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October 26, 2018

Oh no! Volatility Again?

Two weeks ago we issued a Money Pulse Bulletin amidst a 4% sell off of the markets. It was the return of perfectly normal market volatility. We half-expected to see it turn into a healthy correction like that of earlier this year, but it never quite happened. Then, again this week we witnessed a one day, 3% downdraft.

So what are we to make of these jarring experiences? First, we have nothing to add to our take on the normal-ness of this market action, or the media response to it, which is even more predictable. Well, we really can’t resist just one little bit. In our inbox Thursday morning we had this jewel announcing the death of the current business cycle and the market with it: “With no real catalysts left, the smart money is positioning for the end of this business cycle.-Is a new era of volatility upon us?-Should we blame tech or interest rates?-Did the Fed keep rates too low for too long?” (Tip: When you read the word ‘catalyst’, just think ‘market timing’ and stop there. It has nothing to do with investing.)

Since the early 1990’s the strategy CMW partners have employed has competently weathered every tumble, correction and bear market. More importantly, our general experience of client behavior during such times has been remarkably stable; enough for them to enjoy the benefits of the following recoveries by maintaining their long term strategy. We have countless stories to illustrate this, but we’ll share just one here.

At the end of October 2007, the S&P 500 began sliding into the bear market of 2008-2009. By March 2009 the S&P 500 had collapsed 57%. Many retirement accounts swallowed most of that trough, while investors sold near the bottom. Many never returned to the market.

In October of 2008, CMW’s partners were attending the annual meeting of their professional peers in Boston when Lehman Brothers, one of the world’s largest investment banking firms, went bankrupt. The market went into a free-fall. Our peers were exiting lectures and presentations to take client calls and we…felt left out. We feared this was because clients were too scared to even call. The next day, peers were leaving the conference days early to get back to their clients. Still, no calls for us. We scheduled three client town meetings and gave out our cell phone numbers. Still, no calls! When we returned to hold the meetings, fewer than 15 clients came and we ended up canceling the third meeting. While they all appreciated the update and our assessment for their funds, most said the meeting was helpful but not necessary.

Of course, having been through the tech stock bubble bursting in 2000 and the bear market that lasted 30 months, we were confident we’d get through it and only hoped it wouldn’t last as long. It didn’t, but even half that time is grueling for clients and advisors alike. The good news is, clients stuck with their strategy. Why? We believe it’s because they were emotionally prepared for what happened and felt safer ‘in the boat’ than outside. They were confident in the strategy and believed, as we do, that markets return their wealth to patient investors!

Don’t misunderstand us. We don’t believe for a minute “the smart money is positioning for the end of this…cycle”. To the contrary; we believe the smart money is always positioned for every turn of the markets.

Have a great weekend!

 Indexes are listed in respective order to their reference above: S&P 500 TR. These materials have been prepared solely for informational purposes based upon data generally available to the public from sources believed to be reliable. All performance references are to benchmark indexes. Performance of specific funds will vary from respective benchmarks. Past performance is not an assurance of future results. Each index cited is provided to illustrate market trends for various asset classes. It is not possible to invest directly in an index.