risk is always present when all you feel is reward.


Since 1990, the S&P 500 index is up 728% (1,440% total return), despite the fact that all-time highs occurred on just 7% of all days. This means that we’re in a drawdown 93% of all days, and every drawdown feels like the next big one.

There’s always something to worry about. At all-time highs we worry that we don’t own enough stocks, and all other times we worry that we own too much. This is why it’s so important, trite as it may sound, to focus on what you can control and let go of what you can’t.