Dear friends and clients:
A day like today can make you question whether you want to
be a stock investor. The Dow was down more than 800 points today which was over
3%. That will surely be the top story on all news channels until we find out
what happens tomorrow when the markets open again. Analysts say that rising interest rates are
spooking investors. But a day like today
can sometimes make us lose sight of what is happening in the stock market over
longer periods of time. We may all be pleased to know that the US stock market is
up over 8% in the last year and that is after accounting for today’s rout and
other poor days recently.
The one thing we know about the stock market is that it is
very volatile on a day-to-day basis. It’s a very poor place to keep your
investments if you will need the money in the short term because you could
easily have 30% less when you go to access the cash. But over longer periods of
time, the stock market has been consistently generous to investors. We have no
way of knowing what the stock market will do moving forward but as stock
investors are owners in America’s companies, they share in the massive profits
generated by these companies every year. And patient investors will likely see
profits in their stock holdings as most of these companies generate genuine new
value on a consistent basis.
If you are properly invested in the stock market, that means
you own stocks for your long-term needs and should keep your head when the
markets get crazy. If your exposure to the stock market is not appropriate for
your needs, you need to quickly reevaluate your investments.
Investors regularly tell me they want to wait for a buying
opportunity when the markets fall or a selling opportunity when the markets
rise. But market timing has taken too
many victims and the right time to make an adjustment to your portfolio that
suits your personal circumstances is now. A 3% drop today is not very relevant
compared to the large gains provided by the stock market over the past years.
Yes, the markets can drop more in the near term. But those who are considering
selling their stock holdings for a short period of time could possibly find
that they missed the next big jump in the market and it’s likely they would be
unwilling to reenter at that higher price. More likely, they would hope and
wait for the next crash that may never come to the degree they need and they
could be sitting out the market for years because they tried to time the market
for just this week.
The financial pages and business channels give us endless
opinions on what the markets will do next, some insisting the markets will
scream higher and others demanding that the markets will fall hard. Those kinds of contradictory opinions have
been expressed every month of every year since the markets existed. I don’t
envy you if you are a trader and need to make money this week. I do envy you if you are a long-term stock
investor because you are likely to be far wealthier in the decades ahead when
you want to spend those profits.
Keep your heads!
Larry Pike, CFA
