I work with my father. He worked with his father. And, family in business together is like anything else, there is good and bad. Mostly good, I think. My father has been my mentor for all of my life, and certainly for all of my career. Luckily, he is an experienced financial planner and investor, and he is gifted at mentoring young minds.
My mind isn’t as young anymore. I wouldn’t say it’s old – just experienced. But, it’s also filled with ideas, principles, and mantras that I have inherited from my father, and I am assuming my grandfather. I can’t tell where my ideas start and theirs end. Again, there is good and bad, but mostly good, I think.
During periods of investment market down turns I am comforted, still, by my father’s steady voice in my head. “In the short-term markets are driven by human emotion – fear and greed – but, in the long-term markets are driven by human progress.” I believe this whole-heartedly and share it in almost every client meeting I conduct.
It doesn’t take a lot of sleuthing to find something to be afraid of in today’s market environment. Just to share some of the headlines in this mornings’ news sources – “Fed Decision Looms”, “Stocks Fall Sharply as Investors Fret Over Growth Outlook”, “Higher Interest Rates Could Lighten Workers’ Wallets”, “America Can’t Move Its Cheese”. I mean, come on! We can’t even sell cheese?! Hide your kids, hide your wife!
Here is the reality. The market – as defined as the S&P 500 stock index – through yesterday (December 17th, 2018) is down -4.78% this year. That is not good, but it is hardly a market disaster. I think what is driving investor fear today is twofold. First, the speed at which this market correction has come. The high in the S&P 500 occurred on September 20th. Since then, the market is down -13.13%. A sharp decline like this is common during corrections but tends to cloud investor judgement as to the overall health of the market environment. You know that feeling you get on an amusement park rollercoaster drop when your stomach feels like it’s in your throat and you’re yelling, “We’re all going to die!!”? Yeah, same thing. In all likelihood, we’re not all going to die on that hill.
Second, the length and breadth of the current bull-market has lulled investors into thinking markets should be on a linear line up. But, this has never been the case. We’ve enjoyed a tremendous market up-swing for the past 9 years, but not without fits and starts. In fact, we saw a 20% decline in the markets intra-year during 2011. We saw 13% downswings intra-year during both 2015 and 2016. Now we’re seeing it again and people are calling for the end of the “bull-market”. Depending on how you define exactly what “bull-market” means perhaps the pundits are right, and we will see a greater than 20% correction in the markets. However, I’d make a case that the market has been in bull-market mode without stopping dating back to 1950 and further looking at the chart S&P 500 1950-December 17, 2018. Again, in the long-term markets are driven by human progress.
There is no doubt we are in the middle of trying times for investors. Those investors who are disciplined enough to maintain a long-term outlook for their portfolios will, I believe, fair just fine. See my previous post for more thoughts surrounding market volatility – Momma said there’ll be days like this…..
* S&P 500 data collected from https://finance.yahoo.com/
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