Another Massive Selloff Ahead?
That was the headline of an email we received from a fairly reliable source the other day. CNBC, not to be outdone, sported a story that featured this quote: "A day of reckoning is coming for stocks." The first source was promoting its trading services. The logic: Given the ups and downs in stocks since the first February plunge, you can make money with our suggested trades. The second explains that the Fed's zero-interest policy post-2008 has supported the bull market in stocks; and now that the Fed is raising its Fed Funds rate, that support will disappear with predictable consequences. Both of these provide valid insights. So what to do?
Alas, we have no brilliant suggestions here. Perhaps the best route is to consider your personal situation and act accordingly.
For example, if you've got plenty of money, do you really need to take stock market risk with more than a small portion of it, given the possibility of a dramatic downturn in stocks? Only you can answer that question. Of course, if you opt for what seems like the most logical answer - i.e., "No!" - then you must be prepared for the possibility that the current dislocations in the stock market may lead to another push higher in the coming weeks. And if that happens, you need to brush off your not participating in that push. Who cares, if you've got plenty to begin with? Your enemy here will be greed, but that's where discipline comes in. If you lead a disciplined, ordered life, translate that into your investment decision-making. If, on the other hand, your life is undisciplined and disordered, the likely will be that your decision-making will reflect that with unfortunate consequences.
What about those of us who don't have "plenty"? Well, here it helps if you've had a long-term strategy in place that makes provision for market gyrations. Even better would be a strategy that incorporates some formal risk management parameters that address the reality of bull and bear markets. That could mean stop losses placed on positions, even asset classes. It could mean hedging your positions with options (typically puts). If you understand the impact of momentum on markets, it might include a system that monitors the current trends such that you receive a signal to sell at some point. While you could call this a form of market timing, that fact is that there's much evidence to show that avoiding severe declines in an asset will prove more valuable than staying invested "for the long run" - the classic "buy and hold" strategy. Of course, there's always the alternative of just holding on with your "buy and hold" approach. For that, though, you'll have to grit your teeth when the inevitable downturn comes and avoid the temptation to sell at the bottom. Good luck with that.
Of course, there's that final class of folks who've got "plenty of nothing," as the song from Gershwin's Porgy and Bess goes. While none of us likely wants to be part of that class, if you happen to be there you may as well enjoy the charm that none of this will matter to you. Life will likely go on just is it always does - except in the circumstance that we experience a really bad bear market. But that's a story for another day.
We bring this up today because it's likely such warnings will continue from various sources. And, of course, at some point, those warnings will precede the inevitable bear market that follows a bull market as surely as the sun will rise tomorrow morning.
And speaking of the sun, today marks the summer solstice, the longest stretch of daylight we'll see all year, and therefore the first "official" day of summer. From now on, the days will grow shorter. Will the stock market grow shorter in tandem? Only the passage of time will tell.
Alas, we have no brilliant suggestions here. Perhaps the best route is to consider your personal situation and act accordingly.
For example, if you've got plenty of money, do you really need to take stock market risk with more than a small portion of it, given the possibility of a dramatic downturn in stocks? Only you can answer that question. Of course, if you opt for what seems like the most logical answer - i.e., "No!" - then you must be prepared for the possibility that the current dislocations in the stock market may lead to another push higher in the coming weeks. And if that happens, you need to brush off your not participating in that push. Who cares, if you've got plenty to begin with? Your enemy here will be greed, but that's where discipline comes in. If you lead a disciplined, ordered life, translate that into your investment decision-making. If, on the other hand, your life is undisciplined and disordered, the likely will be that your decision-making will reflect that with unfortunate consequences.
What about those of us who don't have "plenty"? Well, here it helps if you've had a long-term strategy in place that makes provision for market gyrations. Even better would be a strategy that incorporates some formal risk management parameters that address the reality of bull and bear markets. That could mean stop losses placed on positions, even asset classes. It could mean hedging your positions with options (typically puts). If you understand the impact of momentum on markets, it might include a system that monitors the current trends such that you receive a signal to sell at some point. While you could call this a form of market timing, that fact is that there's much evidence to show that avoiding severe declines in an asset will prove more valuable than staying invested "for the long run" - the classic "buy and hold" strategy. Of course, there's always the alternative of just holding on with your "buy and hold" approach. For that, though, you'll have to grit your teeth when the inevitable downturn comes and avoid the temptation to sell at the bottom. Good luck with that.
Of course, there's that final class of folks who've got "plenty of nothing," as the song from Gershwin's Porgy and Bess goes. While none of us likely wants to be part of that class, if you happen to be there you may as well enjoy the charm that none of this will matter to you. Life will likely go on just is it always does - except in the circumstance that we experience a really bad bear market. But that's a story for another day.
We bring this up today because it's likely such warnings will continue from various sources. And, of course, at some point, those warnings will precede the inevitable bear market that follows a bull market as surely as the sun will rise tomorrow morning.
And speaking of the sun, today marks the summer solstice, the longest stretch of daylight we'll see all year, and therefore the first "official" day of summer. From now on, the days will grow shorter. Will the stock market grow shorter in tandem? Only the passage of time will tell.
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