A few weeks ago, the Dow Jones Industrial Averages were on the verge of busting through yet another psychological milestone: 27,000! Then, out of nowhere, the Dow lost about 2,140 points, or 8 percent, since an Oct. 3 peak, as of Friday’s close. The Dow and the S&P 500 index both wiped out all their hard-fought gains over the past 10 months to turn negative for 2018.
Yep, it was another ugly October and market volatility is back with a vengeance. Through Oct. 23, 179 of the S&P 500 stocks are down more than 20 percent from their 52-week high, putting them in bear market territory. The S&P 500 was down another 3 percent on Wednesday, Oct. 24. Oh no! Is this the beginning of a bear market or just another buying opportunity after a relatively large decline in stocks? I thought you might be interested in my “spin”… uh … commentary!
Before I begin, let me be very clear on one point: I am guilty of having strong, stubborn convictions, especially when it comes to prudent investing. Despite what you may believe or have heard, stock market corrections (usually defined as 10 percent decline from the peak) are difficult to understand but are necessary to clean out the excess optimism. Furthermore, stock market declines are normal and expected. Furthermore, crashes and corrections occur with surprising regularity. Therefore, for those of us who fret during the tough times, toughen up cupcake and cure your bad behavior!
I do not have, never have had and never will have an opinion regarding the short-term direction of the stock market, interest rates or economic activity. Furthermore, I would never imagine predicting a stock market correction, bear market or the next recession, as I am not and never will be a trader. Instead, I am an investor that implements portfolios for the long run (five to 10 years) that are prudent, diversified and cost effective. Investing is simple, but so many folks make it incredibly difficult because they allow fear and greed to dictate their investment decisions by thinking they can time the market. This approach is unwinnable!
Do not get sucked into the idea that there is some genius trading strategy to deal with a market decline. Just ignore all the chatter from the talking heads. It will only make things worse for your emotional stability, and it might cause you to do something that you will regret later. Sure, it would be great to get out of the stock market at the high and back in at the low, but in 33 years in the investing business, I have never heard of anyone that knew how to do it.
At times like this, fear rules, which is perfectly understandable. Nobody wants to lose money. When we succumb to fear, however, we are under the illusion that we can predict the future. Then our emotions become elevated and we often surrender to the emotional response to flee the disorderly market conditions, which is often the wrong decision. Therefore, my strong, stubborn conviction is that unless we master fear, it will be deadly to our wealth.
