Here we sit just a few days away from Thanksgiving with all three major indices at or below their recent October lows. While we are not quite at the lows experienced earlier this year in February and April, the past few days have many of you concerned about a further deterioration in the markets. We understand. The most recent negative price action has dragged all major indices into negative territory for the year, and your portfolio has suffered along with it.
Sentiment is the only thing driving these markets down. Investors are worried about everything from higher interest rates, a strong dollar, oil prices going higher (higher cost of operations and an inflation gauge), oil prices going lower (the negative impact to the oil industry), the US-China trade war, concern about an economic slowdown, concern about the global economy, additional Federal Reserve Fed Fund hikes, or whatever is making news on any particular day.
Throwing the Baby Out with the Bathwater
The average investor is feeding off of the negative sentiment of the market and selling out of their entire portfolio. They are worried about what might happen in the future rather than looking at what is currently happening. There are so many positive things going on that it has made selling very difficult.
Patience Is A Virtue
Historically, sentiment-driven corrections are short-lived and are quickly forgotten. We are trying our very best to remain clinical, disciplined, and patient during this sentiment-driven market. This patience has created some short-term losses in your portfolio. The difficulty of this year is that non-dividend payers have significantly outperformed dividend payers. The Russell 1000 Value (large dividend payers) was only up 4.36% for the first nine months of the year, while the Russell 1000 Growth (large non-dividend payers) was up 18.23% during the same period. When looking at a benchmark like the S&P 500, realize that most of its 7.20% price return came from companies we don’t invest in (save one investment strategy).
Our hope is this sentiment-driven correction is like corrections of days past. We will recover our losses quickly. Those who have sold will be too skeptical to put their money back in the market until it’s too late.
Price Doesn’t Lie
One of my favorite financial phrases is from the economist John Maynard Keynes: “the markets can remain irrational longer than you can remain solvent.” Investing is a tricky business. It’s not about being right. It’s about being right at the right time. The S&P 500 is sitting on a support level. If we break that support level, the S&P 500 will most likely retest the lows in February, which is only a drop of 2.3%. If we don’t hold at this level the markets are at risk of substantially larger losses for no other reason than people are nervous.
We’ve tried to be patient, but if this market does not want to hold its ground here, you will see Polaris Wealth get aggressively defensive with your portfolio by selling what we feel are the investments in your portfolio at the greatest risk of further downside. We will sell incrementally. Getting defensive is only half the equation. If we are forced to sell, we will need to determine a good re-entrance point.
This website is solely for informational purposes. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Polaris Wealth Advisory Group unless an investment management agreement is in place.