The Financial Media Is Not Your Friend

The next two paragraphs are from a post I wrote on NotePD. 

The financial news media and to an extent, Twitter are really pounding the table on how terrible the current market event is using words/phrases like crash, record loss of wealth, markets breaking and so on. More things broke during the Financial Crisis 15 years ago. More things broke in the Great Depression. Quite a few things broke in the 1970's. When the media and the like use sensational language it whips people up by playing on their fear and might even push them to panic sell. Don't. Whatever strategy you laid out for yourself as being best, when there was no emotion involved, is still the best strategy for you. The middle of a negative market event is the worst time to pick a new strategy.

No one knows when this will end, I certainly don't, but it will end at some point, they all do. Then when it does end, the market will start going back up and eventually make a new high. The only variable is how long it takes. I'm not saying it's done going down, it could get much worse from here, or not, I have no idea but it will end at some point. Then it will go up again, at some point. If you have the right mix of stocks, bonds, cash and whatever else then there should be no reason to succumb to negative emotions. 

 

Adding to those two paragraphs; The first chart shows the greatest loss in wealth ever, even more than the Financial Crisis. Some media outlets are really driving this point home. No kidding its the greatest ever, the totality of the financial system/capital markets are orders of magnitude larger than 15 years ago.

Here's the drawdown in percentage terms.

 

I'm not minimizing the current event but that is all it is, the current event, similar in scale to other events, actually not as bad as several recent events... so far anyway. Both charts are from Bespoke Investment Group. 

If you've been reading me on this site for the last year or so you know I've been worried about some the things possibly happening that are now happening and even if you did not act on those warnings, I don't blame you for not listening to some guy on the internet, you at least should not be surprised that rates are up and inflation is up even if we never talked about the magnitude of this event, I had no idea inflation would go up this much and I had no expectation what interest rates would do, I've given up trying to guess on rates ages ago as opposed to recognizing risk and then trying to minimize exposure to that risk.

I will repeat that the current event will end. I have no idea where the bottom is or when it will come but once it does, the next upcycle will start. With a proper asset allocation, there is no reason to panic. There's no reason to panic either way but a proper asset allocation is key. For most clients this means having their income needs for a reasonable period set aside or in things that should go up if stocks go down. If the S&P 500 bottoms out with a 35% decline and I need to sell something to meet someone's cash need, selling something like BTAL or VIXM is preferable to selling something that is down a lot. Obviously, BTAL and VIXM are client holdings, BTAL is also a personal holding. I could also sell one of the two or three things we own that are meant to be horizontal lines that hopefully tilt up. Selling something though that is down 2-3% in a down 35% world for an income need is not going to be troubling at all. 

The important takeaway is to try to balance staying up on news versus being swayed to break whatever discipline your strategy calls for.