The Bull Session: There's nowhere to hide
Oct. 1—Have you ever been around someone who always made you feel better just by being there? This stock market is not that. This market is the co-worker that always complains about everything. The one who always has a negative take on every situation. The one who just beats you down so you go home feeling worse than when you got there.
The entire year of 2022 has been that kind of year. It has not been as bad on paper as 2020 when the equity markets tanked 32% in just about 14 business days. So far, the equity markets have been down about two-thirds of that percent. But in 2020 we ripped the Band-Aid off so fast and recovered so quickly that investors hardly noticed. Investor monthly statements looked OK for the end of February 2020 and didn't look that bad at the end of March 2020. This year it just seems that, with the notable exception of July, almost every monthly statement is worse than the month before.
To make matters worse, our brains process negative thoughts at a five times greater intensity than positive thoughts. That means that there are a lot of negative thoughts floating around in the investor world this year. The challenge for investors this year is to not give in to those negative thoughts. The investment markets beg you to do the wrong thing at the wrong time. Your emotions beg you to do the wrong thing at the wrong time. With so many investment professionals making a commission if you buy and sell investments, it is not unusual for your investment professional to beg you to do the wrong thing at the wrong time. That is why Warren Buffett, one of the most successful investors of all time, said that "discipline and patience are critical to success in investing."
We have down years about 30% of the time. It is just not unusual. But I have to admit, this year is a bit different. Not only has the stock market dragged on and on in its downward trend, the bond market has also been down about 13% year-to-date through the third week of September. Normally, you can count on bonds to buffer losses in the stock market, but not when interest rates are rising. As interest rates go up the value of the underlying bonds goes down. That is making it even harder for investors who are feeling it from all sides.
The good news is that the free market system is still intact and healthy. Sir John Templeton said that the four most dangerous words in investing are, "This time is different." If this time is not different then you can count on the equity markets to come back and reach new highs. You can also count on the fact that, once interest rates level out, you will be able to get higher rates from bonds and that will make them more attractive.
So, if you are struggling with what you should do with your investments, don't take my word for it. Take the word of two of the all-time greats in investing. If you believe that things are not different this time and if you can maintain your discipline and have patience, then chances are, you will be just fine.
Scott Reed, CIMA, AIFA, PPC, is CEO of Hardy Reed LLC in Tupel
