While both investors and their advisors had wished for a quiet market during the December holidays and the end of the year, this month was decidedly anything but. If you were lucky enough to be preoccupied with celebrating the holidays instead of watching CNBC over the past few weeks, (as you should have been), you might be surprised to learn about the wild, daily fluctuations in the stock market indices. On certain days, indices such as the Nasdaq, the S&P 500 and the Dow Jones Industrial Average (Dow) rose and fell as much as 2-3% over the course of trading hours. Reportedly, even seasoned traders on Wall Street were scratching their head trying to fathom the underlying reasons for such volatility.
There’s no forecasting what 2019 has in store for investors, but here are some bits of market wisdom to keep you centered and calm in case this type of volatility continues into the New Year:
1) Every past decline looks like a missed opportunity. Every future decline will look scary and risky.
2) There are investments that never get “wild”. They are called FDIC-insured savings accounts. But reaching your future goals may be difficult, if not impossible, utilizing these ‘safe’ investments. Volatility is the price we pay for the better returns we want over saving account interest.
3) The biggest factor in volatile markets is often ‘changes in emotion’ and ‘changes in the collective market perception’ of what’s good news and what’s bad news. Over the course of our long collective experience, we’ve observed markets rise and fall dramatically based on the same news, just a contrasting perception of what the news may or may not mean.
4) Based on market history and economic cycles, we can expect some type of market decline and perhaps a recession every 5-6 years. History and experience has also demonstrated that no one can predict either declines or recoveries with any accuracy. Many claim they did, but far after the event occurred (in hindsight). The Market Gods delight in making market forecasters look bad every year.
5) If investing were about math, mathematicians would be rich. If based on history, economic theory or psychology, then PhD’s in those disciplines would be rich. In reality, even the brightest minds often do worse than the common investor who just asset-allocates, diversifies and invests consistently with discipline and stick to their plan.
6) Leverage, overconfidence, impatience and ego are the greatest dangers to your investments. Humility, discipline, margins of safety and consistency are some of the greatest ingredients to success.
7) Your lifetime results as an investor will likely be mostly due to what you do (or don’t do) when markets are volatile and your account loses value during a period of time. “Holding on” is difficult, but maintaining your calm when many others are losing theirs is often the difference between future success and failure.
If your December year-end statements give you pause and anxiety, give us a call so we can meet to review your investments and keep you on-course.