Two weeks ago our blog focused on the gifts that Mr. Market has given us over the last year or so. We admired his generosity over last 12 months with the following cautionary statement:
“We also know that Mr. Market will at some point likely take some of his gifts back. We just don’t know when. It could be tomorrow, it could be next month, or it could be in a few years.”
Five days after our blog Mr. Market started taking gifts back and his pace accelerated quickly over the past week.
Before you begin to think that Mr. Market reads and responds to our blog, let me assure you that is simply not true. It is merely a coincidence. We are humble enough to recognize that predicting the psychology of millions of traders around the world on a daily basis is simply beyond our capabilities.
What we do know is that traders’ psychology has flipped from greed to fear in rapid fashion. But now what?
While we cannot predict future psychology there are generally three paths for the market to take after a significant reversal week:
1. Traders who have been impatiently waiting for an opportunity to buy stocks on a dip see this as their shining moment. Buyers enter the market and at least temporarily reverse the downside trend.
2. Traders who don’t appreciate Mr. Market’s gift retraction feel they need to preserve the gifts they still have. Sellers enter the market and at least temporarily accelerate the downside.
3. Buyers and sellers offset each other and the market is left to drift sideways for a period of time until either greed or fear regains the upper hand.
We know that from here the headlines could get worse. That is why our disciplined investment process considers the stock market investments in your portfolio as long-term investments.
It is easy to say “long-term,” but we live in a very short-term world. At IAG we generally only trust the stock market with assets our clients do not plan to use for at least eight years. That puts time on our clients’ side so even a highly volatile week, month, or even a couple of years have a limited long-term (8+ years) impact on their long-term well-being.
The next few weeks could be charged with more investment fear than you have experienced in quite some time.
Our financial advisors are here to help you make wise decisions for your long-term well-being now as we have been for over 30 years.
Securities offered through LPL Financial. Member FINRA/SIPC. Financial advice offered through Investors Advisory Group, LLC, (IAG) a registered investment advisor and separate entity from LPL Financial.
Past performance is no guarantee of future performance. In fact, the opposite can be true. The information contained in this report does not purport to be a complete description of the securities, markets, or development referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete.
Any opinions are those of IAG and not necessarily those of LPL Financial. Expressions of opinion are as of this date and are subject to change without notice. This information is not intended as a solicitation or an offer to buy or sell any security referred to herein.