When your car starts making a weird noise don’t you turn your radio down and intently listen for the noise? Don’t you become fixated on hearing the new rattle or sputter and ask, “what was that”? It seems like when there’s worry about your car all you can think about is what will happen if your engine blows up and you’re left stranded on the side of the road.
But even if we’re listening for and worrying about that noise, most of us don’t immediately drive straight to the car dealer and sell our car. No, we keep an ear on things and try to determine what’s causing the noise, analyze the reasons for the noise, and interpret the noise to decide whether it’s just a pebble in the tires or a sign of truly serious mechanical failure.
Stock market volatility and daily changes to our portfolio account values should be treated in much the same way. There are experts, media pundits, co-workers, neighbors, and financial advisors all willing to lend their thoughts as to why the markets are moving the way they are and to render opinions about what the economic noise is all about. Some will relate the recent volatility to an overreaction to the political handing of what is still a sound standing of the US economy and financial system. Others will related the recent volatility to a prediction of future problems and another economic slowdown.
But much like taking time to determine whether your car needs to be sold or just have its tires inflated, it is important to take some time to really interpret what is happening in the stock market before making a rash decision. We do not believe this can be done correctly based on only a few days of activity, especially when there does not appear to be any consensus as to its “cause”.
We believe that most of the activity in the market is due to speculation and a discomfort with uncertainty and not a reaction to any strong indications or fundamental results. The recent string of economic news has centered on political wrangling, a lack of desire to make important decisions, and a total “miss” on comprehending the consequences of a short-term focus than it has on capacity, capability, and reality. We think that making decisions based on the former group is dangerous if done too rashly.
So our advice is to take some time to make conscious, careful, and intentional decisions. We still believe in devising an investment strategy that takes into account an appropriate time horizon and asset allocation even in the face of reactive ups and downs in the market. In other words, unless you’ve changed we don’t think your investments should change.
