Chances are you’re sneaking a peak at the investment markets these days–maybe more than once a day. They’ve certainly been providing their share of excitement: down 4% one day, up more than 2% the next day or two, and who knows what’s causing the turmoil?
In August, the direction was mostly down, turning what had been tentative gains for the year into (as yet) relatively modest losses. And there wasn’t a lot of value in diversification. Large cap, midcap and small cap U.S. stock indices all dropped between 5.5% and 6%, real estate fell about the same and foreign stocks dropped roughly 7% over the same time period. Commodities did worse.
Analysts are scrambling to tell us why, one day, the markets are down sharply, and then come up with a reason why, the next day, they’re back up again. One long-term trader remarked, watching these swings, that the fact that the Dow can fall 1,000 points and then recover 700 in the space of four hours is prima facie evidence that there is no rational explanation for what’s going on. We hear that the weakness in the Chinese economy, or its stock market, are causing U.S. stocks to somehow be less valuable, but does anybody really believe that?
Meanwhile, the doomsayers are predicting catastrophe, which is not well-defined, but seems to mean that U.S. companies will be 30% to 50% less valuable in a few weeks than they are today. (Hint: this isn’t that kind of market.) Their solution? Buy gold! It’s helpful to remember that $10 invested in gold in 1926 would be worth $615 today. Ten dollars invested in the stock market would be worth $55,000.
Perhaps the most interesting analysis came from Jason Zweig, who writes an investment column for the Wall Street Journal. What if CNBC and all the major news outlets were run by value minded investors like Warren Buffett and Benjamin Graham. They’d be announcing the great news: stocks are unexpectedly on sale–4% cheaper than they were yesterday. Will this great news continue? Is there still time to take advantage of this buying opportunity?
The guest of the day offers his hope that the markets will continue their downward “rally” for even cheaper stocks. But he’s not optimistic, given the fact that stocks seem to get relentlessly more expensive over time, and have been doing this, with some regularity, since the early 1800s.
Nobody knows what’s going to happen in the market the next time you turn on the news or login to yahoo finance. In fact, no one knows what will happen between now and the end of the year. We do know that the panicked mood swings of investors and commentators during the dog days of summer will be long forgotten in the coming months. So enjoy your Labor Day and enjoy the end of summer.
If you’d like to get our take on this recent market volatility, please call or email us. We’re more than happy to give you our analysis.