The COVID scare last year resulted in the market going down 35% in just a matter of weeks. The most profitable investment strategy is always to buy low and sell high – or at the very least don’t sell low. Easy in principle, very difficult to do in real life – and as a result, it is one of our primary roles while serving our clients.
After the selloff, the market roared back with the quickest recovery in history. And the market has continued higher as people are getting vaccinated, interest rates remain low, restrictions are being lifted and people are getting back to “normal”. The markets have priced in a robust recovery.
These first few months of 2021 have also seen some speculation, not in the market as a whole, but in certain securities and cryptocurrencies. While we don’t dabble in speculative securities, we must be aware that any sort of crisis or meltdown in one area can affect other areas. Fear is like smoke – it permeates across divisions such as categories or walls. This means that crises or fear in an unrelated area can crossover and impact the investments we hold. But such impact would be temporary and may even provide a good buying opportunity.
As I have said over the years, and will continue to say, there will come a time when the market will go down more than 15%. The markets have historically experienced many big pullbacks and we can expect them in the future; that is just the nature of the markets. We don’t know what will be the catalyst for the markets going down, when it will happen or how long a downturn will persist. That is why we never time the markets. It may be appropriate at times to make minor adjustments in holdings based on our perceived risk/reward tradeoff, but nothing drastic because we never know.
There are many headlines with predictions of a significant market drop. These types of predictions abound no matter what the economy or markets are doing. These “experts” have absolutely no clue what will happen, irrespective of how confident they come across. It may seem alluring. It may cause you to be anxious or fearful, and that is their purpose. The media exists simply to get you to tune in, not make wise investment decisions. Do not heed them.
Market pullbacks are excellent opportunities to buy high quality assets at lower prices. When the market goes down more than 15%, when all the news is negative and people will be selling indiscriminately due to fear, we will look to buy. We will take a deep breath, remember our purpose and plan and then seek to buy high quality assets on sale.
Let me know if you have any questions or would like to discuss any of these points in greater detail.
Kevin Theissen
