Another day, another big loss. 2016 is off to a horrible start for the markets. As I was saying to a client earlier today, certainly these steep swoops down are scarier now than before. But, that said, now is the time to do the hardest thing...nothing! Although it is being worn-out in pop culture, I will borrow this from the British government’s WWII public communications arsenal (revised with a more ZWM-ish blue background):
As the stock market and oil price retreat has gained momentum, short term traders and others who are less committed to long term investing are panicking. So, let's look at what could be happening. The worst that the market seems to be anticipating at this point is another recession. Knowing that the market has predicted 9 of the last 5 recessions, I acknowledge that it could be right this time (unlike last August). Even so, if there is another recession on the horizon, the thing to do is to hold steady. Selling while others panic rarely leads to a good outcome. Most who got out before the meltdown in 2008-2009 got back in at prices above where they exited, so they would have been better off just toughing it out. Others never returned, and locked-in their losses forever. And remember, the markets have doubled or tripled (depending on the index) since their 2009 lows.
So, if it is only a recession, I will be unhappy, but I am not too worried. But, if somehow, we are on the brink of a truly global economic collapse, then it is time to worry. That said, I believe that is highly unlikely. Global economies are on more solid footing now than in 2008-9 (no “liar’s mortgages” lately, here or abroad), when we last faced trouble. Many transformations have taken place in the markets and in businesses that tell me that whatever this is, it is not a replay of that collapse. Could the collapse of oil bring about a 'thirties style depression? Possible, but still, unlikely.
So, bad case, this is the lead-in to another recession, and we wait it out.
Good case, it is an irrational panic, or correction, and the markets recover later this year or next. And we wait it out.
Will we fine-tune and rebalance some positions? Most likely. Will we sell out of the markets and flee to cash? No. Long term wealth accumulation and preservation of buying power is our goal, and drastic moves in response to the markets will rarely get us there. Either way, we hang tight, and try to ignore the gloom-and-doomsters on TV and elsewhere. That's the hard part!
For whatever it is worth, less hardy investors will bail out, and I hope that is what is happening today. That is a sign of capitulation, and it is how irrational swoons are reversed. A big, loud blow-out is a good thing for the long term health of the markets.
As always, please feel free to reply or call with any questions, any time.
Keeping calm and carrying on!