Those Darn Corrections
Is this correction over? Time will tell. Corrections are normal but it never feels good when you are in the middle of one.
Stock market corrections remind me of my childhood when I would get my mouth washed out with soap by my mother after repeating an inappropriate word I learned on the playground – it was never fun but it was needed. The bad taste would eventually leave my mouth and my taste buds soon returned to normal.
What Is The Average Investor Thinking?
This recent correction has investor sentiment (from the American Association of Individual Investors survey) very anxious about the future. This past month (January) produced a top 5 worst survey reading since 2009 (beating the reading at the low of the market correction of 2020).
Let’s take a look back at history and see how the stock market has performed when investor sentiment has been this low. There are 6 instances for us to review:
- 6 of 6 times, stocks were higher 6 months later with an average gain of 19%
- 6 of 6 times, stocks were higher 3 months later with an average gain of 13.8%
- 5 of 6 times, stocks were higher 1 month later with an average gain of 8.4%
Source: Fundstrat and Bloomberg
Obviously, past performance does not guarantee future results, but perspective is helpful during difficult market conditions.
Benchmarking Your Progress
We have received a handful of calls (and emails) from clients concerned that parts of their portfolio are down compared to their portfolio values at the end of 2021. A couple of thoughts on this:
1) Comparing your current portfolio value to the recent “high watermark” is never a recommended exercise. Instead, we counsel clients to compare their values to beginning values over a longer time horizon (3 years, 5 years, or even back to the spring of 2009 when this bull market started). This exercise will provide much needed perspective.
2) We also counsel our clients to benchmark their “success” against their needed rate of return to meet their goals. We call this our Family Index Number. Our Live Well Plan and Family Index Number work together to replace complexity with clarity during turbulent markets.
One of our favorite quotes from Warren Buffett’s mentor (Benjamin Graham): THE BEST WAY TO MEASURE YOUR INVESTING SUCCESS IS NOT BY WHETHER YOU’RE BEATING THE MARKET BUT BY WHETHER YOU’VE PUT IN PLACE A FINANCIAL PLAN AND A BEHAVIORAL DISCIPLINE THAT ARE LIKELY TO GET YOU WHERE YOU WANT TO GO.”
Stay Calm & Carry On
Over the past few weeks, a number of clients have asked me and Randy why (and how) we seem to stay so calm when the market is moving lower. We have two answers to that good question:
1) Having a long-term perspective: Making investment decisions with a short-term mindset is a recipe for failure. We do not believe that the stock market’s long-term trajectory is going to be drastically thrown off course by some short-term “noise.” The last 120 years of history support this theory. A temporary market pullback is normal, healthy, and does not change our long-term perspective.
2) Having an investment process: Discipline and income generation are the core principles of our process-driven investment strategies. Without knowing what you own and why you own it, you are more subject to believing the media “fear mongering” that the markets might crash, the world is coming to an end, etc.
Hopefully, we have convinced you that swift market declines are not new and should be expected. If you long for low volatility, you are only inviting speculators (not investors) to participate. In return, these speculators will contribute to future volatility as the proverbial herd of elephants try to squeeze through the skinny door frame (i.e. sell) at the same time.
The Price Group is Here For You
Randy and I understand that stock market volatility can be worrisome. We want to make sure you know we are here to assist you in every way possible. We are not always right, but we always have a reason and a repeatable process for the investment decisions we make.
To that end, please call us with your questions or concerns at (281) 612-3304. We pride ourselves on personal, one-on-one service to help our valued clients live well. We want you to be confident that when markets are volatile - we've got you covered.
About the Author
Matt Price serves as a Partner and Senior Vice President for The Price Group of Steward Partners. He resides in Houston with his wife, Emily, their three children and "Fisher" the family golden retriever. Matt studied at the University of Pennsylvania – Wharton School of Business for his Certified Investment Management Analyst (CIMA®) designation after receiving his undergraduate degree from the University of Tennessee - Knoxville. Over the past 11 years, Matt has helped families make high quality, common sense decisions regarding their wealth and their legacy. Matt firmly believes everyone needs a wealth coach!
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