Some Perspective- Bridgeway Funds Shareholder Letter

John Montgomery started Bridgeway Capital and manages 10 Bridgeway Funds. His letters to shareholders are always worth a read as he actually offers some perspective instead of just spinning his fund's performance relative to their benchmarks (you can find that for Bridgeway funds too, of course).

You can find his letter here. A number of items in his letter struck me and I'd like to share them with you.

John says:

"Three out of any ten years in the stock market have been negative. Sometimes it looks ugly. That’s the “nature of the beast.” OK, but human nature is to look, so let’s put the current bear market in perspective:"

Equities can and do fall and fall hard and we've been here before. After a big fall, when will we be making gains?

John says:

"One interesting and powerful measure of risk is what I call “time to recover.” This is the time from a previous market “high” (or “previous peak”) until it reaches that level again. These numbers are much more comforting than the magnitude of decline and worthy of studying:"

Assuming the markets do recover, will it look like fall of 1982? Two months to make up 21 months of losses? Hard to imagine, but I bet it was hard to imagine then and that is the real risk of trying to time the market. If you moved out of stocks, how will you know when to get back in? The recovery after to 2000 peak took 4 years. 2 months or 4 years, which would you prefer?

If your time horizon is long, you might prefer 4 years. Am I crazy? Sure. But the investments I made during the 2000- 2004 have all done better than anything I invested from 2005 to today.

John continues:

"The most powerful weapon at your disposal while awaiting a recovery is your expense level. Say you could save an additional 10% by cutting back in certain areas of your budget. If you were to invest those savings, I call this “super dollar cost averaging.” Because you do it when the market is down, these dollars buy more shares (than previously), and can more significantly boost your long-term wealth whenever the market does eventually recover."

If the market recovers fast,there will be less time to 'super dollar cost average.'

If you enjoyed the quotes, read the entire letter. I own several Bridgeway funds and hope they recover as fast as they've fallen. Truth is, the only funds I own that I have consistently added to every month this year (outside of my retirement plan through work) are two Bridgeway funds.

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