Nothing New is Old Again
Forget the bad grammar of the title of this Substack and just take a look at where we are this week:
The war in Ukraine rages on. Russia looks like there might be some discontent at the top.
Earnings season is almost over and it pretty much went as expected.
The Fed has started raising rates and the 50 basis point vs 75 basis point rate rise argument has started.
President Biden muddled and befuddled another speech on the economy and he is more befuddled and muddled dealing with the baby formula shortage.
Inflation and the specter of more inflation in the coming months is still front and center on everyone’e mind.
So, as you can see we are coming into a week where the big stories continue to play out and the stories that will impact stock prices will be more company specific.
We do periodically have a week or weeks where the news isn’t on some Macro thing, like inflation or the war in Ukraine. It is more localized so to speak. Companies announcing takeovers or layoffs or changes in management. The news that will move individual stock as opposed to market moving events.
We are in that period. This is the trickiest part of investing if you are active on a daily basis, regardless if you are a day trader or not. It will come as a bit of a relief for longer term investors who have been kvetching about their portfolios. Generally, in these periods you won’t see major moves in either direction. Sure, there will be some three or four hundred point moves but they will be less frequent. Some technicians will tell you they think that the market may be forming a base here. I am not one of those people.
This period, be it for a few days or a week or so is not some golden opportunity to jump back in. It is just that period where nothing substantial happens economically and the focus digs down to individual stocks and what they may be doing in this quarter, the next quarter and beyond. Portfolio managers typically use this time to reassess what they are investing in and then tweak those portfolios. It’s an intelligent guessing game to some extent.
I am just telling you not to be fooled by this lull. Look at the bigger picture and look at what your time frame is. Look at your goals. Then sit down and work through the potentials for that time frame.
Are we going to continue in this inflationary period? Are we going to go into a recession? How will higher interest rates impact my portfolio? Am I prepared for that environment? How long will that higher interest rate period last? What has the last month of market action told me about six months or nine months from now? Do I have enough cash to jump back in? Am I comfortable with my mix now?
There are dozens more questions you can ask yourself and I am sure everyone does and this is the time to do it.
As you know, I don’t buy the BS that every media person spouts about tremendous volatility. We have always had volatility, it is the very nature of the market, to be volatile, so I ignore thatline of thinking. I don’t day trade so volatility means nothing to me and for most of you, it shouldn’t either.
I know I am repeating myself but it does bear repeating; The market may be down 18% but you, overall are not down 18%. You invested however you invested but over the last three years, the market is up, over the last five years the market is up. Your average investment over time is up. Stop whining.
If you need the money tomorrow but have invested over the last X amount of years, you still have more money than you started with. If you are going into retirement, there is a good chance you will be taking money out to live over a certain period of time. Your portfolio will gain and lose over that period of time but I am pretty damn sure you will gain more than you lose.
We are going into a period of much smaller gains. That I am certain of. The market is rebalancing to something closer to more normal valuations. It will be painful to some but the reality is this; markets do not always go up. Easy concept to understand, hard concept to accept.
Typically, I will put my opinion out there but never get too specific. Mark Haines (may he rest in peace) once said I was “the ultimate fence sitter”. Always protecting my opinion with a caveat. Ever since then I have tried to be more specific and I will try here. I believe we will be seeing 3800 on the S&P before we see 4100. Not much of stretch but there are more and more people talking about this lull and thinking it’s the bottom. I think not.