Our Thoughts On Financial Market Volatility
Kurt Brouwer September 25th, 2008
We have been through many ups and downs in the economy and markets over the past 25 years and we have found that two things remain constant:
- The financial markets always have and always will fluctuate. And really, we mean all markets, whether in stocks, bonds, real estate, gold, collectibles-you name it.
- The financial markets recover and move on. At times, the rough patch can extend quite a long time, but ultimately we believe the global economy is growing, and carefully-selected investments will do well despite temporary setbacks.
During these volatile conditions, we believe it is necessary to maintain a systematic and disciplined investment strategy and we believe that patience will be rewarded when the stock market rebounds.
Investing and Emotion:
One mistake investors frequently make is getting too caught up in current conditions - regardless of whether they are good conditions or bad ones. Do you get excited when your investments go up in value? Do you feel down when they are falling? If so, this just means you are human. But, the test of an investor is what you do, not how you feel. Do you ignore your emotions and stick to your plan or do you let emotion drive your decisions?
For example, investors often react much more strongly to the recent past than circumstances warrant. Remember when technology stocks kept going up and up in the late 1990s? Many investors piled on the technology bandwagon shortly before it overloaded and crashed. Nothing lasts forever - not a bull market or a bear market.
When stock or real estate or gold prices are high, investors often pile on thinking they will go higher. On the other hand, when a given market is having a 25% off sale, investors often stay away. Few of us enjoy it when stocks fall, but plan participants contribute regularly and that means your new contributions are going in at a time when stocks have fallen so they have more buying power.
The reason these investments are on sale is because other investors are dumping them due to emotion. Keep your emotions under control and you will be a better investor. Warren Buffett said that his success comes from being “fearful when others are greedy and greedy when others are fearful.”
In fact, Warren Buffett’s firm, Berkshire Hathaway, just announced a multi-billion dollar investment in Goldman Sachs. Buffett is doing just what he has long recommended-buying when others are fearful. This Bloomberg piece gives the details:
Goldman Chief Executive Officer Lloyd Blankfein is also raising $5 billion from Warren Buffett’s Berkshire Hathaway Inc. in a plan to shore up the firm’s capital base and restore market confidence…
Does Berkshire Hathaway’s purchase of Goldman shares mean a market bottom has been reached? Not necessarily. However, it does indicate that a very savvy investor decided to buy Goldman shares because they were being sold at attractive prices. No doubt there are other bargain-priced stocks as well.
Conclusion: As you can imagine, we are watching current economic and financial conditions very closely. So far, this has not been an enjoyable year, but we are confident that these conditions will eventually improve.
At this point, we do not know if ‘everything, but the kitchen sink’ has been thrown at us. Quite frankly, we doubt it. Nonetheless, we believe the U.S. economy and our financial markets are resilient and that they will survive this downturn and begin growing again.
- Geopolitics , Investing , Money , Mutual Funds , Personal Finance
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