What an ugly month of feelings huh? Markets are entrenched in a back-and-forth battle within the same price range which unfolded on that ugly Monday late in August.
You may recall from the video sent back then that the range of the day alone was nearly equal to the range from the previous 11 months! The unleashing of months of concerns ran through equal months of accumulated stops – as if they were fuel – and the market just traveled the path until it was spent.
While thousands of points have been traveled, we find ourselves in almost the same spot. Unfortunately, this may last a bit longer but after having talked about this issue for months on end – looking foolish for a good bit of that – I get a sense we are approaching the end of this corrective process.
Sentiment in The Pits
It is confusing indeed but there are two perspectives on sentiment – one from an investor point of view – and the other from the consumers points of view.
Oddly enough, while the former is now terrible (a good contrary sign), the latter is quite robust. Consumers are feeling the benefit of lower fuel costs, lower rates, better jobs and higher pay – as covered in recent notes.
Indeed, Dr. Ed reminds us that the Consumer Sentiment index during September, led by a big jump in the current situation component, moved to the best levels since September of 2007. Jobs are readily available and the openings seem to be offering higher wages as well.
Consumer confidence in Europe even picked up to the highest readings since June of 2011. I like how Dr. Ed put it:
“If there is a recession out there, lots of people did not get the memo.”
I Know That Does Not Help When Stress Is High
That type of logic understandly does not mean much when we are inundated with tumultuous, emotion-riddled headlines each time we turn around. I am afraid it is the process we now live in – attention getting media is the name of the new game.
This calls into the picture even more importantly, an understanding of the psychology we must adhere to during these periods of increased volatility. As A Wealth of Common Sense properly stated when the selling was unleashed:
“Investors don’t need advice on a day like today. They need a psychologist.”
I can only continue to point to the idea that the high levels of cash existed for a reason.
I stand by the idea that over the next month or so, as a lo0ng-term invest or, piecing together positions, some a little higher, some a little lower, will provide a positive platform for long-term growth.
Recall what I always ask myself when it feels bad like this, “What is Warren doing right now?”
I post in a few items from the blog referenced above. It is good writing and a good thought process to keep in mind when we all feel the need to ease the pain and angst driving by current day events:
“During a market correction you’ll hear plenty of market aphorisms or advice being thrown around:
Cut your losses quickly.
Sell the rips and buy the dips.
Don’t try to catch a falling knife.
Buy when t here’s blood in the streets.
Be greedy when others are fearful.
These sayings all make for nice soundbites. Some may even turn out to be correct depending on how things play out. But they don’t help people make actual portfolio decisions. There’s much more that goes into a legitimate investment process than catch phrases.
The way I see it there are a few different different options investors have in order to deal with market corrections.
Implement a strategic, diversified asset allocation approach that balances your ability, willingness and need to take risk with your long-term goals and time horizon.
Implement a disciplined, rules-based approach to buy and sell at pre-determined levels or triggers.< /p>
Follow the investment process you have set up in advance that takes into account your personality, knowledge of the markets and ability to stick with the plan.
Panic and sell after everyone else has.
Don’t have a plan in place and just wing it.
Listen to whatever billionaire hedge fund manager is giving their latest macro outlook and follow what they say is going to happen.”
Thanks to our good friend Alan Steel in Scotland and his team for passing on the link!
Ben wisely goes on to say:
“Options 4-6 are usually what actually ends up happening with many investors as they allow their emotions to dictate their portfolio decisions in heat of the moment. Options 1-3 are much more reasonable and make a lot of sense. None of them are perfect, but the goal when creating a portfolio is n ot to be perfect. The goal should be to survive these types of markets with minimal mistakes and unforced errors.”
More soon as we prep a Q3 review for you soon. Video update to follow.