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Thoughts in Charts: Quilting Lessons

My grandmother was a skilled quilter. She and I spent many summers in her sewing room meticulously building these works of art. I often would get so lost in the block-by-block detail, that I’d forget to step back and see what was really being created.

Sometimes I get stuck in the blocks with this chart too. I immediately dive into what segments of the US Markets did the best or the worst during specific periods. I wrote (and deleted) four paragraphs on the nitty gritty of this chart before I remembered my grandmother’s advice to step back.

Big picture, I see is a fairly random quilt. The bottom of the chart is a bit darker, with underpriced value companies toward the bottom but sometimes popping to the top. The lighter blocks, the growth companies, tend toward the top but sometimes fall downward. It’s just two years of information, so the picture is small.

Delving into the details of this chart, you can get trapped into looking for conclusive patterns. It’s tempting to think that if one segment is doing badly, it will pop to the top next quarter, or that a block will continue to stay at the top because it’s been there for several quarters. I often hear pundits articulate their points of view as if they are a foregone conclusion – like they are reading from a clear pattern. This chart, however, illustrates that they are not.

Our job is about probabilities and risks. If anything in our business is actually a certainty, then it has no risk, and therefore, no upside or downside potential. Our job isn’t to know the future. When I step back and look at the entire quilt, I’m reminded that our task is attempting to increase our probability of success while managing the risks that make return possible.

The chart is not only one color and that’s what makes my job interesting. We stay exposed to the pieces or boxes, because we don’t know for certain what order the blocks will fall next quarter. This chart informs decisions, and this chart also reminds us that all portions of the market have good times and bad.

For disclosures, please click here.

Lynch, Katherine. “2020 Market Performance in 7 Charts”, Morningstar. 5 January 2021. https://www.morningstar.com/articles/1016670/2020-market-performance-in-7-charts