Markets are efficient. That phrase or, put a different way, “the market gets what the market
gets” is used so often it can begin to lose meaning and we forget what that can really look like in
real life. Efficiency, in finance, is not about smoothness or ease. It is about reflection. The stock
market takes in new information about everything from earnings, interest rates, politics, war,
innovation, climate, and then reflects it in prices. The reflection is not polite. It does not arrive
only when it suits us, and it does not offer only the pleasant images. It cuts both ways.
The Hall of Mirrors is the image and concept that we keep revisiting at Somerset with our
clients. A corridor where every step echoes, where light and shadow repeat again and again.
This is a risk when you begin thinking about how many dollars are flowing without thinking
through algorithms, large language models and we say to one another “the market gets what
the market gets.” Families walking through the financial markets experience that same
disorienting effect. Gains flash brightly and feel infinite, while losses loom suddenly, multiplied
in every direction. Both belong in the same mirror. Both are evidence of efficiency.
The Meaning of Efficiency
In the 1960s, Eugene Fama shaped the idea of the “efficient market.” The premise was
straightforward: markets incorporate information quickly, leaving little room for investors to
outguess the system. Decades of history have confirmed the core of that insight.
Efficiency does not mean predictability or calm. It means that when news arrives, hopeful or
dreadful, markets move and respond. Sometimes they overreact, correct later, but they move in
the direction of the information with remarkable speed. That speed is the point and that speed
has increased over time with the efficiency of technology.
We remember efficiency most easily on the upside. A new technology captures imagination, a
company posts better earnings than expected, the economy expands faster than forecasts.
Prices jump. That feels good. That feels like progress.
Yet the very same mirror reflects bad news with equal intensity. A pandemic begins, interest
rates spike, a bank fails, confidence falters. Prices fall. That feels harder to honor. We do not
celebrate those moments. But if we take efficiency seriously, we must respect them. The mirror
does not choose which images to multiply.
The Hall of Mirrors in Action
Think about March 2020. The world shut down. Within weeks, the S&P 500 fell more than 30%.
That is the mirror on the downside. Markets did not wait to confirm the full toll of COVID-19.
They reflected fear immediately.
Then, within months, the same market rallied. Stimulus, vaccines, resilience those too were
reflected swiftly. The same efficiency, two very different reflections. It cuts both ways.
History is full of these moments. The crash of 1987. The dot-com bust. The global financial crisis.
The same corridors of mirrors, swinging from euphoria to despair and back again. Each move is
the market’s way of saying: information has changed, and the reflection must change too. The
difference today is that tech and indexing moves markets faster.
I tell this story anecdotally but in the global financial crisis clients would call me and say
something like “I can’t take any more market movement! Sell everything…except Stock A, B and
C because I still like those and believe they will make it through.” You know what didn’t happen
during the pandemic? Not a single call to hold a single stock which would be EASY to do with
the way we invest at Somerset. Why not? What changed? “The market gets what the market
gets.” That lack of thinking about the why has changed the way investors think and has changed
the way companies ultimately are valued.
What the Data Shows
Numbers help us honor the reality. Since 1990, the S&P 500 has experienced an average annual
drawdown of nearly 14%, even in years that ended positive. That means that in an average year,
investors lived through a meaningful decline along the way. In years that ended with gains, the
average intra-year loss was still 8%. The mirror does not pause for optimism.
From 1928 to 2023, there were 18 corrections between 10% and 20%, each lasting about 129
days and averaging a 13.4% loss. Bear markets — defined as declines of more than 20% — have
occurred every four to five years on average. Some recoveries came quickly; others stretched
over years. But the point is clear: downside efficiency is as real, as frequent, and as harsh as
upside efficiency is rewarding.
These are not distant footnotes. They are the rhythm of markets. Investors walk through these
corridors year after year, experiencing both the brightness and the shadow.
Why It Matters for Families
Data alone does not tell the whole story. Families live the numbers in emotional terms. These
are their hard-earned dollars. Gains bring confidence, ease, and possibility. Losses bring fear,
doubt, and questions about security. Both emotions are amplified in the mirror.
When markets rise, it is easy to assume the mirror only multiplies good news. Families plan
generously. They feel safe and imagine more. When markets fall, the opposite takes hold. Fear
multiplies. Questions about adequacy and resilience echo loudly.
The truth is that both belong. Ignoring one side of the mirror is dangerous. Families who
celebrate only upside set themselves up for disappointment when the inevitable downside
arrives. Families who fear only downside miss the long-term compounding that upside
efficiency can deliver. Resilience comes from honoring both.
The Clarities Lens
At Somerset, we built the Clarities Process to guide families through this Hall of Mirrors. Why?
Because true comprehensive wealth management is more than portfolio construction. It is a
response to a well-thought-out out multi-faceted plan that takes years and sometimes decades to
bring to life with each passing season. Each step of our process at Somerset is a way of seeing
more clearly into each family with whom we work:
- Cash flow: Understanding how money moves in and out grounds everything.
- Listening: Hearing the story, the values, the unspoken fears and hopes, brings
dimension. - Allotment: Balancing risk and understanding ownership across categories makes the
mirror less disorienting. - Retirement or real estate: Long-term anchors that give shape to the future.
- Insurance: Protecting against the unpredictable.
- Taxes: Managing the realities that eat away at returns.
- Investments: Aligning exposure with true tolerance, honoring both upside and downside
and having this be an unapologetically active response to a larger plan. - Estate planning: Ensuring wealth reflects purpose and plans.
- Stewardship: Framing wealth as responsibility, not just possession.
Each piece is part of the reflection. Together, they give families a way to walk through the
corridor without panic or denial.
Efficiency as a Teacher
If markets are efficient both ways, then they are teachers. They remind us that resilience
requires humility. They remind us that clarity is more important than prediction. They remind us
that wealth is more than chasing gains; it is preparing for losses and still choosing to walk
forward.
Families who accept this truth often find deeper peace. They see that their role is not to
outguess the mirror but to orient themselves wisely within it.
Conclusion: A Call to Clarity
Efficiency cuts both ways, up and down. That reality is meant to ground us all in what we do
each day. Markets reward and punish with equal speed. The mirror multiplies both images.
The question is how you choose to walk through it. Alone, the corridor can feel endless and
confusing. With clarity, it becomes navigable. That is why Somerset invites families into the
CLARITIES process.
The CLARITIES Process helps you see not only the reflections in the market but also the
reflections in your own life: your values, your responsibilities, your hopes for the next
generation. When markets flash bright, it helps you celebrate responsibly. When markets turn
dark, it helps you remain steady.
The mirror will always cut both ways. With clarity, we are not afraid of either and can count
both as strength and opportunity.
The most important thing in my life is my family. My husband, Andrew, and our three smart and brave daughters.