“Stop the bleeding!” “Get me out!” “Pull the rip chord!” “Take me to cash!” Jeremy Grantham is predicting a 50% plunge in stocks..and my portfolio of stocks is down 10% year to date..do something!
Hey, I’m Chris Perras, Chief Investment Officer with Oak Harvest Financial Group. And This is our investment team’s mid-week release when we examine a news item, headline, or story making the rounds from publicly available sources and ask, “Is it News or Noise?”
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This week news or noise topic? Well, it is the gift that keeps on giving. It’s the “news” story that financial channels have chosen to run 1 or 2 times, every year for the last 12 years. What is that story, which is not a news story, but rather an opinion? Well, this year, it’s Bloomberg TV interviewing, Jeremy Grantham, founder of GMO investments. It’s this year’s version and edition of the ongoing twelve-year saga and prediction by long time value investor Jeremey Grantham that the markets are in a bubble and now he’s predicting a 50% crash.
This stories timing combined with the swift four-week downdraft in equities that we started the year on had many investors nervous at best, and at worst, it had many of them on the phone with their financial advisers demanding that they “Stop the bleeding”, “get them out”, or “take them to cash”. The first is a very normal emotional feeling that comes to most of us during increased periods of market volatility like we are currently experiencing. Even if your advisor had been forecasting this dynamic for months like our team has here at Oak harvest, if you are watching your accounts go up and down in value daily, weekly or monthly it can be anxiety provoking for sure.
The second reaction, or let’s call it “action” that’s the one of getting one the phone and “going to cash to stop the bleeding” in a down market? Well, that has proven over time to more often than not a faulty strategy to those investors who have previously sat down with a professional financial advisors and planner, not just a pure investment manager, and worked out a comprehensive longer term financial and retirement plan.
The facts are this, market volatility is part of the overall stock market. It has been in the past and it will always be in the future. Viewers what we are seeing year to date is not unprecedented. It is quite normal for the overall markets. The risk of investing in equities and our stock market is that the variability of annual returns is wide and very unpredictable in any given year. The reward? Over loner time periods, measured in years and decades, an investor has returned more than 2x the rate of bond returns and compounded their savings well in excess of the inflation rate. While the stock market is up 3 out of 4 years on average, over the last 94 years, the average peak to trough in any given year has run -16.5% according to data from Ben Carlson and in 40% of all years, we have experienced greater than -10% losses only to finish with higher than +10% returns.
As for Jeremey Grantham view on the markets? We have covered this one a few times before. Eventually he will be right once again however as a quick summery, Mr. Grantham has called the markets overvalued since early 2010. In the time period, since Mr. Grantham has been calling the markets overvalued; he has been calling for crashes every year and bubbles about to burst? You can do a quick Google search and see how inaccurate his calls have been. Since 2010, the S&P500 has gained over 400%.
Viewers, the headline stories about market volatility or Jeremy Grantham calling for crashes are interesting. Yes, they can cause us extra short-term anxiety. However overall, they should largely be noise to those of you who have sat down with a financial planner like we have at
Oak Harvest, not just an investment manager, and walked through a long-term investment allocation alongside you cash flow needs and greed’s.
Right now, higher market volatility and the January equity market declines are being largely caused by shorter term investors and the markets struggling in the near term, with upcoming Federal Reserve monetary policy changes just as the fiscal stimulus from 2021 starts to subside and economic numbers peak and slow.
From the whole team at Oak Harvest, thank you for your support and trust throughout 2021, and we hope we can continue to be your partner and provide you with value added service in 2022.
And Viewers, feel free to give us a call here to speak to one of our advisors. Let us help you craft a financial plan that meets your retirement goals and needs first, and your greed’s second. Call us at (877) 896-0040 we are here to help you on your financial journey into and throughout your retirement years.