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Bear Market Advice.........From Elf

| January 07, 2019
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Dear Clients and Friends of Henry Wealth Management;

First of all, we wish you a happy, healthy and prosperous 2019!

Over the holidays, I thought of our wonderful clients during one of our family traditions, when we gather to watch the movie, “Elf.” We’ve seen it many times, know how it ends, but still laugh and often recite our favorite line when actor Faizon Love (the Gimbel’s store manager) says to Will Ferrell (Elf) “make work your favorite!”

You may have a favorite movie line or have even said regarding a recurring situation; “I’ve seen this movie before and know how it ends.” Frankly that line succinctly sums up my 36 years of experience in the financial services arena as it relates to the stock market. We love bull markets and viewing account balances that have risen from one quarter to the next, but also need to endure frequent “corrections” (a 10% drop from the top) and even lesser occurring but more intense “bear markets” (a 20% drop), until that portion of the movie ends.

According to the Wall Street Journal as of Dec 31st we were precipitously close to but not over the threshold to proclaim that a bear market had arrived. The once proud Dow Jones Industrial Average, which stood tall at 26,828 on Oct. 3rd, had by Christmas Eve sunk to 21,792, just barely short of a 20% drop and closed out the year at 23,337. For some, this kind of downturn is the cause of great anxiety and triggers a flight-not-fight response since they reason that “this time it’s different,” so I should get out while I can.  

Yet when the inevitable does occur and stock prices turn true north again, there will be no united announcement that precedes this event. Rapidly rising stock prices can only truly be seen well after the fact, since they are often interrupted by frequent drops and continued high volatility. Those who had previously sold on the way down with the goal of getting back in “when things settle down,” don’t seem to be settled until a recovery is long established.  

Can I say with any degree of certainty that this time it’s not different? I cannot, but nonetheless I’m bound and determined for my own portfolio, as well as for our clients, to “make time in the market and not market timing”, our favorite.

Below are a few paragraphs from our newsletter, dated 9-8-14. Some news outlets and noteworthy economists were calling at that time for a bear market; it did not occur, yet I believe our advice from that time frame is still applicable for today:

At Henry Wealth Management we live by this simple philosophy; Choose a globally allocated and highly diversified portfolio that you can live with, and then LIVE WITH IT!

We recommend portfolios based on a person’s age, time frame for investing and propensity towards risk.  For example, a client within five years of retirement but who hopes to enjoy 25 golden years might be invested 60% in stocks and 40% in bonds.  We believe that to properly allocate and globally diversify, and then remain steadfast represents the one right decision. 

While it is important to note that utilizing asset allocation and diversification as part of an investment strategy cannot assure or guarantee better performance or protect against principal loss, we still believe that adhering to these principals trumps market timing…and the need to make two right decisions (i.e. buying, selling and then re-buying.)  We believe this is not a prudent policy, entails even more risk and is fueled by emotion, which is often borne from predictions, some outrageous, which we call…NOISE!”

In closing, you don’t have to like the portion of the movie where the market declines but we do believe that living with it is the best possible decision. We will continue to encourage and coach our clients to “make patience your favorite, make remaining steadfast on your long-term goals your favorite, and make investing via a globally allocated and highly diversified portfolio, your favorite.” We believe you’ll be happier, healthier and more prosperous in the long run.  

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