As I’m sure you noticed over the last few weeks the markets have been in decline. In fact, the stock market gains of 2018 have basically been wiped out. As investors, the issue is what happened, how long will it last and what should you do now.
In looking at the recent decline there is not one thing that caused the markets to retreat. Some people will point to rising interest rates, others will point to tariffs and potential trade wars and others will point to disappointing corporate earnings. If you talk to 10 experts they will have 15 different opinions as to what caused the markets to retreat. The reality of the situation is no one knows for sure, and many times when markets retreat it’s not based on anything and it is just irrational.
I don’t know why the markets retreated and I don’t know how long it will take for the markets to regain their strength. This could be a very short correction and in a few weeks we can once again be reaching record highs or the downturn can be with us for a while. However, one thing I do know is that investors who panic and let fear dictate their investment decisions will almost always make the wrong decisions. I’ve always said fear and greed are the two emotions that kill investments. A perfect example of greed is back in the dot-com boom when people were investing in anything that had a dot-com in the name. It didn’t matter if the economic and fundamentals of the company were out of whack as long as it had dot-com next to it, people invested. An example of fear is where anytime there is a market retreat people rush out of the market. They then wait for the market to regain its strength to reinvest. Inevitably, they end up buying high and selling low, which is not a prescription for success.
My advice for most investors is to do nothing. Investors with well-diversified and balanced portfolios do not have to react to every twist and turn in the market. One of the reasons you have diversified and balanced portfolios is to get you through times like this. It would be great if you could predict the future direction of the stock market and interest rates; however, the reality is you can’t and neither can anyone else. Remember, when it comes to the market, sometimes bad news is good news and good news is bad news. As far as I’m concerned, it’s a fool’s game to try to predict the market and it’s a game you should not participate in.
Remember, it was only just a month or so ago that it seemed that the market could do no wrong and who knows when those days will return. The market turnaround can be as fast as the downturn and those who sellout and panic will unfortunately miss the rebound.
It would be nice if markets weren’t as volatile and you could easily predict the direction; unfortunately, it doesn’t work that way. Being an investor is not easy and it takes discipline; discipline to not overreact when markets are volatile. Remember, as Warren Buffet has stated many times, it’s not timing the market that makes someone successful; it’s time in the market. Therefore, before you react to the recent volatility, think twice and most importantly, focus on your goals and objectives, not what’s happening in the market.
Good luck!
If you would like Rick to respond to your questions, please email Rick at rick@bloomassetmanagement.com.