What a rotten day! I’m guessing a lot of us are feeling discouraged with this market. Normally I would say this will pass but I suppose when it’s hardest to say that with conviction, chances are the fear and despair are rappant and maybe clouding my normally optimistic thinking. So let’s hear from Roger Nusbaum…
A Moment Of Clarity
Courtesy of Roger Nusbaum’s Random Roger’s Big Picture.
This is something I have meant to post for a while and was reminded of it yesterday as I went through the closing numbers of what was generally a good day in the market (forgetting all of the news and what it might mean the market was up 2%).
Generally the stocks in the portfolio did what they were supposed versus how their sectors did. The financials were up a lot, the resource names were down and so on.
The moment of clarity came from seeing some of the stocks go up and realizing that most of them (hopefully all of them) are the good companies that I think they are. They might be down with the market (or maybe doing worse) but there is not a reasonable risk of a bunch of them going out of business (I don’t think any of them will go under).
At some point global stock markets will get right, probably on different time tables, and good companies will start their next bull phase.
This is meant to be really big picture stuff. I’m 42 and hope to do what I am doing now until the end. I hope to never need what I am saving so in theory I am looking at an infinite time horizon for my personal portfolio. If our firm’s typical client is 50 or 60 or some other age they probably want to work until some point and then need to plan on their money lasting for many years (retiring today at 60 and living past 90 is not unrealistic these days). Someone who is 75 today and fit enough to exercise regularly should also probably plan long term too.
How old are you? Are you going to retire, if so when? Then how long after retirement is prudent to plan for?
If you fall in here anywhere then, and this is a point I have made before, beating or lagging over some short duration of time means nothing; quick what was your return in 2004? Did that number beat your benchmark? Even quicker, when emerging markets corrected 23.7% from May 10, 2006-June 12, 2006 how much did your portfolio go down in that month?
Over the last 15 years there have been plenty of great companies that have cut in half along the way only to come back. This is also happening now and will happen again in the future.
This sort of big picture understanding is a starting point. From there things like defensive action in a bear market, sector decisions, country decisions, style decisions, market cap decisions, volatility decisions and so on are part of the next level of process. It filters down then to actual stock or fund selections.
At times obviously stocks or funds do need to be sold and new names bought but the need for change is less frequent than many people think.
The picture is from south of Hilo at the Kapoho tide pools. It is a huge area of pools formed by lava. The water is warm, clear and there are no waves in the pools. It is a very tranquil spot and good for clarity.
