Discipline and staying the cours...

History suggests that, over longer periods of time, financial markets are principally driven by themes and valuations. Consider the focus on conglomerates and the "nifty-fity" in the 1960's and 1970's or globalization and technology in the 1980's and 1990's. Themes such as these have captured the attention of market participants over extended periods of time, but each time new market leadership emerges as overstretched or over popular themes are replaced.

History also shows that economic growth alone does not drive share prices. This is, perhaps, best illustrated by the period from 1965 to 1982, when the Dow Jones Industrial Average ended the period at the same level as it began 17 years before, but at the same time the GDP growth in the US totalled 370%.

During the past century, the US market, for instance, has had 53 corrections of 10% or more, roughly one every two years. There have been 15 corrections of 25% or more, rougly one every six years. Setbacks and hiccups, otherwise known as market volatility, are normal elements to market history and should be expected in the future.

The successful investor understands that short-term transitory events tend to undermine a well-planned long-term strategy. The following chart shows that, over the past 50 years, markets tend to bounce back remarkably well following a year of negative performance. Only once has the market been down in two consecutive years. Investment discipline - the ability to prevent emotion from overtaking reason - are hallmarks to a successful investment method.