IS THIS THE BEGINNING OF THE END?
As originally appeared in The Jerusalem Post on October 12th, 2018.
Stock market goes up or down, and you can’t adjust your portfolio based on the whims of the market, so you have to have a strategy in a position and stay true to that strategy and not pay attention to noise that could surround any particular investment.
-John Paulson
So on Wednesday, the market dropped 3% and all of the sudden, according to the experts, we are on the cusp of a stock market crash. Like clockwork the headlines popped up about the market on its way to a 50% drop, or that this drop was the beginning of the end. I am not even sure what the means. Do they think that the stock market will actually go to zero? Will the global economy just close and go home? I may sound like a broken record but stock investors need to understand that markets can go down just like they can go up. If you don’t have a long-term time horizon you shouldn’t be investing in stocks.
Prophecy
Will the market keep dropping? I have absolutely no idea. But even though I don’t believe in timing the market I actually had a good hunch last week that the market was going to drop. How did I know? 2 reasons. One was because the broader market i.e. most stocks not named Apple and Amazon, had started dropping weeks ago and outside of the US, stock markets have been down double digits so far this year. The other reason I had a hunch was because of Gertrude (name changed to protect privacy).
Gertrude has been a client for a few years and had a conservative portfolio allocation. No more than 40% of her portfolio was meant to be exposed to the stock market. About a month ago, after the Dow Jones Industrial Average hit a new all-time high she called me to move her entire portfolio into stocks. I strongly cautioned her against making that move reminding her that she can’t afford to lose a significant part of her portfolio and if the market were to drop 20-30% she will be ‘up the creek’. She persisted and said that the US economy is strong and “everyone” is making so much money and she wants to make a lot of money as well. Gertrude is my “shoeshine boy.”
I don’t know if it’s true or apocryphal but there is a famous story about John D. Rockefeller. The blog Howtobuystocks relates the story, “In 1928 in New York City, Rockefeller was having his shoes shined. The shoe shine boy, presumably not knowing who Rockefeller was, started giving him stock tips and financial news of the day. Rockefeller took his shoeshine boy’s advice but not in the way you would expect. He decided that if a shoeshine boy was giving stock tips… it was time to get out of the market. He did! And it’s the reason his family was able to stave off the Depression, and continued to be one of the richest in our history.”
What to do?
What should you do in the face of an upswing in market volatility? The most important step you can take is to make sure that your portfolio is allocated in a way that meets your financial goals and needs. If it is too aggressive, take some profits and sell. If too conservative, take advantage of the market drop to ‘buy low’ and add stock exposure to your portfolio.
Never Panic
Just ask my kids. I am always preaching the need to stay calm and not panic, in everything in life. When it comes to your money keep your eyes focused on your long-term goals. It’s important to remember that markets go up and down, and if you made a financial plan, it would have taken this type of market volatility into account. The worst thing you can do as an investor is panic and sell everything and then wait for the market to recover. The market tends to snap back quickly. Large market gains often come about in quick and unpredictable spurts, and missing just a few days of strong market returns can negatively impact long-term performance.
Stay calm and tune out the noise in the media. Markets go up and down but the best way to make money over the long-term is just to be properly allocated and stay the course.
The information contained in this article reflects the opinion of the author and not necessarily the opinion of Portfolio Resources Group, Inc. or its affiliates.
Aaron Katsman is author of the book Retirement GPS: How to Navigate Your Way to A Secure Financial Future with Global Investing (McGraw-Hill), and is a licensed financial professional both in the United States and Israel, and helps people who open investment accounts in the United States. Securities are offered through Portfolio Resources Group, Inc. (www.prginc.net). Member FINRA, SIPC, MSRB, FSI. For more information, call (02) 624-0995 visit www.gpsinvestor.com or email aaron@lighthousecapital.co.il.
