Repeat With Me…

wealth management

Repeat with me… Volatility is my friend and I shall like it. Understand that volatility has two sides … downward YES but also UPWARDS; somehow we don’t like downward moves (if long the market) but pine for upward movements mostly. Without volatile moves for which the stock market is know for (and investors are rewarded for stomaching this volatility)… we won’t have large upwards moves, so stay with the program and avoid hasty moves. Research from DALBAR and other firms show that, retail investors tend to sell low and buy high as they get shaken out by corrections and wait for the “Right” time to come back in, by which time the market has already moved higher. So repeat with me … Volatility is my friend and I shall like it.
 
Volatility has been rampant last several weeks as various factors have roiled the market, like the Fed move (or lack of it), Speaker Boehner’s resignation, European migrant crisis, China softness, Greek crisis, etc. have taken up much headlines in the recent past. The interesting part I want to highlight is that this is par for the course. Few remember the “Asian Contagion” of 1997, or the collapse of LTCM (Long Term Capital Management) in 1998 which drove stocks into correction territory during June-July ’98 timeframe, and guess what the market (i.e. S&P500 Total Return) returned for that year… close to 28% by end of the year ’98, while headlines at that time screamed that the sky was falling, similar to now. I could go on with other examples, just consider that this bull market has been among the most unloved bulls in a while, and yet it keeps grinding higher. Now no two windows of time are exactly the same so history may not repeat itself but it could sure rhyme.
 
So again the question of concern to us is “is this the start of a bear market”?
 
(WARNING: STATS ALERT, stay sharp)… Looking around wages and salaries are robust and growing, payrolls are higher by 3MM YoY (year over year) in the Private sector. We have continuing grid lock in Washington D.C., which is positive for stocks as regulation is muted (so no winners or losers are created), U.S. inflation is reasonable (~1.5% annualized for past 6 months), the yield curve is positively sloped not inverted, credit/ liquidity is available, forward economic indicators are largely positive globally, sentiment is muted if not at lows. I could go on because the global economy is mostly growing nicely.
 
So going out on a limb or two and at risk of professional ridicule after a double digit decline (S&P500, about -11% for last 4 months as of 09/28/15)… This does not feel like a bear market but a typical correction; keep the bullhorns locked on for equity like returns (+10% if you have an all-stock portfolio) by the time the ball drops in Times Square for this year. GO have fun in the meantime doing what you like doing best (hopefully its not staring at Bloomberg screens and watching every tick of the market movement) and when the correction is done, enjoy the fruits of the market working for you.