2 Tips for Dealing with Market Volatility

Last week at my Rotary Club meeting, our scheduled speaker was a no show. When our President asked if anyone had something they would like to talk about, I offered to present one of my recent Accountable Update articles, 10 Questions for Every Investor.

The article was well suited for an impromptu presentation, with several charts interspersed with practical advice. But when we got to the Q&A, it became apparent that the recent market volatility was weighing on some folks. The question that was seemingly on everyone’s mind was, “When will stocks stop going down?”

My answer, as it is anytime someone asks me what I think the stock market will do tomorrow, is to offer a couple of tips for dealing with market volatility.

What is the "Point"?

Where were you on November 14, 1972? I don’t recall much, as I was only 4 years old, but I do have a memory of it. We had one black & white TV in our home that was always tuned to Walter Cronkite at 5:30 PM on the local CBS affiliate (it was one of only four choices if you counted PBS).

My earliest memories are of watching Apollo rocket launches and splashdowns on that TV. While I don’t remember exactly why I was paying such close attention on this day, I suspect that my mom had mentioned that they may show the astronauts or the rocket pad at Cape Kennedy, as the Apollo 17 mission was scheduled around that time. While this tactic may have kept me out of her hair while she was cooking dinner, it also led to me to asking questions. A LOT of questions.

“What is Vietnam,” I would ask?

“A country,” would be the reply.

“What is a Watergate?”

“A hotel.”

But sometimes, the answer would just be, “Ask your father when he gets home.”

On this day, Mr. Cronkite had led the news with a headline that announced that the Dow Jones Industrial Average had just exceeded 1,000 points for the first time in history.

“Mom, what is the Dow?”

“It is where you can invest in companies,” she said.

“What does it mean to be at 1,000 points?’

“Ask your father.”

Another Groundhog Day, Another Market High?

Last year was an amazing time to be invested in stocks. The S&P 500 Index recorded 62 new closing highs in a year that only had one down month (April). 2018 has felt a little like Groundhog Day, well not THE Groundhog Day (today), but more like the 1993 Bill Murray movie. In the film, Murray's character awoke each morning to relive the same day. So far, the S&P 500 has recreated setting a new record high 15 times before peaking last Friday. 

With market records seemingly being set every day, I’m increasingly asked if the winning streak means negative returns for stocks are on the horizon? Maybe so, but if you had gone to cash every time the market hit a new high last year, you would have left a lot of meat on the bone.

When addressing this question, it can be helpful to keep the following in mind: