This might go down as the oddest bull market in history. We haven't seen euphoria, irrational exuberance, or any other speculative characteristics of a full-on market frenzy, yet this market just keeps chugging upwards.
Michael Batnick of the Irrelevant Investor wrote a piece today comparing the current market environment to 1929 and highlights where the comparisons stop short. His post may contain market vocabulary you are not used to, so I'll highlight his key points below:
- After the 1929 crash, based on the trading stock price, one-third of companies were selling for less than the cash in their pockets!
- Current valuations are similar to that of the pre-market crash in 1929, yet that's not a reason to hit the eject button.
- When markets do decline, though scary, it's an opportunity to purchase assets at lower prices.
The markets are truly unpredictable and anyone who tells you they know when the market will make a big move in the red is a fool. Those who were harping that the markets were overheated or "expensive" in 2013 have now missed out on 4 more years of tremendous growth.
For the retiree, a prudently allocated portfolio should already have several years of withdrawals in cash or short-term, high-quality bonds impervious to large market swings. For the saver, the next market decline is a bargain sale to run towards, not a fire to escape from.
While we don't know when the next market correction will occur, we can devise a disciplined plan for how we will react to it. What's yours?
At Quarry Hill, we are committed to a disciplined management approach that remains constant throughout every market environment. We own every stock around the globe using low-cost mutual funds or ETFs. The risk level of your portfolio matches what your plan requires and what your stomach can handle. So when the markets swing, our only reaction is rebalancing the accounts back to their original targets, ensuring you are always buying low, and selling high.
You don't need to try and guess the timing of the next market correction to have a successful investment experience. However, what you do need is a plan of action for when that correction inevitably arrives.