The purpose of the rant is not to tell you “It’s gonna get better” (it usually does) or that the sun will come up tomorrow (it always does), but instead talk psychology. People are emotional creatures, and our baseline emotional response never changes. Understanding how and why we respond is usually the critical element in long term success. A few baseline facts:
By the time you feel really good (or really bad), its usually too late to act meaningfully. Our
response filter takes time and data to kick in and more data to back our beliefs. We feel
lousy around the 15 percent decline level and euphoric around the 15 percent up level.
Equity (stock) markets are a LEADING indicator and move well before the economic data
backs up the move. Markets will rise long before the economic growth and fall well before
the economic declines.
Economic boom and bust cycles are inevitable. To date… no central banker, politician,
market guru, or Wall Street wizard has found a way to circumvent the cycle.
Equity (stock) cycles are chronologically long (timewise) on the upside and rapid and fast
(timewise) to the downside. The average “bull market” is about 2.7 years and the average
“bear market” is about 9 months.
True long-term success as an investor can be traced to a mindset of being “market
agnostic”. That is, understanding and being comfortable along the way regardless of what
todays markets do. Over time, compounding does its thing, and growth occurs, throughout
both up and down times. Not getting sucked in during either extreme is the key.
At this point most readers say…. “Thanks for the history lesson but what now…..”. As we have ranted ad nauseum, the excess created and equity mis pricing from 2020/2021 are being unwound. The free money euphoria is about finished. The downward re pricing (talk about a euphemism) is well along its way. Markets are predicting some level of economic slowdown. If this cycle is like the past, real estate, commodities, and other hard assets will have some level of decline coming up.
Looking ahead we continue to trend neutral but with a coming bias toward adding to (buying) equity across the risk spectrum. Over the past week, we have been tax loss selling and minor repositioning in many of our portfolios. Maintaining efficiency in both portfolios and taxes is a big part of what we do, and this time is no different. One last thought…. Today’s market declines lead to tomorrow’s opportunity, and we are leaning into that. Stay well and as always, don’t hesitate to reach out with any questions or concerns.