The Third Quarter Of 2015

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The third quarter of 2015 was no fun. Having been spoiled by six years of steady gains across all kinds of financial assets, we might regard the recent episode of market volatility as a rude intrusion upon our ongoing right to steadily increasing account values. Of course, it doesn’t work that way. Volatility in both directions comes with the territory for long-term investors. Indeed, in some academic circles the belief is held tightly that it is volatility, and only volatility, that entitles us to earn any return at all on our investments. Our willingness to endure the ebbs and flows of wealth over time, to put our capital at real risk, earns our ultimate compensation.

During the third quarter, the US stock market finally succumbed to selling pressure that has been affecting financial markets across the globe. For over a year volatility has been a feature of the world 's currency, credit and commodity markets. In addition, many world stock markets have been in correction mode, especially emerging markets. Financial markets are interconnected so as poor economic news piled up last quarter all stock markets headed lower. The S&P 500 fell by -6.44% but that was better than just about any other equity asset class. US small capitalization stocks and most international indices fell by over 10% while emerging market stocks got clobbered, falling -17.9%.

The source of most of the trauma during the quarter was emerging market woes. China is clearly slowing, putting pressure on
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