With the markets roiling this week, I am taking a moment to record a few thoughts.

 

The Drama on Wall Street

 

Have your financial goals changed in the last five days?

 

Are American companies less valuable because investors in China are panicking?

 

These are the kinds of questions to ponder as you watch the U.S. stock market sneeze and then some, after China caught a cold.  In two of the first four trading days of the new year, China closed its markets due to a rapid fall in share prices—a move which may have made the panic worse, since it made investors fear being trapped in stocks that are seen as dropping in value.  The panic spread to global markets, with U.S. stocks falling 4.9% to mark the worst first-of-the-year drop in history. 

 

For long-term investors, the result is much the same as with other moments of worry and genuine concern in the past. No markets go straight up forever. 2015 was basically a flat year, while the three prior years were up nicely. Is it unusual for the market to take a break and consolidate significant gains? Of course not. The decline last August was followed by a recovery of those losses. This decline might be followed by a bounce back that covers the same route, and then some.

 

However, at some point in the future, we will have another recession. It might be later this year, or it might be any time in the next three to five years. In the meantime, we will keep on top of our conservative allocations, making adjustments as necessary, and know that over the long term, committed investors typically outperform short-term traders, other speculators, and of course, panicked investors.

 

So when, if ever, will the Dow return to 18,500 and then move up to 20,000? No answer here.  But, in the long term, I believe that great companies prevail, and that our markets will prosper. The truth is, nobody knows exactly what will happen exactly when—and if you see pundits on TV say with certainty that they know where the markets are going, your first impulse should be to laugh, and your second should be to check their track record for predicting the future (none are much good at it).  Without a working crystal ball, it’s hard to know whether the markets are entering a correction phase which will make stocks even cheaper to buy, or whether people will wake up and realize that they don’t have to share the panic of Chinese investors on this side of the ocean.

 

The best, sanest investors will once again watch the markets for entertainment purposes—or just turn the channel.

 

As always, please feel free to contact us with any questions or concerns.

 

Thank you,

Tom