28 December, 2018

MARKET COMMENTARY

History has shown that stock market drops are only temporary, and although unsettling, it does not spell the end to your investment strategy. After 30 years in the business I have seen just about everything, but one thing that remains constant, is that millions of investors fail to learn from the lessons of the past. For example gong way back to the attack on Pear Harbour the stock market recovered within one month. The same goes for the Cuban Missile Crisis which also recovered within one month and the 1987 stock market crash. 1

 

There have been only three major stock markets events when the markets did not recover within one month. The resignation of Nixon and the collapse of Long -Term Capital Management in 1998, both of which saw the stock market recover well within one year. The only event that saw the stock market crash and not recover within one year was the September 11th terrorist attack.2

 

So how does the current situation compare to past stock market crashes. In my opinion what is happening right now has no fundamental reasoning. The economy is strong, banks have ample liquidity and corporations are experiencing profitability. In my opinion most of this is political. For example despite warnings to the contrary the Federal Reserve has raised interest rates for the fourth time this year. Why? Everyone knew that this would cause market turmoil, but they did it anyway. Typically interest rates go up because the economy is strong, so at the very least we are experiencing an irony of sorts. Should the market not be responding positively to a strong economy? One would think so. I would think that the Feds are out of touch with the reality of the markets.

 

In any event we are in a tumble and history suggests that it will be short-lived. For the optimists out there, we are nearing a great opportunity to garner more wealth. After all who wouldn’t want to buy something at 30% off? A true boxing day special I might add. People will never stop worrying, that’s the nature of human beings, but if you must worry, ask yourself why? Are you somehow convinced that your money will run out or somehow disappear? Or, perhaps your worrying because others are? In both cases your worrying for nothing. First did you sell your stocks? No. So you still hold them, so you haven’t lost an thing. And since the markets have historically always rebounded is it a reasonable assumption because you still own your stocks that they will rebound? Nothing is lost if you don’t sell anything, just like nothing is earned if you don’t sell anything. Secondly, do you find yourself scurrying about looking at your investment statements? If so, keep in mind that your statements don’t tell you what your investment strategy is. That is to say having multiple nest eggs with different assets, often gets forgotten during these times, including the re-investment of your dividends. This is why I call your investment portfolio “an all-weather portfolio” where money is made in both down and up markets.

 

What is happening now, will simply become another tiny blip on a stock market chart, easily forgotten in a matter of a few months. So, time to put your feet up, enjoy some holiday cheer and rest knowing everything will be okay.

 

Wishing you a wonderful New Year!

 

Bob

  1. Putnam Investments: Crisis and Recovery: How the S7P 500 Index performed during and after historic events.
  2. Ibid

 

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