Who here doesn’t like the upside of risky assets? Probably no one. It’s likely that a fair amount of people during bull markets probably forget to consider that equities are risky investments. But then the horrible bear like the one straight out of the movie Revenant chews through a portfolio as it chewed through poor Leonardo DeCaprio (it was a very intense movie by the way).
How many of you can recall that some of the major U.S. stock market indices were down over 10% at some point this year and we are only in March? Now how many of you know that most of those losses have now been made back up and again we are only in March? It wasn’t but a few weeks ago that recession talk was in full swing. But guess what a 10% rally does to those thoughts, they tend to quietly go by the side until the next downswing occurs.
And while we think that the markets trade on company fundamentals, they are only one piece of the big picture. Market sentiment has just as much to do with the performance of a market or individual stock than its fundamentals do.
If you didn’t react fast enough to this sudden snapback rally, you may be thinking that stocks are beginning to look expensive again. At least that’s the view that we are taking. I’ve looked at numerous company stocks that are now up 20% to 30% within the past 45 days. Their fundamentals haven’t changed although their prices sure have.
This is one reason why it helps to remain calm during market turmoil which is hard because investing can be such an emotional battle. Whenever my wife tells me to calm down guess what happens? The exact opposite. This is precisely why we never tell a client to remain calm while the value of their portfolio drops during a market correction. Research has proven that telling people to remain calm in a stressful situation has the opposite effect.
We have learned that one of the best ways to combat these emotional forces is to have a handy list ready to go of companies that we would like to own at a specified price. Simple as it sounds if the stock price hits our target we buy and if not we sit and wait until the next downturn.
Our main objective as asset managers to is help protect our clients’ assets first. This is commonly referred to as capital preservation. And while we try to beat our benchmark every year, we along with our clients know that some years we do beat it and some years we do not. But we all have a game plan for what it is that we are trying to achieve. Remember that achieving your long-term goals whether they be financial or some lifestyle goal, is driven more by how much you save and spend rather than by how much your investment returns are.
The market in many aspects is like the movie Revenant, there are rallies and then counter-rallies with unexpected events occurring quite frequently. But at the end of the day, Leo had one goal in mind and nothing was going to keep him from it. Be sure you know what your goals are and have an adaptable plan to achieve it.
What I Am Reading
The Three Worst Words of Stock-Market Advice: Trust Your Gut (WSJ)
Angry Americans: How the 2008 Crash Fueled a Political Rebellion (Bloomberg)
‘Costcoholics’: Costco’s $113.7 Billion Addicts (Forbes)
One Big Reason Your Life Is Harder (And Busier) Than It Has To Be (Mark & Angel Hack Life)
Workforce May Be Holding Back Growth (WSJ)