That’s exactly where we’re at right now. We’re not going to wait for the financial media to announce it or tell us that it’s only a bear market if we officially drop -20% or more. The intent of this article is to explain not only what a real bear market is, and how this one has behaved differently, but also what to do next.
We’ll open this letter to our friend “Mr. Market” by stating one thing that will be very obvious in six to 12 months. 90% of people reading this article will have gotten it wrong. It’s not your fault though…it’s the way our minds are wired and the content we’re constantly being fed.
Regardless of your current market strategy it’s times like this that will test the most patient of long-term investors. We’ve written about this countless times but no matter what the sage counsel or stock market adage is, you should be rattled right now. We could be like most “perma-bull” financial advisors and try to data mine for all the reasons to stay calm or share positive anecdotes to convince you that now is the time to invest; it won’t matter though. Putting “lipstick on a pig” won’t help you nor the current market environment. Bad news and reasons to panic will be the headline for the weeks to come and there will seemingly be no safe place to hide.
Does the old stock market adage of “sell in May and go away” make sense? We’ve actually written about this one spring about nine years ago where we actually advocated taking some chips off the table, however it had less to do with a cute stock market rhyme and more due to profit taking. Where are we at now going into May and is this allegedly poor seasonal time of year appropriate to sell or perhaps not?
Finally. It’s here….a bonafide stock market correction. What’s also almost here is Groundhog Day…but more on that in a minute. For those of us with short memories we’ll have to do the necessary preamble and small talk refresher on what this is. For those of you who remember what you did (or were supposed to do/not do) during the last correction, here we go again. Do you remember the fantastic Bill Murray movie “Ground Hog Day”? Click here for the last time we wrote about it but again….people seem to forget what they ate for breakfast so you may not remember what happened in 2018.
Oh… but “it’s different this time“, right? Those are indeed the four most dangerous words in investing. Are there problems to worry about? YES!!!! (but there always has been and always will be)
It’s that time of year. Everyone has some stinkers in their portfolio and in a taxable account it’s a great time to evaluate whether one should offset that loss by taking some gains on your winners. If you followed any of Jim Cramer’s advice this past year you have some serious evaluating to do! The aim of this article is not a hit piece of Mr. Cramer but simply a word of caution and a reminder that (1) stock picking is often a futile endeavor and (2) If you are indeed going to follow someone’s picks it’s important to track them prior to blindly buying the next set of recommendations.
The stock market has provided many sayings and memorable catchphrases that people tend to regurgitate ; some have merit and some are just garbage.
If you’re a regular reader of Dear Mr. Market, or a client of My Portfolio Guide, LLC, you’ll know that our all-time favorite is “The four most dangerous words in investing are …This time it’s different” -Sir John Templeton. Here are some other all-time adages that you’ve undoubtedly heard:
“Buy low sell high” Uh…yeah, but easier said than done.
“The trend is your friend” Sure….until it’s not!
“If you have trouble imagining a 20% loss in the stock market, you shouldn’t be in stocks” -John Bogle
“Markets can stay irrational longer than you can stay solvent” -John Maynard Keynes
So…what does “buy the rumor and sell the news” mean? You probably know that the stock market is full of speculation, great stories, and chock-full of hidden nuggets as well as potential land mines. Even if you’re not an experienced investor or trader, at some point you’ll figure out that by the time your neighbor (you know the guy who never loses and is always up) tells you about a stock tip…the ink on the newspaper is already dry and that idea is likely stale.
The “fat lady is singing”, the alarm bells are ringing, and you are literally the last dunce in the room who decided to get into the market at the all-time high. Now Mr. Market shows you what real pain looks like and sells off like nobody has ever imagined.
Let us preface this article by stating it’s worth bookmarking and revisiting for those times when you may be rethinking your investment time horizon or just how much risk you truly are able to take on.
It’s been a while since we’ve had to talk about you. The world has been focused on many changes which sometimes leaves you to quietly do your thing while we catch our breath. We’ve ushered in a new year, the United States has a new President and administration, and we’re finally seeing some light at the end of the tunnel with regards to the most surreal pandemic one could imagine.
How have you been… Mr. Market?
Up, down, sideways, and all over the place…That’s how.
Today we write you a quick note to share our all-time favorite chart as well as a reminder to all those investors who may fall prey to short-term memory lapses. The recent stock market sell-off is a great wake up call to the fact that markets obviously don’t just go up in a straight line. It’s a bit more than that though…
Below is our all-time favorite stock chart and we’re going to share why it’s important to look at this every so often.
Why do we bring up this article now? Lots has changed but lots has not! More than anything we believe that our current environment has so many unknowns embedded in it after one of the wildest rides in stock market history. We won’t dig into the weeds too much but one could easily make the case that any of the following scenarios could take place over the next year:
The Stock Market could absolutely continue to defy odds and climb higher.
We could see another market crash like we saw in the spring this year as there are plenty of issues that have not gone away (Covid-19, political unrest, handcuffed economy, geopolitical concerns)
A deteriorating dollar, inflation on the horizon, a ticking time bomb of debt, and more fear of a prolonged recession, negates any appeal for stocks for quite some time.
We trade up, down, and basically sideways as this market consolidates and digests one of the most tumultuous years in history.
Without rehashing all that has transpired in 2020, we believe that being properly allocated and prepared for just about anything that comes our way seems like a wise way to go. The market is almost always unpredictable but there are times when reading the tea leaves and figuring out clear direction is even more difficult; we believe that’s exactly where we’re at right now.
If you didn’t read our old article from 2013, the basis for the Permanent Portfolio strategy is simple at face value: You divide your portfolio into four distinct and fairly uncorrelated asset classes (Cash, Bonds, Gold, and Stocks). Ideally at any point in most economic cycles one of these asset classes will stink it up but the others could compensate and outperform. During prosperous times Stocks should win. When there is inflation a case can be made for Gold. Should the opposite occur and we get deflation you would ideally see long-term Bonds do well. Lastly, during a severe recession Cash is perhaps your best friend. When coupled together you may never hit a home run but this approach can mitigate disaster and still produce modest long-term returns.
We’ve written you hundreds of letters over the past decade and on occasion it’s nice to put a face with the name! Last week, Matt Pixa of My Portfolio Guide, LLC, was given the honor and opportunity to present an Economic Outlook to the Seal Beach Chamber of Commerce.
We share it with you here and look forward to your feedback and questions!