Comments for the current market conditions

As you know, the stock market over the long-haul has provided an amazing rate of return. We often share ‘our favourite chart’ to demonstrate how the market has behaved historically, and how it is expected to continue behaving in the future.

It is true that the market returns have not been a straight climb. We experience, just about every year at some point, regular declines of 7-10%. Yet despite these regular declines, the market continues its inexorable rise.

Generally, when the market declines there is always some trigger(s). Often these end up being a misunderstanding about the economy and the financial system.

We feel that this current decline is no exception. In this instance, worries about the economy slowing down because of bad payroll numbers are overly exaggerated. As you can see from chart below, the US economy over the last 80 years has proven to be a huge engine of employment growth. We highly doubt if this engine is about to slow down now.

We view the current conditions as simply ‘the market is going through a correction’. However, we are aware that times like these can prove to be quite unnerving even for the seasoned investor.

The reality is that no-one really knows when the market is going to enter a correction or when the market will stabilize. From our experience, we have found that people who wait for things to stabilize instead of investing whenever they have money available often miss the inevitable rally that comes after a correction. Those that waited will end up investing at much higher levels than simply investing whenever they had money available in the first place.

In the short term, the markets are very difficult to predict. This difficulty is one – of the many – reason(s) why we stress long term investment thinking vs. short term investment thinking. Please refer to our favourite chart above: in the long term, the market is more predicable, with an upward trajectory. 

We are very passionate about this subject and think about it quite often. In situations like this, where the market is experiencing a correction, we align what we do for ourselves with our clients. That is, whenever money is available, we invest in the best possible investment. Not worrying about corrections and being able to invest when situations like corrections occur leads to an outstanding return from the stock markets over the long term.