August 28, 2018
Dear Fellow Shareholders and Friends,
As we approach the ten-year anniversary of the financial crisis in the fall of 2008, we thought it would be interesting and instructive to look back at that period and our assessment at the time. The “Market Panic” commentary was written October 10, 2008, following a 20% decline in the Dow Jones over seven trading days.
The Dow closed at 8,451 that day. Today it stands at about 26,000 - triple the level of 10 years ago - and that doesn’t account for dividends.
Belying these numbers though is how wild a ride it was from that point, at least for the next several months. We penned that commentary on a Friday. The next trading day, a Monday, the index surged 11% to 9,388 - in one day! But two weeks later it was right back below its previous level, at 8,176. The next day it rose almost 11% (again), before falling to 7,552 on November 20, yet another low. After recovering into year-end, stocks began a steady decline in early 2009, with the Dow closing at 6,547 on March 9, 2009. This was 22.5% below the level at which it sat when we wrote the commentary. So, in effect, we had a massive correction followed by another massive correction.
There are many lessons we can take from that time. Among them:
1. Despite the fact that on October 10 the pain was far from over, those who didn’t panic and stayed invested were rewarded over the long-term, which is how it has always worked throughout history. Those that sold in October 2008 may have felt rewarded in March 2009, but when did they go back into stocks, if at all?
2. Not knowing where the bottom was didn’t prevent one from making money. The wild swings in the market during that time were completely unpredictable, as was the market’s general direction over those months. We had no idea where the bottom was, and neither did anyone else. We certainly would not have expected it to fall another 22% from the time of our commentary, but it did. But we didn’t need to know where the bottom was in order to make a beneficial long-term decision.
3. It paid to be aggressive when everyone was scared. Rather than making our portfolios more defensive, as many managers were doing at the time, we made them incrementally less defensive, believing that the greater opportunities were in the more cyclical sectors of the market. In retrospect, perhaps we should have been even more aggressive. But we’re human, and like everyone else, we were scared – more than at any other time in our careers.
4. The system survived, as it always has, and stocks eventually reached new highs. Someday the world may indeed end, but making investment decisions on that premise has never been fruitful.
Through that difficult time, our core investment principles, which have been in place since the firm’s founding, helped guide us. We stayed fully invested, kept our focus on the long-term merits of an investment rather than short-term factors, and concentrated in our best ideas.
If the time to be aggressive is when conditions and sentiment are poor, then of course the time to be more circumspect is when they are good, as they are now. With valuations high, the economy strong, and investors confident, we have gradually reduced risk in our portfolios. We know there will be another market correction; we just don’t know when it will be. When it does occur, we expect our portfolios to suffer losses, despite our efforts to manage this risk. And we will once again adhere to our principles, which we believe will allow us to take advantage of the market disruption for the long-term betterment of our portfolios.
Mark Oelschlager, CFA
Co-Chief Investment Officer & Portfolio Manager
To determine if this fund is an appropriate investment for you, carefully consider the fund’s investment objectives, risk factors, charges and expenses before investing. This and other information can be found in the fund’s Prospectus, which may be obtained by calling 1‐888‐462‐5386 or visiting our website at www.oakfunds.com. Please read it carefully before investing.
Mutual fund investing involves risk, including the possible loss of principal.
This manager commentary represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice.
Past performance is no guarantee of future results. Investments are subject to market fluctuations, and a fund’s share price can fall because of weakness in the broad market, a particular industry, or a specific holding. The investment return and principal value of an investment will fluctuate so that an Investor’s shares, when redeemed, may be worth more or less than their original cost and current performance may be lower or higher than the performance quoted. Click here for standardized performance.
The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the Nasdaq.
Oak Associates Funds are distributed by Ultimus Fund Distributors, LLC. Ultimus Fund Distributors, LLC and Oak Associates Funds are separate and unaffiliated.
CFA is a registered trademark of the CFA Institute.