August 31, 2015 by  
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August 2015
“No one ever made a dime panicking” – (Jim Cramer, popular television stock analyst)
Dear client –
The stock market had a difficult stretch the past few weeks, and some measurable damage was done in the process. But this decline remains relatively modest by historical standards, particularly for a market that is still within the range of all-time highs. As a result, it is important to maintain calm even if the declines continue into the coming weeks. Stock prices do not fall in a straight line, and the market is filled with enough bulls and generous policy makers to help insure that we have a long trip through any future bear market. We are likely due for more volatility in the near future.

Keep things in perspective!
With all of this in mind, let’s not ignore the fact that stock markets all over the world took a beating the last few weeks. The first point to emphasize following these challenges, is the importance of staying calm, and putting the market in which we are operating today into perspective. Today’s stock market is currently in the seventh year of what has been the third longest bull market in history. It reached a new all-time high as recently as late May, and nearly set new highs late last month, a mere three weeks ago. In other words, although the recent pullback certainly was dramatic, it only sent the stock market back to levels that were being celebrated as a new all-time high as just one year ago.

What can we expect from here?
Things could get turned a bit upside down from here on. If you are a stock market bull, you actually want to see the market continue the decline from here. But if you are a stock market bear, the absolute last thing that you want to see is the market to continue to decline sharply. If I’m bullish, I want this sharp correction to continue, and if I’m bearish, I want the correction to end as soon as possible. How can this make any sense? Two reasons: First, stock prices are driven by momentum. In other words, if they go down sharply, they have a tendency to bounce back with a comparatively strong force. One has only to look no further than the most recent pullback in October 2014 to see these forces at work. Stocks fell sharply to the downside, but ended up bouncing back with an even greater force that propelled them to new highs. This is one of the reasons why it is so troublesome for asset classes when the bounce from a precipitous fall is weak, for it more often than not will foretell the potential for further declines ahead, just as we are seeing with oil and energy prices today.
But as all of this relates to stocks; there is certainly no shortage of stock market bulls that will see this recent pullback as the buying opportunity for which they have been desperately waiting. To paraphrase Warren Buffet:
” When the stock market has a sale, few take advantage of lower prices, and most run away”
So, the much-anticipated correction in stocks is officially here. That said, we don’t believe that this is the start of a bear market. Yet, this could foretell the beginning of a change. Corrections are healthy for the market, and we haven’t experienced one for over three years (one of the longer gaps the market has had without a correction. We encourage our investors to keep things in perspective. As long term investors, we advocate using this volatility to add to (or open new) positions. Pullbacks like this are truly a gift for long-term investors looking to put new money to work. This is the best time to buy great stocks on sale.

So, Back To The Original Question, “Where Are We Headed?”
If you are a veteran to investing you have seen this all before. Markets go up and markets go down but general they go up and all is good. Really? In general, maybe that line of thinking was true before 2000. this-is-no-longer-your-father-s-stock-market-everything-has-changed As you know from our previous meetings and writings, we feel that the paradigm of investing is changing because the variables are changing compared to the past. Therefore, advice and strategies must change in order to address changing market conditions or investors that use old data and strategies will be condemned.
Those that are ready to start taking income from saving and investments should be even more concerned about using old advice and strategies to make investment decisions. Why?
Because, as we saw last week, investors, got skittish (due to many unsettling facts we can discuss at another time) which lead to severe market declines. As is the case with such over-reaction, we expected a short-term recovery, evidenced by the subsequent rally as well as the read of the futures. The initial thrust for the bounce could be the scheduled Federal Reserve talks, increased GDP numbers just released, steps taken by China to stabilize markets, or simple that there is no other place to make a decent return right now and, paradoxically, prices are cheap due the recent sell off.
Regardless these are all short-term influences only. They do nothing to change our longer-term opinion – that a major paradigm shift in the markets is developing, with more volatility, concern (and opportunity if you have the proper, new strategies in place) ahead.
We encourage you to schedule a meeting to discuss if you are properly positioned to take advantage of opportunities ahead, and to address any of your other financial planning concerns.