With increasing negative sentiment and what appears to be fear, it probably feels tempting to many of us to sell now to stave off further losses within our beloved and perfectly constructed portfolios. Who wants to incur further losses after the worst start to a December since 1980? Between rate increases, a trade war, a slowing economy and now a yield curve inversion it must be time for the long awaited bear market, right? Sell now and preserve your capital and then time the market perfectly at the lows to ride the wave back up and feel like a rock-star portfolio manager. Please note the heavy sarcasm up to this point of this post.
The fact of the matter is, unless there’s something not in the data earnings are likely going to grow positively again next year and so is the economy. Sure there continues to be a lot of uncertainty but there’s also a lot of fear. I suspect much of the fear is reflected in stock prices, however. I’m not suggesting the bull market is in tact and will continue to push higher to new highs. What I am suggesting is now is not the time to sell. If you sell now, you will lock in the losses your portfolio has already incurred (or lock in a lower gain) and will likely jump back in near a top somewhere and likely compound the losses (or lower gain) already incurred. Nearly everything you’re worried about or that you hear others worry about is most likely priced into stocks. Yes, things could get worse but nobody knows how or when they could get worse.
Fear and Greed
While it might be sexy to preach the Warren Buffet mantra of sell when others are greedy and buy when they’re fearful, in practice it’s a lot more difficult to implement. How many of you out there right now are willing to step into the market on the buy-side and potentially catch a falling knife? I imagine there are a few brave souls that will step in now, but is fear really pervasive enough right now to present truly attractive investment opportunities? I don’t know. I doubt anybody else knows with certainty either.
Look, what I’m trying to say is what I’ve been discussing in many of the posts on this blog: stick to your investment/financial plan. Hopefully it’s well thought out and has been executed well to date. It’s awfully tempting to sell stocks at the stage of max fear. It’s also tempting to buy stocks at the stage of max greed. That’s how money plays with our emotions and leads us down the path to being unsuccessful, and ultimately frustrated, investors. Do yourself a favor and don’t give in to temptation.
Real World Concerns
I’m not trying to diminish the potential severity of the issues the global economy and global investment markets face. Let’s be honest. The situation in Europe isn’t pretty and has the potential to go wrong in a litany of ways (Italy, Brexit, France now, no more QE, etc…). The situation in China is uncertain and it’s unclear how far or long the country’s leadership would let economic and investment conditions deteriorate, assuming they actually can control them (my biggest issue with centralized economic planning). In my opinion, the biggest issue is the expected continued reduction in global liquidity as years of stimulus are withdrawn over the course of years (I’ve cited the work of others on this before). Whether this withdrawal actually leads to dramatic decreases in asset values is anybody’s guess. I think it’s pretty clear though that the withdrawal has led to and will continue to lead to higher volatility. Brace yourselves for a bumpy and uncertain ride and, again, don’t give in to the temptation to time the market.