The US stock market had a lousy today for sure with the S&P 500 dropping 4% with a possible catalyst being the shocking percentage drop in the shares of Target Stores (TGT) on the heels of large, not at large as TGT, drop in Walmart (WMT) on Tuesday. There's obviously a lot more going on in the world that could have contributed to the most recent rolling over in prices.
As I looked through Twitter I saw where Scott Minerd from Guggenheim expressed optimism a three weeks ago but has now changed his opinion to be very concerned about what comes next. Minerd knows his stuff but if he changed his opinion in as little as three weeks, what's to say he won't go back to bullish in June.
Jim Cramer was a bit of a punching bag, that's often the case, because he predicted a big rally today. Instead of course it fell 4%. For the life of me, I don't know why someone with a platform like he has, would go out of their way to guess what the stock market was going to do tomorrow.
More importantly, both anecdotes are very short term in their focus. Without having hunted down Minerd's comments from three weeks ago, let's give him the benefit of the doubt that he said, the stock market will do well for three weeks and then drop in mid-May. Even then he'd have been wrong three weeks ago but not the point. What is the point is that no one's time horizon is three weeks. Three weeks means nothing in a financial or retirement plan. For most of our investing lifetimes, three years means nothing. The glaring exception being right around when you plan to retire. If you're 35 and saving money every paycheck....you'll be doing the same thing when you're 38. If you're 75 and taking income from your portfolio, you're planning on still taking income from your portfolio when you're 78.
Guessing what the stock market will do tomorrow is even sillier beyond an offhand, inconsequential comment you or I might make versus a pundit who has mass influence over decisions strangers make with their money.
I've mentioned posting at NotePD lately and this morning there was a post by @MrOTG that looked at the benefits of taking a longer time horizon. We talk about that all the time here of course. The highlight for me from his list was "improve the quality of your decisions." If someone bought yesterday because Jim thought the stock market would be higher today, they made a bad decision even if Jim had been right. If that same person then sold today when Jim turned out to be wrong then they compounded their bad decision with another bad decision.
Here's the long term. In May 1992, the S&P 500 was in the 400's, it is up about 10 fold in the last 30 years. Because of the scaling of the chart, some of dips early on look small but people were terrified. The one between 1997 and 1999 is the Asian Contagion. Do you even remember that one? The declines were so bad that the stock market closed early one day, people were terrified.
Even if this one turns into one that we do remember later, look what happens with those. The tech wreck from 20 years ago, took about 30 months to bottom before grinding to a new high. The Great Financial Crisis (GFC) as terrible as that was, only took 18 months to bottom before rocketing higher. All of the subsequent market events were quite a bit shorter than the GFC and then all rocketed higher.
This one will end and then the market will go higher one way or another. Maybe it will grind higher or maybe it will rocket higher I don't know and I don't know how long before this one ends but it will end. I've been talking about how to manage these forever. Own a couple of things that should go up when stocks go down, things like gold, tail risk, inverse funds and a couple of others I've mentioned before and make sure you have access to money you might need to withdraw for regular expenses and emergencies.
If you're 35 then you're probably less worried about sequence of return risk but then it becomes more important as you get close to retiring and then want to keep out in front of near term cash needs as outline above. Even at that phase you still need to care about the long term. At 70 now, if you make it to 90 and you're as strong as an ox, you need to be financially ready for quite a few more years. If at 90 you're unfortunately very unhealthy, then things might get very expensive relative to how you've been spending money.
In this context, 70 or 75 is still pretty young and I would say you need to focus on the long term. When you're young, you should expect to have a very long term time horizon. When you're older, you should make investment decisions that allow you to still thrive financially of your long term lasts longer than you think it will.
2 comments:
If you had money on the sidelines, would you recommend adding now, so you dollar cost average? Knowing if it goes up and it will go up someday, that you’ll be further along?
Hi Aaron,
Yes. Buying some, down 20% is a strategy that should look two years from now even if it looks bad two months from now. I would be emotionally prepared to do more buying down more from here, 30% maybe, whatever, but emotionally ready to buy lower too.
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