Markets Drifting Into Gut Check Territory


One of the concepts that has stuck with me from my brief stint at Fisher Investments is that the stock market can only do four things; up a lot, up a little, down a little and down a lot. Those first three go with the territory and that fourth one, down a lot, is the one to try to avoid. Right here, right now, the stock market is in the down a little range, it is still a single digit decline and enduring single digit declines goes with the territory of investing in markets.

If you use diversifiers like gold or alternative strategies to try to mute volatility a little bit (this is what I do and write about frequently), how are they doing? Are they generally doing what you'd hope they would do? For the most part, that has been my experience even though gold has had one down day during this event. Quite a few of the individual stocks and narrower ETFs I use for clients are getting battered in this event. I wish they weren't but they are, it goes with the territory. If you look at a long term chart of the top performing stocks you own or in the market overall you will see some brutal declines every so often. Enduring these types of declines, and again this is still down a little for the broad market, goes with the territory of participating in markets. The thing is not that we have emotional reactions but that we don't succumb to our emotions.

One way to avoid succumbing to emotions is to have a strategy you can stick to and a plan to implement based on your chosen strategy, even if that is to hold on no matter what. As of today, the S&P 500's 200 day moving average (DMA) is at 3045, the open today is just a little above the 200 DMA so we're close. If we breach the 200 DMA and stay below it for a day or two I will take defensive action for clients. It's just a matter of spreadsheet work and placing the trade, it's not an emotional event because we've been through this many times before and we know what will happen. At some point it stops going down, and then it will go back up to a new high, the only variable is how long that all takes.

As a market participants you likely fall into one of two categories; accumulating assets for retirement or spending from your portfolio as a retiree. If you're accumulating for retirement then you're monthly or bi-monthly contributions will let you buy at lower prices for a while. If you're relying on your portfolio as a retiree then you were probably involved with markets one way or another during the financial crisis and as long as you didn't panic 12 years ago, then you've thrived since then. Once this is over (no idea when that will happen) you will thrive again, as long as you don't panic.