And That is The Markets (If You Can’t Handle the Heat)

And That is The Markets (If You Can’t Handle the Heat)

You know the old saying, “If you can’t handle the heat, get out of the kitchen.”  It is a great trash-talking comment when someone chokes during a sporting event.  It is also the same advice I give my mom every time there is any temporary downturn in the markets.  Point being, if you can’t handle what the markets do, you should certainly think about how you want to invest in them.

As of my writing this, the stock market has fully recovered for the year and is currently positive.  A quick recap, markets started off great this year, posting solid returns.  Most people felt good that things were chugging away nicely.  Then, tariff talks happened towards the end of February into March, and we saw a sharp decline.  Those nervous Nellies started getting anxious and began questioning investing or the markets in general.  Next thing you know, there is a freeze on some tariffs and further negotiations to be had.  Markets started to rebound, and now, not even halfway through the year, we are back positive for the year.

I tell you this because memory is short, and I want to highlight a few things here that I think are critical to your investing success.  First, why aren’t we panicking and making crazy changes when markets decline sharply, like they did?  Well, because that is not an investing philosophy or strategy to panic sell and change for change’s sake.  We are very thoughtful and strategic about when and how we make changes in our portfolios.  Rather than make a change based on partial information and try to do the impossible, and time the markets.

Next, all this has transpired in less than five full months of market movements this year.  Which goes to show you that markets move quickly and unpredictably.  You can either invest for the long term and make that your focal point or get caught up in short-term market gyrations, which tend to create panic loops for those investors.

This Is the Market

This is the market!  Here comes the tough love, and I do mean love.  You just lived through a very minor and temporary market correction, and yes, certainly there could be more to come; however, if you couldn’t handle this (throat clear, love you, mom), then maybe you should rethink your investing strategy. 

As a matter of fact, this is a great time to revisit your investment allocation or strategy if you find yourself questioning things during this temporary downturn.  You cannot and I repeat CANNOT expect to get positive returns in the markets without experiencing downturns.  Can’t be done, no way, no how.  It is like your kids.  It is OK to be frustrated with them and even complain about them to your friends.  However, you must stay committed to them always and never waver.

Those who don’t know history are doomed to repeat it.  The US markets average 8-10% per year; however, they never return 8-10% in a given year.  That means you must know that if you are going to invest, this is the expectation.  You will have years investing seem too easy, and years you question everything.  I am telling you here and now, you just lived through a very small microcosm of the markets.  They never go straight up, nor get you a slow and steady 8-10% per year.  If you want the long-term average of the markets, you must prepare yourself for the inevitable.  The great investors of all time don’t waiver from their strategies and fully understand market cycles. 

Betting on Averages

Investing in this way is betting on averages.  Don’t be shocked when a baseball batter gets out 7 out of 10 times; that only warrants you first ballot hall of fame honors.  Also, don’t be shocked when your investments are down big during a given year, which only happens twice a year, or even if they are negative for the entire year, which only happens 25% of the time.  These are the wrong things to focus on.  Rather, focus on those items that you can control and on the long-term efficacy of the markets.

The only stable thing about the markets is that they are unstable and unpredictable.  So next time you think to question your investment strategy, or call us up and say, but the markets are so unstable and unpredictable know the answer should be a very tactful, duh.  I am professing that it is the case, so it shouldn’t be an excuse for changing your investment strategy.

Who knows what the future has in store, but I can assure you it won’t have us questioning our philosophy, strategy, or commitment to guiding you with all the faculties we have available.  We at Diversified are always committed to your long-term success and telling you what you need to hear, not always necessarily what you want to hear.

As always, stay wealthy, healthy, and happy.