Stock market watchers are usually talking about the “Santa Claus Rally” this time of year. Unfortunately, this year has seen anything but holiday cheer as we close out 2018. We understand that the recent market action has been unsettling, so we want to share our thoughts as we enter 2019.
Over the past year we have raised concerns about how the Federal Reserve’s monetary policy and U.S. trade negotiations with China could impact the economy and the stock market. To address these uncertainties, we began taking some profits in the stocks we own; building up cash and fixed income positions to capture income from rising rates and to prepare for better entry points in equities.
In the past few months, other investors have begun to share our worries resulting in a sharp market sell-off, the likes we have not seen in years. Even though we have been through numerous market corrections in our careers, we are first to admit how surprisingly fast this sell-off occurred. It also reminds us that fundamental research and individual stock valuations are ignored when you are in the midst of one of these sell-offs. Sometimes it can feel like there is no floor under a stock. That is why sticking to a long-term strategy is paramount and we must fight the urge to “get out of the market” purely based on stocks going down. Remember, it has been shown that holding positions in great companies during these corrections achieves a better long-term result than trying to time the market. It’s time in the market that counts.
Even though we have been through numerous market corrections in our careers, we are first to admit how surprisingly fast this sell-off occurred.
Investing in stocks can be very volatile at times. Based on Birinyi Associates research, the stock market corrects 10% once per year and 20% every 3.5 years on average. Although these sell-offs are not enjoyable, we expect and plan for them when constructing your portfolio. And as a reminder that history does repeat itself, we will be mailing a Commentary that we originally published in 2001 that talks about how to deal with volatility. We hope this will put some of the recent decline in perspective. So you don’t have to wait for our mailing, you can access an electronic version by clicking here.
At times like this, we find it important to reflect on the long-term strategy that has served our clients well over the past 37 years. Rather than panicking, we plan. We objectively look at each stock we own on a case by case basis. We lean on the fixed income portion of the account to meet cash needs and to generate income and therefore are not forced to sell stocks while they are down. And on a more positive note, the cash we raised over the past year can be reinvested in new opportunities that have now become more attractive.
At times like this, we find it important to reflect on the long-term strategy that has served our clients well over the past 37 years. Rather than panicking, we plan.
We understand how emotional and upsetting markets declines can be. But we have also learned that sticking with the longer-term strategy is the best way to weather the storm and maintain peace of mind. Please give us a call if you have any questions on your portfolio or the markets overall.