Aren’t you happy you didn’t listen to the negative reports of the 2019 media? One of the most celebrated investors of the 21st century Ray Dalio said this, “I believe we are now living in a world in which sensationalistic headlines are what many writers want above all else, even if the facts don’t square with the headlines. You can believe me, or you can believe the WSJ writer”.
We have just ended the best year for the US stock market since 1977. Our economy is the envy of the world with the unemployment rate at a 50-year low. In addition, we have historically low inflation and interest rates, strong wage growth, household income at a 20-year high, accelerating labor markets, soaring housing starts, excellent corporate profit growth, strong retail sales, 7+ million job openings, and strong FOMC economic projection for 2020 and 2021.
It is no wonder the panic has begun!
WHAT PANIC? One of my main concerns are the new bulls; many of whom have been on the sidelines for much of the past 10 years or so and are now throwing money into equities at a record pace. The panic I am speaking of is a buying panic. In only 3 months, what happened to the recession talk that dominated the headlines? What about the major full cost brokerage firms that disseminated sell recommendations for the 4th quarter of 2019? No wonder they are all announcing major layoffs. What about all the trade war talks around the globe? What about the Brexit fears? I could go on and on about how people’s emotions have changed so quickly. Since the 2008-09 meltdown, which of course was not without good reason, every pullback has proved to be a buying opportunity. Now with markets at an all-time high, there are still many who fear an end of the bull market must be near. Sooner or later they will be right, but keep in mind it should only be for the short-term. Corrections, some very painful, are a common occurrence in the stock market. The recent 2018 4th quarter selloff saw a 19.8% plunge and it was nerve-racking, but those who choose to stay the course and avoid the pitfalls of timing the market have been rewarded. I would not be surprised to see a 10 or even 20 percent correction on any bad news due to the recent speculative buying.
Not to be redundant, but investor emotions of fear and greed lead to market timing which is much less likely to lead to successful achievement of one’s goals over the long-term. The missed opportunities of market timers have led to severe underperformance of most investors these past 10 years. Dismal results surrounding attempted market timing is not limited to the retail investor, in fact, hedge funds are struggling through another less than stellar year. The hedge fund industry saw more closures than openings for the fifth straight year and the Bloomberg Equity Hedge Fund Index is up just 10% this year. This is why we stress smart hedging.
Our goal at BBPWM is to stay focused especially as markets are trading at all-time highs. Even with these highs, we expect equities to produce better results than bonds over the long term even accounting for the spectacular year in equities and an expected correction. Again, corrections are often painful but those who are truly long-term investors will ride them through successfully.
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