Apparently Market Volatility Is Back
Apparently, market volatility is back. Let’s take a quick trip down memory lane before we discuss the past month or two in the markets:
- In January of 2016 the Dow Jones lost 5.5% for the month. Losses continued into mid-February before abruptly turning around and go due north from there. At one point in early February the Nasdaq was down 14.5% for the year and all of the “experts” were saying now is the time to get out of technology stocks. In fact, former Chief Investment Officer of Pimco Mohamed El-Erian said at the time, put 30% of your assets in cash because the next market crash was coming. The Dow Jones finished 2016 up X% for the year
- In August of 2015 the Dow Jones lost 1,100 points which equated to a fall of 6.6% for the month – the biggest percentage drop for the Dow since May of 2010. The theory back then was that a slowdown in China, coupled with possible Fed rate hikes would lead to another recession. The Dow Jones finished 2015 up X% for the year
- 2011 was an extremely volatile year in the markets, with the Dow Jones going from up 8% at one point to down 12% only to finish the year flat. But along the way, we experienced more large daily declines in 2011 (-4.31% on 8/4/2011; -4.62% on 8/10/2011; -5.55% on 8/8/2011) than we had seen since the 2008 financial crisis. We remember the phone calls vividly as clients felt another 2008 was just around the corner and it was time to “get out”.
Needless to say A. we didn’t let any of our clients succumb to their fears & emotions and actually “get out” during any of these periods, and B. any investors who did use August of 2011, August of 2015, or January of 2016 as a time to get out of the markets mostly certainly watched in regret from the sidelines as stocks turned right around and marched upwards from their lows, much as they always do
With that in mind, just a few quick thoughts regarding our recent bout of market volatility
- Buying begets buying and selling begets selling. When things are up people want to be buyers and when things are down they want to be sellers. This can create either a toilet bowl effect where all stocks are indiscriminately moving in the same direction, regardless of their individual characteristics. This can also lead to fantastic buying opportunities. Remember, in between December of 1999 and September of 2001 Amazon’s stock fell 94% going from $106 per share down to $5.97.
- It’s in our very nature to want to take action, or change the plan, when things aren’t going the way we want them to. So when stocks are falling, even long-term investors can think “we have to do something different”. This is what makes being an investor so difficult, but also so rewarding.
- A pullback in stocks is totally normal. Remember markets have been going up for a really long time, in an almost uninterrupted fashion for the past two years. Sometimes the reason stocks fall is simply because investors are looking for an excuse to sell after stocks rose too quickly.
- And finally, ignore anyone on TV Or the internet who claims to know exactly why stocks are down today/this week/this month. While we have some general ideas, we can never know for certain. People are still debating what caused the 1987 market crash
When things are up people want to be buyers and when things are down they want to be sellers.
As always, if you have any questions about your portfolio, the market, or anything else that’s keeping you up at night just give us a call and we can discuss. But don’t be too surprised if you don’t hear panic in our voices. The economy is cyclical and we build globally diversified portfolios for a reason: Because we never know what the short-term future will bring, but in the long run, owning high-quality, productive assets will serve you and your family quite well.