Warren Buffett NYT Editorial
The month of October has been known to cause a fright not just for trick-or-treaters but for financial markets and investors as well. This year it kind of lived up to its reputation, which was helped along by the media.
With stock markets in Canada and the US reaching record highs in September and the subsequent sharp decline into October, there was a lot of nervousness and conjecture over whether it was the start of a large and prolonged downturn.
When a market declines by 10% or more (like Canada’s TSX stock market did), it is referred to as a “correction”. As of Oct 15th the TSX dropped by more than 11% from its record high on Sept 3rd. In the US, the S&P 500 dropped by more than 7% from its record high on Sept 18th.
Three weeks later as of Nov 7th, the TSX has risen by almost 6% taking it out of correction territory, but still leaving it down 6% from its high on Sept 3rd. However, if we go back one full year to Nov 7, 2013, the TSX is up by 10% even having gone through its recent correction. The S&P 500 has broken new highs after rising more than 9% since Oct 15th. Again, if we go back one full year, the S&P 500 is up by more than 14%.
In the eyes of the media, markets approaching correction territory is a news event, and there were plenty of headlines to strike fear and uncertainty into many investors. Was it frightening stories like plunging oil prices, the Ebola outbreak, the Fed ending its QE program, or ghosts from Europe’s past? Those who look to the media for financial advice get a steady diet of opinions and predictions about what the markets will do – and therefore their investments – as well as unsolicited advice on what to do about it.
As Warren Buffett pointed out in his Oct. 16, 2008 oped in the NY Times:
“Over the long term, the stock market news will be good. In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.
You might think it would have been impossible for an investor to lose money during a century marked by such an extraordinary gain. But some investors did. The hapless ones bought stocks only when they felt comfort in doing so and then proceeded to sell when the headlines made them queasy.”
I think investors will find it more beneficial to have some broader context on:
how markets behave over time
how professional active portfolio managers use market behavior to add value
implementing and adhering to a personalized long-term strategy
following the rational guidance of a financial advisory team
This context should allow investors to relax more when these corrections occur and take market downturns in stride knowing they are to be expected; they are temporary; and that they are in good hands with the expertise and guidance of professionals.
There’s an old saying that “markets climb a wall of worry”, and they have been doing so for hundreds of years. There will always be events that trigger fear and cause markets to go down, but history has shown that market downturns are less frequent and of shorter duration than market gains. Check suitable and adequate evidently write my paper http://writemypaperinca.com/ our help has all necessary to write a bunch of paper creating as essays, college papers, master thesis speedily and fresh and unique.
An analysis of 93 years of Canadian stock market data (S&P/TSX Composite) from 1920 through 2013 provides the following context:
the market has positive years more than 70% of the time
the market has negative years less than 30% of the time
rises in the market tend to be of greater magnitude than declines
the market gained more than 20% thirty three percent of the time
the market declined more than 20% less than five percent of the time
gains in positive years produce more than double the losses in negative years
in over 90% of market corrections since 1950, the market was up 12 months later by an average of more than 25%
Market volatility is always more pronounced and unpredictable in the short term; however, market movements smooth out and are more predictable over the long term. This is why it is so important to stay invested through the short term fluctuations so one can realize the benefits that the market provides over the long-term.
Short-term volatility in the markets can provide opportunities to enhance investment returns by making quality investments available at discounted prices. Astute portfolio managers monitor daily fluctuations in the market and position their portfolios to capitalize on these opportunities. They will also take a more defensive position by taking profits and holding higher levels of cash when markets and individual holdings become over-valued. This helps limit downturns in their portfolios compared to the overall market.
Investing for your retirement is not only a long journey toward a future destination, it is a journey that continues long after you’re there. Attempting this journey without following a personalized long-term strategy is like trying to navigate through a jungle without a map and without an expert guide – you are easily thrown off whatever course you are blindly following and you fall victim to the unfamiliar terrain and all the scary sights and sounds that jump out at you unexpectedly.
If you have a map and an expert team guiding you, the obstacles on your immediate path will cause sidesteps along the way, but will not throw you off course as you have the support to stay focused on forging ahead toward your destination.
As it turned out, Halloween wasn’t nearly as frightful as investors feared only two weeks earlier. I wonder though, how many succumbed to the scary sights and sounds leading up to it.