October 24, 2017 Larren Odom

We aren’t Fortune Tellers

 

Do you remember what you were doing 10 years ago?

It was October 2007 and the S&P 500 was at its highest point ever and then lost more than half of its value over the next year and a half as the global financial crisis unfolded. The headline began “Worst Crisis Since ‘30s,” but followed with the more ominous “With No End yet in Sight.” Looking back, we now know that staying invested for the long term was the right thing to do. Years of double digit gains have erased the pains of stomach-churning decisions to stick it out. The saying goes “Hindsight is 20-20,”—or as Pat Dye, the legendary Auburn coach once said, “Hindsight is 50-50”.

But in 2007-2008 it was hard to stay focused on the long term. Many smart people succumbed to the temptation to cut their losses and sold out of their stock positions at the bottom of the market. Even though it was absolutely the wrong thing to do, selling your stocks in 2008 didn’t make you dumb, it made you human.

In October 2017 it is still hard to stay focused on the long term.

Why?

This time it’s because the headlines scream about “Another Record High,” and people rightly say: “This can’t last forever!”

People “rightly” say that? Yes. This market will correct. There will be a down-turn. We just don’t know when exactly. Many smart people will sell out of their stock positions trying to anticipate that the market will drop.

I spoke to another advisor about a month ago who told me, “We are so bummed. We were hoping today was the day the market would turn.”

“What?” I asked curiously, “But the market was up today”.

“Yeah but we’ve been in cash for the last year and a half.” This means, a year and a half ago they were predicting the market was going to go down. They were trying to do the right thing by selling out of all the stock and bond positions in their client accounts because they thought they would fall in value. But the market didn’t drop. It went up big. So, their clients have missed out on double-digit gains over that period.

Trying to predict the short-term direction of the markets is a futile exercise done by traders, not investors. For a quick summary on the difference, (with a cameo by yours truly), check out this article in NerdWallet.

By no means am I predicting a correction in the markets this year or next! I have no idea which way the market will go in the next year. But I have a pretty good understanding of which way it will go in the next 10 years (hint: NOT down). We are constantly paying attention to the value of the various asset classes we hold (e.g. emerging markets, small cap stocks, bonds, etc.). When the correction does happen (and it will) we will do what we always do and look for opportunities to buy things in our client accounts that look like good deals.

Our focus is always on the long term and in making sure our client portfolios earn good returns with truly diversified portfolios.