Experience Matters
2022 has been quite an interesting ride for investors and professionals. The rise in inflation and interest rates has been quick and breathtaking in its move, while stock, bond and currency markets are still trying to recalibrate what their true valuations should be. The evolution of trading vehicles whether it be ETFs or options only magnifies the volatility.
The term “black swan” is used to describe “an unpredictable event that is beyond what is normally expected of a situation and has potentially severe consequences. Black swan events are characterized by their extreme rarity, severe impact, and the widespread insistence they were obvious in hindsight.”(Investopedia). A timeline of major market events that have occurred over the past 30 years on a S&P 500 price chart is displayed below.
Numerous major events have occurred since the early 1990’s; some are very recognizable and still acknowledged today, and others are just a memory to the people working during these times. Some events were economically driven, others were political, and still others were militaristic in nature. However, they all brought heightened uncertainty at the time, and fear and anxiety from investors were evident in the volatility of the market.
The saying that “history repeats itself” can provide some clues when dealing with a black swan event. While each event is unique in nature, the market does move in patterns and may react similarly to an event in the past. The key is identifying what historical period is most closely aligned to provide the clues to navigate the volatility. Having the experience of navigating past events in the markets gives a money manager the knowledge and wisdom necessary to evaluate the environment and how to best allocate clients’ portfolios in unsettled times.
I founded Generation Capital Management in 2003. Prior to this, I was Director of Equity Investments for a local RIA (Registered Investment Advisor) beginning in 1992. I have first-hand knowledge of investing through all of the events highlighted in this chart. From the Great Bond Massacre in 1994, to the Dot Com Bubble and Crash in 1999-2001, the Great Financial Crisis (2007-2009) to the Covid Pandemic. I have been in the trenches analyzing market conditions and making investment decisions for our clients to weather each event. The psychology and emotion of it is something that cannot be learned in a book or read through a post. The feelings of seeing the market reactions throughout 2007-2009, when Lehman Brothers failed. The moves made by the Treasury and Federal Reserve over a single weekend to marry companies together to prevent our financial banking system from imploding and was ready to be open for business that Monday. I will never forget September 11th. I was standing in the trading room watching CNBC, waiting for the markets to open, as the planes crashed into the Twin Towers live. Our investment team, not knowing what was happening, saw the early indications of a market not knowing how to react. Those are things I will never forget. They provide a playbook for me in reacting to the next major event that occurs. These experiences have taught me the importance of a disciplined and repeatable process and of risk management tools. I know what I own for clients, why I own it, and what I’d like to own. I understand that different solutions work better in some market environments than others and the ability to be flexible is imperative to navigating full market cycles.
I absolutely love my job working in the financial advisory space. I knew before attending college, that this was the industry I wanted to build my career in. I was blessed to be able to start my career at a highly successful Registered Investment Advisor and learn from some of the best at that time. That passion has not faded. It is now my turn to mentor the next wave of investment leaders in the industry.
Scott Nasca
President & Founder
Generation Capital Management