Current Downturn

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    TS Paul

    I have received a slew of emails and direct messages on Twitter over the last week or two regarding the current downturn and whether it will impact my investing strategy, so I thought it was worth sharing my views and soliciting yours.

    Based on all of the indicators which I follow, I am very comfortable that the economic recovery is continuing. In the business cycle strategy, you only change investments when you believe the economy is entering a new phase and ignore the blips and aberrations along the way. The only exception to that rule is if a major external event which has the potential to cause long-term disruptions to the markets exists (such as the 2011 European sovereign debt crisis).

    So what’s happening to the markets? Let’s start with my comments on the potential for a correction in the January update:

    A “correction” or decline of 10% or more at some point during the year is just as likely as it is every year, so let me go ahead and predict that one will happen just so I can point to this when it does and say I told you so. But the timing of that correction is not something we can predict, so the value of knowing that those routinely occur is the comfort we can take from knowing the market also routinely recovers from those corrections in fairly short order.

    At any given time, I can always confidently predict the market will suffer a correction in the next 12 to 18 months. Just as I can predict that it will recover its losses relatively quickly after doing so. That is the nature of the market.

    I believe the media hype about an “overdue” correction has become a self-fulfilling prophecy, with many investors poised to sell at the first sign of it. Wall Street is delighted to encourage the volatility – they make much of their money trading ahead of the retail investor on the way down, and then again on the inevitable way back up. Panic and high volume will put their kids through prep school nicely.

    Where do we go from here? Market psychology being what it is, I think there is a decent chance that we will go down a few more points to hit the widely touted necessary “10% correction.” That particular amount has no real basis, but it is a nice round number which fits well in quotes and headlines. But there is also probably an equal chance the market will resume its upward trend before that happens.

    Those are just my thoughts on the current state of the market. I’m not giving advice or suggesting that you do what I do, just sharing my views. I’m always eager to hear other ideas, so please do share what you are thinking.

    The TSP Allocation Guide


    Reminds me of a line from the movie, “It’s a Wonderful Life”.

    Can’t you understand what’s happening here? Don’t you see what’s happening? Potter isn’t selling. Potter’s buying! And why? Because we’re panicking and he’s not. That’s why. He’s picking up some bargains.

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