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January 4, 2019

Image Source: Evil Speculator

On October 19th 1987, aka Black Monday, the Dow dropped more than 500 points or 20%! This was the single greatest point drop for the Dow in history. Investors literally jumped out of their office windows.

Sam Walton on the other hand was quoted saying that what happened on Wall Street had nothing to do with the “intrinsic value” of his stores and promptly purchased up a gazillion shares of his own stock from millions of panicked sellers willing to take almost anything for their ownership in his company. By the end of 1987 the Dow finished up on the year. In the six months following Black Monday it was reported that Sam had profited 20% from his bold move. Was this genius? We think not – it’s the very same “common sense” instinct that we and many of the best long term investors employ today.  We believe the current chaos is a mild – yes mild, experience of just such periods.  Think of what’s happening as a huge after Christmas sale.

Have you ever been driving down the interstate, looking ahead and see a large pot hole or dip right in the middle of your lane? But you have no where to move over or way to dodge it. So you just buckle in, gritted teeth and ride over it, hoping for the best.  Then you realize that bump wasn’t as bad as initially thought.  That about sums up 2018’s market ride. If you’re listening to the media (and let’s face it, there’s really no way to avoid it completely) they have you focused on that nasty pot hole – the daily point change of the Dow and S&P 500.  So, let’s indulge what you’ve already heard for a minute.  On the positive side December 26th, the Dow exploded with its largest daily point increase…EVER:

  • 1,086.25

We didn’t see that headline anywhere! Could it be savvy investors snatching up the post-Christmas sale?

Now for the bad news.  The Dow also suffered the FOUR largest daily point decreases ever in 2018:

  • February 2nd -1,175.21
  • February 8th -1,032.89
  • October 10th -831.83
  • December 4th -799.36

With that pot hole in mind, casting these numbers into the daily percent change is much less dramatic and therefore is never reported. None of these spikes on their own were more than a 5% daily change.  In fact, 2018 isn’t even on the charts for the top 20 daily percent change in either direction.

If the economy was tanking, with GDP falling and businesses hunkering down, we’d be concerned. But that’s just not the case.  Instead, while there are valid reasons to be concerned with the lack of certainty around a handful of highly visible issues; trade disputes, interest rates, government shutdowns, none of these by themselves pose a serious threat to the bull market moving ahead.

In fact, the US and the global economy continue to be on a strong foundation. With the many thousands of companies we’re invested in and fixed income shoring up our ship, we think it’s highly unlikely to remain in this valley for our portfolios. While we could be wrong, we’re inclined to believe the current downdraft will look much healthier over the short term than it does now. Shrewd investors are seeing share prices at very attractive values in spite of the dire and overwhelming sentiment washing over Wall Street. This is why we’re witnessing the volatility, as you’ve seen here, is just as sharply upwards as it is downward from day to day and even throughout the day. Ask yourself what is causing the upward thunderbolts if not the positively dynamic conviction of bargain hunters?

Remember, the moments before the bull charges are typically preceded by a dust storm clouded tantrum. This bull may be old, yet we think the recent stomping and snorting may just be the build-up for another charging run in 2019.

Indexes are listed in respective order to their reference above: DJ Industrial Average TR USD; 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.