If you think this column is about rapper Shad Gregory Moss, better known by his stage name of Bow Wow, you will be disappointed, as I argue that Dow Wow has been more entertaining and exciting! Yep, it’s celebration time. Pop the bubbly! Put on the rally caps, and if you are old enough to remember the 1987 hit song, “Nothing's Gonna Stop Us Now,” let’s belt out the lyrics in celebration of the incredible year for the Dow Jones Industrial Average.
According to CNBC, for the first time in its 121-year history, the Dow has increased more than 5,000 points in a year. That's the biggest annual points gain ever. Furthermore, the Dow has closed at a record high 70 times this year.
Slow down eager beaver. Let’s not forget how swiftly the stock market can humble the best of us. I know, as I have the scars to prove it. I often tell my kids: Be humble or you will crumble. Therefore, this is no time to toss the Dow’s recent success into the faces of our dear friends, the pouting pundits of pessimism, as the euphoria in the stock market can evaporate in a New York second.
Then the self-proclaimed doomsayers will have their own song to sing, perhaps the less popular song, “We Told You So,” by Lewis Furey. Rather than a “tit for tat” battle with our naysayers, let’s heed the words of wisdom that claim the three best times to keep our mouth shut: when we’re swimming, when we’re angry and when we’re right.
What I find remarkable about 2017’s stock advance is that according to Ryan Detrick, a strategist for LPL Financial, the S&P 500 has not had a 5 percent decline since June 28, 2016. That is about 18 months of relatively low volatility! The last sell off greater than 5 percent was the 6.1 percent decline after Britain’s surprise vote on June 23, 2016, to leave the European Union. Remember that one? How quickly we forget, which is why time in the market is our best friend!
Let’s be reminded that there are as many doom and gloom crystal ball forecasters that argue that the stock market is on the verge of collapse, as there are the pie in sky prophets who continue to sing Starships’ legendary song, “Nothing's Gonna Stop Us Now.” To me, this is just noise on both fronts, and I ignore it. Everyone knows that above average stock market performance won’t last forever, just as we know that below average performance will eventually improve. That’s how the stock market works!
It ebbs and flows, and we have to be strong enough not to allow greed and fear to drive our decision. Yes, we have been on an incredible run with the Dow, but of course, it has not been straight up. Nevertheless, there will be a time when we will enter into another economic recession and subsequent stock declines, but nobody knows when that will happen … and I mean nobody!
If you think that you can time this beast, or pay for and follow some guru’s market prowess, you might want to consider the “Hockey Pokey Clinic,” a place to turn yourself around! Otherwise, keep your finger off the sell trigger and maintain your diversified portfolio strategy and from time to time perhaps tweak your asset allocation so that it aligns with your risk parameters, but please ignore all the noise.
Most of the time, my friends in the compliance department prohibit me from using the word “guarantee.” However, this is not one of them! Folks, I guarantee you that a correction (relatively significant decline in stocks) is coming. It is just a matter of time. Of course, nobody knows if it will be a minor decline of say 5 percent or perhaps something more meaningful, such as 10 percent, 15 percent, 20 percent or more. But, one thing you can count on is that equities will fall and panic again will fill the air, and it will scare the snot out of people and send them into an intellectual and theoretical funk. Therefore, if you cannot accept a downturn in stocks, then you need to reevaluate your stock exposure now.
I am closing this narrative with a cautionary statement. Folks, I am increasingly concerned that it feels like 1999 when a day did not go by without someone telling me how easy it was to make money trading dotcom stocks. It got so crazy in the tech world, as folks were getting rich (on paper) essentially overnight. In fact, many people were quitting their jobs and becoming stock traders. Furthermore, “investors” were taking out mortgages and borrowing from their investment portfolio to raise cash so they can get into the dotcom buying frenzy.
Well, most of us know the rest of the story. The big party ended abruptly, and the irrational exuberance imploded in 2000, and everything came back to Earth, which caused far too many financial portfolios to get wiped out. I put forth that dotcom frenzy is now akin to the much talked about bitcoin and cryptocurrencies phenomenon that has taken Wall Street by storm. Yes indeed, bubbles and busts have been happening since the dawn of financial markets, and they will continue to happen going forward, as long as human beings are involved. It is all about fear and greed!