As I’ve mentioned in this format for a while, a correction in the market is as sure as the setting sun and usually is as healthy and unpredictable as a noisy thunderstorm.
The market has now finally come under pressure. Times like these are tough. It’s always easy to see the value in these market corrections when you look back over time, but they are also always very difficult to get through in the moment.
Things aren’t made any easier by the financial media. Rather than simply report, they sensationalize. And they have been waiting for a good story to sell for a long time. Yesterday’s exchange between an asset manager and a commentator on CNBC was a perfect example. The asset manager was urging folks to stick with their discipline and focus on the longer term. Without hesitation the commentator responded with a statement of – sure, the longer-term works for you because your job is to manage things; but we are in cable, so short term is always our timeframe. So while it may be easy to be cynical toward any manager who would advocate sitting on your hands and taking the full brunt of a bear market, it is clearly not in your best interest to listen very closely to the financial media.
But is this the onset of a bear market? I highly doubt it. In my view, markets simply got ahead of themselves. What is happening now is a correction from prices that were too lofty, not a new trend being established to the downside.
Times like these come and go in markets, but I don’t want to be flippant about it. These are times when real damage can be done to people’s financial health if they overreact. Or, in other cases, if they don’t respond rationally and instead get caught up in the emotional swirl and lose their disciplines about allocations and protection strategies.
A very good analyst friend of mine sent out a note yesterday showing that during the last upward bull phase in the 90s, the market had five events like the one we are seeing now on its multiple year journey to higher ground. The key is to determine if this recent action is one of those corrections, or the onset of the way the 90s market ended. Needless to say, our current situation is much different than that one. Valuations are nowhere near as extreme and many aspects of the global economy are healthier now as well. This, along with other factors, leads me to believe that this may be an ugly and scary, but nevertheless healthy and necessary correction.
It is not important to just think about what the next days of action will be, or what your next statement might look like. What is important is to wonder if recent action is more important than the core purpose of your portfolio overall. Do times like these greatly change the income of your portfolio for your retirement? Does it upend your legacy planning? Or are these the times that we have to pay the emotional tax to achieve higher returns than T-bills and savings accounts? Based on the current state of the economy, interest rates, asset valuations, and now a step back from euphoria within the markets, I tend to believe we will see this end as a correction and not become anything worse.
At long last, volatility has awakened. It’s valuable to us all to remember that volatility in the stock market is normal. What is abnormal is any uninterrupted upward movement, particularly at the recent pace. As investors, we need to keep in mind an old truth that there is no comfort in a growth zone and no growth in a comfort zone. It’s best that we don’t let the market’s day to day ups and down distract us from what we want to accomplish over the years.
But, by all means, I know these times are nerve-wracking. Please don’t hesitate to let me know if you’d like to connect to discuss things in greater detail. We are here for you and are always happy to help in any way possible.
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