The stock market is reminding everyone that progress is always made in fits and starts. While the market overall is higher for the year, the Dow Jones Industrial Average was off 1.4% in September and has slipped more than 3% since peaking on Sept. 19; the Nasdaq Composite Index off more than 4% since early September.
There’s been a lot of handwringing over the small-cap Russell 2000 Index’s 10% decline since peaking in July — which means it’s in a correction. The Wall Street Journal noted there’s concern that the Dow hasn’t suffered a sustained fall of 10% or more in over 700 trading days, the fourth-longest streak since 1945. Furthermore, Europe is showing more signs of weakness as the dollar is increasing in value.
We suggest everyone relax a little though; here’s why:
- The stock market usually experiences at least one big pullback a year. So what’s happening now isn’t out of the ordinary and isn’t that big. For example, the Dow fell 5.3% in January.
- Pullbacks end. The fourth quarter has shown decent gains in 11 of the last 14 years.
- The economy is stronger, no matter what you hear. A stronger economy should mean better profits for corporations, which means stocks should rise.
- There are more jobs and a higher “quit rate” which signifies workers are confident they’ll get better employment as more jobs are available.
We at JJ Burns & Co. believe short-term trading is gambling, pure and simple, and we’re not gamblers. We don’t believe investors should worry about the market’s daily gyrations except to look for long-term bargains. As the Dow was falling 238 points last Wednesday, Berkshire Hathaway’s Warren Buffett told CNBC on Thursday he bought stocks.
While it is true the stock market is not having a big year, remember that 2013 was a home-run-year, with the Dow up 26.5% and the Standard & Poor’s 500 Index up 29.6%. Moreover, the Dow has risen more than 155% since March 2009, the low of the financial crisis, and the S&P 500 is up more than 185%.
It’s the long run that’s key for us and should be for you. Stocks (and capitalism) are the best long-term inflation and growth vehicles. Period.
We think the economy’s long-run prospects are good, and we’re about helping our clients tailor their investments to be long-term winners. If you worry too much about what the stock market does day-to-day, you probably don’t have the right asset mix and you’re letting your emotions dictate your investment decisions. So take a little time to examine your position critically. Try to understand how the components of your portfolio will perform if the downturn turns into a broad correction. Then make sure your investments are diversified enough to weather the storm and set up to generate long-term growth.
Finally, it’s OK to be tactical, like Warren Buffett, and periodically look for bargains that will pay off over the long-term. That’s what good investing and strong wealth management is all about.
