And no I’m not talking about Putin. When I’m not sitting with a client, my computer screen is open with market tickers scrolling past my face all day. So for most of this year…I’m seeing red and it stinks. I hate it for my clients. There is nothing worse as an advisor than watching a declining market and knowing the anxiety going through people’s minds. Let’s just get it all out on the table:
- Russia and the Ukraine are at war
- Inflation at record highs
- Rising interest rates
- Supply chain problems (my son is so tired of me not being able to find the nacho cheese taco shells. Times are tough indeed)
- Seeing the word “correction” in relation to specific indexes of the market
- Zuckerberg is creating some weird new Metaverse, destroyed the stock while he was at it, all while coming up with a ridiculous new name for his employees (Metamates for those who haven’t heard).
How did I do? The last time we saw stocks moving so far in the red was at the beginning of the pandemic. That felt different to me. That drop was so far and so fast, it felt like we stepped one foot into the ring with Mike Tyson, caught one punch and got knocked out. Then we woke up and the S&P was down 30%. This is different. This is slow and painful. It’s like Floyd Mayweather picking you apart. Tesla, Netflix and Meta, stocks that previously led the charge over the past few years, are all down more than 30% already. Throw a dart at any sector and you’re seeing red.
So what’s some of the good news? First I believe it reminds us of the power of diversification. Last year, fixed income seemed to be a drag on everyone’s portfolio. It was easy to wonder why you weren’t 100% invested in equities. Well this year, a loss in the investment grade bond market of only 3% is a nice buffer. Exposure to global stocks has helped soften the downturn as Emerging Markets are only down 3%, while their more developed neighbors are down about 6%. It’s may seem counterintuitive to be happy about a loss, but it sure beats being 100% invested in the NASDAQ and knocking on bear market territory. It’s times like these that tell you what your risk tolerance truly is and how diversification can earn its name.
Second, history tells us that geopolitical conflicts tend to cause a lot of volatility early but seem to bounce back relatively quickly. You can see a full chart here.
Again, we cannot use these events to predict what will happen next, but if 9/11 did not cause a complete market collapse, I have to believe that we can move past a European conflict at some point in the (hopefully near) future.
Third, you are all built for this now. You have heard me talk about the boring investor, ad nauseum. The one who sticks to their plan ultimately comes out on top. In very recent history you have experienced the tremendous drop in Q4 of 2018 due to angst with China and the rapid selloff at the onset of the pandemic. I will share this chart with you again that some of you have seen from me at meetings and previous blogs.
The average investor significantly underperforms the market because they try to do too much. They try to buy the dip, sell the rip, be master of their stonks with diamond hands and every other idiotic phrase social media has created. Stick to your plan, be consistent, and remember your timeline.
Remember, Floyd Mayweather is retired, this too shall pass.