It’s the truth. Last Monday’s temper tantrum was as impossible to predict as it was inevitable. We ALL knew that markets had ridden VERY high, for a very long time. We all knew that interest rate hikes were coming, and that a market bottlefed on dirt cheap money might not appreciate the milk souring. We all knew that shorting volatility forever wasn’t a good idea. What we didn’t know was
1. The exact day a correction would begin to occur, and
2. If that correction would spread into a full-blown market crash.
So, if investors everywhere knew that valuations were a bit too high, and that a reckoning of some kind was coming, why didn’t everyone bail out long before Monday?
Because markets were SO good, and beautiful earnings reports were justifying valuations. The market has been (nearly) a straight line up for two years. Smart investors knew that it was better to enjoy this bull market for as long as possible, and to simply ride out whatever inevitable pullback was to come, than to miss out on such a solid year with such good economic data coming in nearly every day.
And then the hurtin’ started. One day of painful, multiple percentage point drops. Then two. Then three. DOW PLUNGES 1,600 POINTS, LARGEST DROP IN HISTORY CNBC reported, seemingly with glee (markets whipshawed back to end down 900 later that day.) Personally, I loathed their style of reporting throughout this time. I get that their job is to sell news, but were multiple, panicky “all-caps” push notifications a day really necessary? And was touting that DOW drop as “THE LARGEST IN HISTORY EVER” very genuine, when it only really amounted to a 3.5% drop (bad sure, but history-making it was not)?
So, markets were plummeting, the news was reveling, and investors everywhere were panicking. What did YOU do?
I can tell you what I did.
I re-evaluated the fundamentals, searching for problems that could indicate this wasn’t just a simple pullback. I found strong fundamentals; great corporate earnings, low inflation, great job numbers, excellent economic indicators. Seeing this, I prepared clients with cash for buying opportunities. Boy, were there some fantastic buying opportunities. I made calls, reassuring people that, as best as I could determine, this was NOT the beginning of the end. I was right, and my clients benefited. Those who contribute cash regularly on a monthly basis even saw some gains.
So how did you do? Do you do your own trading? Or do you have an advisor? Did he panic sell and lose big for you?
I know some guys who do their own trading and lost big. I admire their gumption, I applaud their hands-on approach to trading and collecting news. But they lost big. They simply didn’t have the stomachs or the training to ride out some pretty serious losses. Therefor, they missed out on the massive recovery this Monday. It’s a shame but its not really anything unexpected, this is how human psychology works. When most people are doing something, individuals tend to copy that action, regardless of whether or not its in their best interests.
Another group lost out worse than novice traders, and that’s the automated traders. Their week looked a little something like this:
Once again we’re seeing that automated trading utterly collapses during any sort of volatility event. Time and time again, automated trading has wildly swung market losses, and the poor investors using automated services have been left holding the bag.
Like we stated before, this market pullback amounted to a test. Did you hold your nerve and ride it out, or did you panic sell and lock in losses? Did someone/something else panic for you?
We’re happy with our answer. Contact a Dynamic Wealth Solutions Advisor if this latest financial event left you feeling a bit scorched.
– KIERNAN EASTON, PRIVATE WEALTH MANAGER AND PARTNER AT DYNAMIC WEALTH SOLUTIONS
29777 TELEGRAPH RD. SUITE 2417 SOUTHFIELD, MI 48034