The Dow Jones Industrial Average dropped as much as 1,089 points in early trading this morning, after having had a rough week last week, losing 1,047 points Wednesday through Friday. This took the index from an all time high of 18,312 to a low of 15,456 in a matter of three days and a few hours, a loss of about 15.5%.
If our clients have been reading the quarterly letters from our office, they’ll know we’ve been beating the drum to let them know that while the economic fundamentals remain relatively healthy, the stock market can’t go straight up forever. Being over six years into a bull market without a pullback of 10% or more, we’ve been overdue for some time.
Having been somewhat spoiled over the last six years without such a pullback, investors may have forgotten that declines in the stock market, while unpleasant, are a normal and healthy part of life. With the 2008 market crash still fresh on the minds of many, they also tend to fear downturns much more than they did prior to that harrowing experience.
If we were overdue for a downturn and aren’t surprised by one, why didn’t we pull our clients out of the stock market in advance of such a downturn? Because we’re not in the business of timing the market. Timing the market is a guessing game and nobody can successfully do so with consistency.
So if we’re not timing the market, what do we do for our clients during down periods such as that which we’re experiencing? We invest with purpose and with prudence. If a client has anticipated liquidity needs, the vast majority of the time we have prepared for that liquidity need long before hand, avoiding the need to sell at an inopportune time.
Most of our clients have long term investment time horizons, and we structure balanced portfolios in recognition of the need for participation in up markets, but also the need to be defensive in down markets. In general, this reduces volatility both to the upside and the downside, providing for a smoother ride, which can be reassuring during times like this.
So what do we do now? We do as we did during 2008 and any decline prior to that… we look at our clients’ goals, time horizons, and risk tolerance, and review our portfolios to make sure they continue to be appropriate. Next, we remain disciplined and committed to doing our very best for our clients regardless of short term market movements. If a client has cash available to be positioned longer term, we take this as a buying opportunity and put the money to work, recognizing that today is a better day to buy than a week ago.
A writer for the Wall Street Journal we enjoy, Jason Zweig, released a post after last Friday’s losses on “5 Things Investors Shouldn’t Do Now.” His wisdom is worth a look.
As for where the market will head next, while there are many financial commentators who like to think they can predict the market’s moves, as Mr. Zweig’s article suggests, we certainly don’t know. What we do know is that we maintain that discipline and commitment to helping our clients achieve their long term financial goals, and welcome the opportunity to chat with them about the market’s current situation relative to their circumstances.