The Volatility of the Markets

Wednesday, January 02, 2019

Since the start of the 4th quarter, if you measure the stock market using the Dow Jones Industrial Average, we have all witnessed daily swings of several hundred points. In fact, at the close of the markets on December 24th, 2018, all three of the leading indexes (the Dow Jones, the S & P 500, and the NASDAQ) are in a bear market, dropping more than 20% since the September and early October record highs, for each respective index.

I suspect that many of us have forgotten that the S & P 500 Index had a return of 21.83% in 2017, or that as of December 24th, 2018, the Dow Jones Industrial Average has returned a positive 10.14% annually, over the last three years.1 As an investment advisor, I certainly do not have a crystal ball. However, it is times like these that I am reminded of a quote from an individual named Graham Holloway, who had a legendary career at the Capital Group:

“In my 25 years in the mutual fund business, I have never known a good time to invest. There are always a dozen good reasons why it makes sense to wait. Today is no exception… interest rates, President, a cartel that’s controlling the price of energy worldwide, constant strife in the Middle East, excessive government regulations, oppressive tax rates and a Congress that is more part of the problem than the part of the solution. No sane person would invest under those circumstances – unless he wanted to take advantage of an opportunity. I have found over the years that market bottoms occur when there are a great many problems and questions for which there or no solutions or answers. Market tops usually occur when there are no problems to be solved or questions to be answered. At today’s prices, the market may not be at the bottom, but I am absolutely certain it’s not at the top. I’m convinced that 5 years from now most of us will look back and wonder why we didn’t buy more common stock at this point in history.”

This was said by Mr. Holloway, in May of 1981.2 The reason I was reminded of this quote is because there is no difference when compared to our current investment climate. In the last three months, I have had clients calling me asking me questions on both end of the investment spectrum. For example, “if they should get out of the markets?” While at the same time, I have had other clients calling me asking “if it was time to put some of the cash they were holding to work?” In my best attempt to answer, “Is this the bottom of the current correction, or not?”, I would refer to an old Wall Street axiom that states, “never try to catch a falling knife, it’s better to let it bounce a few times.”

Let us remember, the market will resume its uptrend when all the sellers are gone; comparable to previous market declines.  At the end of the day, you cannot have a seller without a buyer.  If the buyer thinks the price of the current stock is worth the risk, of any future drop, and the seller is either 1. happy with his or her profit, or 2. has let emotion take over and decides to get out, the end result will be that one of the two parties will be correct in their decision making. Unfortunately, our world seems to operate on a 24-hour time frame. It may take more than a 24-hour time frame for our buyer and seller to realize what their decision cost them in the long run.

My advice is if you have a longer view of judging success, when it comes to investing throughout the last three months, my advice is to stay calm, do not make any rash decisions and stay with the investment strategy that got you to this point in your life.  If you are unable to have that perspective in our current environment, and you are constantly watching one of the many financial news networks each day, then you probably are not in the appropriate allocation with your investments. If that is the case, I would highly recommend that you reach out to your current investment advisor and see if a change is needed for you and your individual situation.

1 Morningstar Index Performance Report
2 The Financial Planner, May1981/Vol. 10/No.5


S&P 500 Index is an unmanaged group of securities considered to be representative of the stock market in general. You cannot directly invest in the index.

The Dow Jones Industrial Average is a popular indicator of the stock market based on the average closing prices of 30 active U.S. stocks representative of the overall economy.

NASDAQ Composite Index measures all NASDAQ domestic and international based common type stocks listed on The NASDAQ Stock Market. Today the NASDAQ Composite includes approximately 5,000 stocks, more than most other stock market indices. Because it is so broad-based, the Composite is one of the most widely followed and quoted major market indices.

The opinions expressed in this commentary are those of the author and may not necessarily reflect those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation. Comments concerning the past performance are not intended to be forward looking and should not be viewed as an indication of future results.

Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. Wiser Financial Group is not affiliated with Kestra IS or Kestra AS.


Wesley Lentz Wesley Lentz

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