Back on April 17, 2015 I wrote an article here titled ‘What a stock market top might look like!‘
And while hindsight is 20-20 and the stock market is currently suffering through some difficult days, at the time of the above mentioned article the chart of the S&P appeared (at least to me) to be tired and top-heavy (full disclosure subsequently the S&P moved beyond the April 17 triple top by 15 points reaching a high of 2130 on May 21).
So what is the point and what is an investor to do?
The point is that passivity in ones investments, as in anything else we might do, will be the path of least resistance but not necessarily the best approach.
And as for what an investor should do?
‘Experts’ will tell them that trying to time a market is a fools errand and that buy and hold is the only way to go in order to insure success.
The reason behind this theory is that retail accounts will typically pick the bottom of a move and, even if their sale is actually a good one, might be psychologically unable to get back in after the sell-off.
The same experts will also tell you that if you ride out the ups and downs in the market you will ultimately, like in the financial crisis bear market, end up in a higher place at some point in the future.
Finally they will say that if you liked Apple (or fill-in the name) at $132 you are going to love it on sale at $108 so that now is the time to buy.
On-the-other-hand, prior to this sharp downward move in stocks and some bond sectors, other ‘experts’ have been touting the fact that…
- The US economy is in fact slow and weak,
- Crashing commodity prices particularly copper and oil are signaling further economic weakness,
- China has been reflecting economic weakness,
- Interest rates are going to rise at some point and,
- That the heights reached by the stock market has been due in no small part to the trillions of dollars of easy money that has pushed interest rates to near 0%.
These rates have in turn forced investors out onto the risk spectrum and that in turn has fueled stocks and higher yield, higher risk bonds to heights that might not have been economically justified.
The high yield bond market has seen a sharp sell-off particularly in the energy sector and now it appears that it is the stock markets turn.
So what is an investor to do now? Well that’s a discussion that they should have with their ‘expert’
But if history is any guide, what they will likely do is nothing until the final market blowoff and capitulation, at which point they will sell the bottom.
Maybe this time will be different! Or maybe it won’t!
Article written by Michael Haltman, President of Hallmark Abstract Service in New York.
HAS is a provider of title insurance in New York State for residential and commercial real estate transactions.
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