The current bull market is the longest in history. So too, is the U.S. economic expansion. As those record-breaking streaks continue, it is hard for investors to remember that big losses can — and do — happen. It’s even harder to convince investors to prepare for them in advance.

For stock pickers, especially those with a systematic approach, it has been a very difficult time. The constant change in sentiment is creating a great deal of uncertainty. It is challenging to find stocks that are expected to perform well in a given market environment when the market environment is so uncertain because it is changing more rapidly and unexpectedly. Laying the Twitter updates on top of what is already a unique environment puts investors in an unprecedented spot.

The market’s recent sharp movements remind investors that the only certainty about future market direction is uncertainty. Stocks sold off in October (2018), dipped again in December, enjoyed their strongest January (2019) in 30 years and then worst day in 2019 on August 5^th. Whipsawing markets have alternately punished and rewarded both long-only strategies that benefit from a broad rise in stocks and alternative strategies that capitalize on market declines.

In the last blog post of this series, we talked about how current market indicators are pointing to lower expected returns for multiple asset classes. To help solve these lower return expectations, we discussed lowering client expectations, increasing risk and incorporating alternatives into a portfolio, along with some other strategy suggestions. This post we will discuss the following topics: how much to incorporate in a portfolio, the comparison of returns over the longer term and the more recent time frame, and how much alternatives ‘cost’ investors.

In one of our recent posts, we discussed building portfolios that can handle the inevitable ups and downs that investors experience in the markets. Today we will discuss an important step in that process, namely, understanding the current market environment and setting go-forward expectations.