Stock Market: Is current stock market pessimism warranted? Lynn MacNeil February 16, 2016 5102 Managing Your Money Stock Market: Is current stock market pessimism warranted? We’ve had a pretty wild ride in the stock market over the past six months. I won’t go into all the reasons, as we’ve been hearing about the same news flow for months – China, oil, slow global growth. Nothing has really changed much, but the markets have been extremely volatile through the end of 2015 and beginning of 2016. Why? A likely culprit could simply be fear. Investors have finally started reacting to this news, much of which has been around for a while. It seems like the more we talk about it, the more fearful investors get. But consider this quote by Warren Buffet: “A simple rule dictates my buying: Be fearful when others are greedy, and greedy when others are fearful.” I want to share with you an excerpt is from a recent publication by Craig Basinger, Chief Investment Officer at Richardson GMP which can be found on our website. “Tomorrow is always uncertain, there are always going to be problems in the world. Sometimes, seemingly big problems don’t cause markets to stir, and sometimes known problems suddenly come back to cause market panic. Day after day markets move with large swings, with investors asking what the catalyst is this time. Truth is, trying to explain why or how is a fruitless exercise. There is no smoking gun, there isn’t even just one bullet. The press would have you believe that the financial world is a complete mess, beyond all reprieve at the moment, and that the only sane thing to do right now is to sell everything. Headlines are certainly worrisome. “Nobody can predict the short-term movements of markets, not even the best. Not stocks, not the price of oil or even the direction of interest rates or currencies. If you are reading this you probably have skin in the game, which makes it difficult when markets go down. Losing money is emotional, it should be. However, letting our emotions get ahead of our investment decisions rarely works out over time. Our brain is not designed to make financial decision or navigate complex financial markets.” When it comes to making financial decisions, we are all programmed differently, and react differently under different circumstances. When faced with volatile markets like this, successful investors stay calm, and stick to their plan. Less successful investors overreact, and often dump any form of a plan that they may have had, usually looking back in hindsight with regret. The reality is that when investors are faced with these type of markets, they only have three options – do nothing, take advantage of opportunities, or panic. To avoid panic, make sure you have a plan. If you have cash or short-term money, consider buying, but buy carefully. We won’t know until after the fact when we hit the low, so buy some now, and some later (in a few days, weeks, or months). It may even be a good time to reallocate your portfolio to take advantage of opportunities. Depending on where you are in your investment life stage, volatile markets usually dictate a closer supervision of your investment strategy. If you are withdrawing income from your investments make sure you are using Strategic Income Planning to protect your capital in down markets. If you are doing regular savings, make sure you are buying an investment that can take advantage of Dollar Cost Averaging. It’s always important to align your various investments with their respective time horizon, that way in periods like this you can ride out the volatility, and not be forced to make decisions under duress. The media typically focuses far more on the markets when the news is bad. Headlines such as “World stock prices plummet amid fears of global recession” sell far more newspapers than “Markets climb conservatively”. The media can influence people’s emotions, and making financial decisions based on emotions often has a bad outcome. Having a plan, sticking to it and avoiding the media noise, are steps that can get you out of market volatility unscathed. Having an Investment Advisor you trust can go a long way during wild markets to give you the reassurance and security you need to stick to your plan when you’re feeling the panic set in. So for now, hang on to your hat! ANNOUNCEMENT: Please note that as of October 1st, 2015, Lynn MacNeil has joined Richardson GMP, Canada’s largest independent wealth management firm. Please see below for her updated contact information. Lynn MacNeil, F.PL. Vice President, Investment Advisor, is a Financial Planner with Richardson GMP Limited in Montreal, with 20 years of experience working with retirees and pre-retirees. For a private financial consultation, or more information on this topic or on any other investment or financial matter, please contact Lynn MacNeil at 514.981.5795 or [email protected]. The opinions expressed in this article are the opinions of Lynn MacNeil and readers should not assume they reflect the opinions or recommendations of Richardson GMP Ltd. or its affiliates. The comments contained herein are general in nature and are not intended to be, nor should be construed to be, legal or tax advice to any particular individual. Accordingly, individuals should consult their own legal or tax advisors for advice with respect to the tax consequences to them, having regard to their own particular circumstances. Richardson GMP Limited, Member Canadian Investor Protection Fund.
