Happy anniversary, Lehman Brothers. Three years ago today, Sept. 15, Lehman filed for bankruptcy protection. The Dow fell 4.4% that day, to 10,917.51, not far from where we are today. The S&P 500 fell even more — 4.6% on the day. Volatility spiked and the VIX went over 30.
Little did you and I know then what we know now: that the VIX would get up into the 80s, and the market would fall another 40% over the next six months.
During the three years since Lehman imploded, the stock market has returned an annualized 2.7%, led by small-caps, which gained about 4.7% per annum. Foreign stocks returned just 0.3%, and if it weren’t for emerging markets that number would be a -2%. In the Vanguard universe, among funds whose managers I think add value, Health Care gained 6.5% annualized, Selected Value gained 5.7% and Dividend Growth gained 3.2% per annum — those translate into total returns of 21%, 18% and 10%, compared to just 8.4% for the stock market and a bit more than 6% for the S&P 500.
And all three of the PRIMECAP Management-run funds outperformed the S&P 500, though the oldest, PRIMECAP, couldn’t keep pace with Total Stock Market. Not surprisingly, European Index has been the worst performer, down 3.6% annualized, and Market Neutral, which has been doing quite well over the past couple of months was also a laggard, down 3.3% on average. Oh, and those Managed Payout funds were some of the worst of the entire Vanguard brood, all losing money over the three-year period. How they managed to do that is another story.
A lot has changed since then, but a lot remains the same. We still have a debt crisis on our hands, only now it’s centered in Europe, with Greece the whipping boy. We still have big banks under pressure, only now it’s not U.S. banks, but French banks. At home, the housing crisis is still a crisis. Unemployment, which was 6.1% nationally in September 2008, now runs at 9.1%. At the same time, we should be thankful for just about every job we see created right now. During the past four months of 2008, the economy lost an average of 591,000 jobs per month. As small as it sometimes is, the private sector has been creating jobs every month since March 2010.
We have work to do, but it’s nice to know that some of the top investment managers at our disposal have been working nicely for us these past few years as well.
Happy anniversary.
