Yet, in the last four years of the '90s, corporate earnings and stock prices began to substantially diverge as investors determined they knew better. The rate of return on stocks from 1997 to 1999 was 24.9% (as measured by the S&P 500 index), but earnings rose only an average 4.4%. It appeared as though investors were defying the economic gods.
The substantial correction brought about by the bear market would indicate that we have entered calmer waters. But surprises could lie ahead, and the only way we can be prepared for the unexpected is to ensure that our asset allocations are in line with our targets.
Know your place in the universe and maintain devotion to your principles. Like Odysseus and his crew we are only human, after all. Stay the course.
Finally, after a few more adventures, and with some help from his friends, Odysseus returned home and the gods granted him a life (and death) of peace as a reward for his devotion to his principles.
And so the ending for the first risk manager was a happy one. It can be happy, too, for those of us who learn from him.
As long, of course, as we are prepared to accept a little mast lashing.
Randy Lert is chief investment officer of Frank Russell Co.