“Markets Don’t Crash from All-Time Highs”
Top 5 of the Week of August 28
Roger Nusbaum of Alpha Baskets, opens up our Top 5 this week by helping us get our portfolios sorted. The Irrelevant Investor Michael Batnick reviews the market’s record high. And writing for Bloomberg, Chairman & CIO of Ritholtz Wealth Management Barry Ritholtz explains just what stock market we’re in.
From Pension Partners, Charlie Bilello discusses markets crashing from all-time highs. And Larry Swedroe writing for Alpha Architects looks at the factors behind market trends…
Getting Your S#$% in Order
- Don’t make investing decisions based on social media—or any media—there are times when you should sell, but don’t do it just because a headline tells you to
- There’s never a perfect time to start, don’t put off investing because you’re waiting for the market to correct
- Live within your means and have a solid saving rate because even the most perfect portfolio won’t be enough
Just Where Is the Market Headed?
- The ongoing record for today’s S&P 500’s all-time high has endured all the way back since June 2016
- Don’t be deceived by rose-tinted glasses about the current state of affairs though; no investor should expect to outperform the market whatever asset they are investing in
- No matter where the market is headed, the only way to survive it is to control and rein in your own behavior
Spotting the Right Market
- If a bear market is a 20% drop in securities across multiple broad market indexes, a bull market is the opposite: a rally in prices by 20%
- But the percentage, definition and, ultimately, the valuation of the market is all meaningless to investors
- Knowing these factors will not help you manage risk, time your trades, or inform you on “when and how to deploy capital”
- Instead, pay attention to the market’s motivations rather than its valuation
Do you disagree? Feel it’s important to know if we’re in a bear or bull market? Share your comments in the section below
“Markets Don’t Crash from All-Time Highs”
- This popular saying seems to be making a comeback; it implies that it’s safer to buy now rather than on other days when it’s not at a high with low volatility
- The reason for this confidence is that historical evidence shows that it takes time for the market to move from periods of lower volatility to periods of higher volatility
- But this ‘time’ isn’t necessarily very long, two of the worst crashes (1929 and 1987) happened just two months after an all-time high
Should We Be On Trend or Not?
- Investors have been trend-following since the dawn of investing, so trends can be found in all stock, bond, commodity, and currency markets
- The factors for market trending will never change so investors will simply continue with their behavioral biases over prices
- As such, allocating some assets in your portfolio to follow trends is fair, but holding them in tax-advantaged accounts would be wiser, as the high turnover of trends makes them tax inefficient
Top 5 of the Week is a summarized collection of financial investment articles that we like and think you might like too. Having written thousands of pages of equity strategy and company research between us, we understand the allure of the ever-changing world of finance. Investing is an art form—and like everything, something you can work on and improve at. There are some excellent writers out there on the finance web, some offer a running commentary on today’s market, some are doing research, some have tips on how to Become a Better Investor, and some just lift the cloud of fog behind a lot of financial jargon. Each week we will keep you up to date with the top 5 articles worthy of your attention.
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