More than Money with Gene Dickison
“The Stock Markets! What’s Going On? What Should I Do?”
The topic of the moment is the stock market. To be fair, of this writing, it’s been the topic for two weeks as we’ve seem much/all of the market gains of 2018 evaporate.
This market correction (defined as a decline of 10% or more from its previous high) came largely out of the blue. On the heels of a State of the Union address where the President laid out the health of the economy and the wonderful recent performance of the markets this correction has perhaps had even more emotional impact than it might have.
It is very important that you know exactly what you should be doing at a time like this. It is largely unimportant why this is happening, but it is the today’s topic of constant speculation. So in this letter I will share with you what I believe to be the key causes of this correction and then detail how you should react.
If, after digesting this momentous words of wisdom, you have questions or observations you would like to share please email me (Gene@AskMtM.com) or call our office (610-746-7007) to speak with any of our fine advisors.
“Well – How Did We Get Here?”
To paraphrase lyrics from the Talking Heads – how did the markets get here? Any attempt to put rational explanations to emotional reactions (see this letter’s quote from Benjamin Graham) has to include a tip of the hat to the silliness of the task.
Short term movements of the stock market are largely driven by emotion, rumor, misplaced trust in the opinions of others, and greed. You might notice there isn’t much rational on that list. But it is the stuff of great cocktail party conversations. As if I had any idea what people talk about at ‘cocktail’ parties. But I do know what people talk about at church and at parent gatherings at college, on golf courses, and in coffee houses in LA. It’s all basically the same. The ‘Holy Grail’ of investments is ‘knowing’ what direction the markets are heading. So just for fun, we’ll talk about the logical reasons the stock markets have decided – for the moment – to turn against us.
The economy is doing really well. This is good news for the economy, but scares investors. Investors (more institutional than amateur, but all at some point in time) fear that – if the economy is doing too well – the Fed will raise interest rates and slow everything down.
Inflation seems to be coming back. Inflation has been quite benign for a long time. Now we’re seeing early signs of a rising inflation rate. Investors fear (stop me if you’ve heard this one before) the Fed will raise interest rates and slow everything down.
Interest rates are rising. Quite undeniable. They are. They have been, but now they seem to be rising a bit more rapidly. If they continue to rise, and if inflation continues to rise – the theory goes – companies will have the profits squeezed (you can read that as profits declining) and the share prices will drop.
While the end result of all this logic is not pre-ordained in the stars – this is the ‘thought’ process of the current market emotion.
“What Should You Do?”
You are likely to find yourself in one of three situations – or some variations of these themes.
I have a good investment/retirement/financial plan in place. Excellent. Relax. Enjoy the Eagles amazing Super Bowl victory. Look forward to MLB spring training opening up. Realize that winter’s on the way out and golf’s on the way in. You’ve got a sound strategy that matches up to you and your financial goals. Let it do its work.
You don’t need to do anything – except keep cool and keep you head down on your drives. If you’re not certain your plan is exactly solid – seek a second opinion.
I don’t have a plan and I’m more than ten years from reaching my financial goals. There’s no need to panic, but get yourself a plan. If you’re ok with DIY then get to it. If you feel you would benefit from guidance along the way (in my humble opinion the vast majority of people would) – get yourself to a trusted financial advisor and get a sound plan in place. Time can heal lots of mistakes, but it’s even better when it doesn’t have to.
Get a good plan that matches you and your financial goals with sound investment fundamentals.
I don’t have a plan and I’m three years from retirement. Ok, ok. You can panic. This is the stuff that very sad stories are made of. Maybe you just didn’t pay attention. Maybe it didn’t seem important. I don’t know how you got here. But ‘here’ is a very bad place. Not because of this market correction, but because of all the very bad things that can happen when short term goals meet no planning. You think retiring is hard? Staying retired is harder. It is particularly hard if you haven’t planned and a couple of things (like the direction of the stock market) don’t do your way.
Get to a financial advisor now! You can’t do this on your own – you’ve proven that! Don’t wait until tomorrow! Email (Gene@AskMtM.com) right now! Call (610-746-7007) right now! Am I being too vague? Do it! Right now!
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Words are Powerful Tools for American Freedom
Warren Buffet is widely regarded as one of the – if not the – most successful investors of our lifetime. Warren Buffet has often cited Benjamin Graham as the mentor who taught him what he needed to know to see such investment success over the many decades of his life.
Graham is considered the father of value investing. He wrote the book – literally – on how people should approach the stock market. The Intelligent Investor started Buffet on the road to his fortune – pretty good endorsement I would say.
How would Graham view today’s stock market volatility?
“In the short run, the market is a voting machine,
but in the long run it is a weighing machine.”
What will the stock market do today or this week or this month? It will do what millions of emotional investors and institutional investors vote it will do based on their legendary lack of psychic ability.
What will the stock market do over the next five, ten, or twenty years. It will perform based on the success of the economy and the success of companies within that economy. You can’t possibly know which way the wind will blow in the short run. The only rational approach is to use the power of time and assess the long term value of the markets and how they may – or may not – serve you and your financial goals.
Please allow us to serve you and those you love.
P.S. If you’re convinced you are psychic, perhaps you’ve simply misspelled the word . . .