Part 2: How To Navigate The Stock Market In 2022

Earlier this year, I outlined three things to consider when navigating the stock market in 2022. You can view that article at length here. Back then, stock prices had declined -15% from all-time highs set back in Dec. 2021. Fast forward to today, stock prices continue to seesaw and remain volatile as U.S. stocks are down roughly -17% year-to-date (as of July 20th), per the S&P 500 index.

With that said, this current market swoon enters its 28th week of price instability with no clear sign that markets will stabilize and rebound anytime soon. As a continuation of the article I previously wrote, here are three additional sentiments on how to maneuver through the rest of 2022:  

1. Be Prepared For A Longer Drought

   1. The past decade has rewarded those who have bought when prices have fallen. Although there is a possibility that prices could start to recover here yet again, it may take a more prolonged period for stock prices to fully bounce back and make new all-time highs. The overall deterioration in stock prices like we have seen for the first half of this year is showing similar flashes to stretches as we saw back in 2000-2002 and 2007-2009. In those instances, it took stocks 25 months and 16 months, respectively, for the stock market to finally hit a bottom. By comparison, this time around we are only seven months into the current downturn. If the market does not bottom for some time, be prepared to ride out tedious stagnation or potentially steeper losses before things turn around.

2. It Is Okay To Take A Loss

   1. If an investment you own has fallen in value and does not show signs of resilience, consider taking the loss and repositioning your capital elsewhere. This could also mean beefing up your cash position as a more conservative, temporary play. If the price of a particular stock or fund is consistently falling, the odds of it continuing to decline amid a turbulent market are elevated. Often, the best offense can be playing some level of defense.

3. Nibble, Don’t Bite

   1. Do not try to be a hero and guess whether stocks have bottomed. Trying to predict when the market will officially base is a complete guessing game. Keep your purchases modest and look to add to your investments over an extended timeframe. This helps reduce the emotional toll involved with investing. A good rule-of-thumb is if you feel too elated when a certain investment you own goes up or feel too worried when it goes down, you likely own too much of that particular investment.

If you have any questions as it relates to your investment portfolio, please feel free to contact me directly. I hope you enjoyed reading!

Joshua J. Baird
Investment Adviser Representative

COVID-19 And Your 401(k)

As states ease their stay-at-home restrictions, there is uncertainty regarding how COVID-19 will evolve over time. Will infections spike in the near future? If so, will the economy worsen? The many unknowns make the stock market even more unpredictable. For 401(k) owners, this uncertainty can feel daunting. Here are four tips to help you and your 401(k) navigate the stock market amid the Coronavirus:

• Keep Contributing

  • Even when the stock market takes a hit, keep making 401(k) contributions. By doing so, you manage your risk during a turbulent market due to dollar-cost averaging. As your contributions go into your account, you are buying stocks/funds at reduced prices, which is beneficial considering that the stock market rises in the long run.

• Stay The Course

  • Severe 401(k) losses can cause a lot of discomfort, which triggers some investors to start panic-selling. If you are a long-term investor (e.g. not retiring within 3 years or so), you should NOT be concerned with short-term market dips. For participants who ARE retiring in less than 3 years (again, give-or-take), it might make sense to adjust your portfolio, such as dialing back your aggressiveness. However, most 401(k) owners should carry forward, assuming you are properly allocated in the first place (relative to your time horizon and risk tolerance). The market will not stay down forever.

• Forget Your Login & Password

  • When the market falls, the natural reaction for many of us is to go online and look at our account balance. Avoid this. Logging in frequently may lead to more stress than actual comfort. You can create an unhealthy obsession with the short-term and lose sight of the big picture by constantly logging in to view your account. This is something to refrain from amid an unstable market.

• Seek Help If You Need It

  • A down market can bring angst, nervousness, and confusion. If you are hesitant and unsure about how to manage your 401(k) in the weeks and months to come, talk to an advisor. Although it may sound simple, speaking with a trusted professional can provide reassurance during unprecedented times.

I hope you enjoyed reading!

Joshua J. Baird
Investment Adviser Representative

The B.S. Behind 'Buying The Dip'

On Monday, March 9, the U.S. stock market was down nearly -20% from its record high that was recorded just three weeks prior on Feb. 19.

With stock prices falling so sharply and quickly, you will hear others say that they are in the midst of buying stocks. They will call it a buying opportunity. They may even recommend that you, too, should buy the dip.

The message itself may be valid but the messenger is full of B.S.

Let me explain. We know that the stock market goes up in the long run so, theoretically, I could argue that we are in a continuous buying opportunity if you are a long-term investor.

As for the messenger, if someone says to me,“You know, with stock prices down, this is just a great buying opportunity!”, I would ask them:

“Oh really, you have a lot of cash ready to invest?”

Their answer better be “yes” because if not then it is just rhetoric. Their actions and words do not align. So supposing they say “yes” and are primed to buy stocks at a perceived discount, 1 of 3 things must be true:

1. They just obtained the cash they plan to invest

2. They have had the cash for some time, but for whatever reason had yet to invest

3. They recently sold stock and have cash to reinvest

Odds are #1 does not apply. It is unlikely this person just-so-happened to obtain a chunk of cash as the market is plunging.

If #2 applies and their cash has been on the sidelines until now, how long has it been and more importantly, why?

The longer that cash sat idle, more opportunity was missed to earn a return. Now they suddenly want to invest it? Again, actions speak louder than words. From our interactions with clients and non-clients alike, a reluctance to invest usually stems from fear of putting money into the market at the quote-unquote “top”, only to risk then losing money. What about this person’s past investment behavior suggests they suddenly view a precipitous market drop as a buying opportunity?

The truth is, they don’t.

This leaves #3 as the only explanation left — they have cash to invest because they recently sold stock. To which I would ask, “Why did you sell in the first place?”

There is an outside chance they sold before the market’s decline and are ready to jump back in at reduced prices, but I doubt it.

In managing money for our clients, we actually did make some defensive moves within client portfolios prior to the market’s decline. One of those involved building up a cash position, as the result of selling some stock positions before the market decline was in full flux.

But I would refrain from calling right now the time to buy because I really don’t know. Nobody does. There is little precedent for what has happened the past 3 weeks. Many people will compare it to 2008, but that is inaccurate.

What most people remember about 2008 is what occurred in September thru November of that year. That is when the market’s sell-off accelerated as major financial institutions like Lehman Brothers, Washington Mutual and Wachovia all filed for bankruptcy in the wake of the subprime mortgage crisis.

What most people do not realize is that the stock market had actually peaked nearly 1 year earlier and was already down roughly -20% from its peak by the time Lehman Brothers went belly-up in September 2008.

Compare that with today, where it took less than 3 weeks for the S&P 500 to fall -20%. There is not much of a comparison. A better comparison is July 2011 when the S&P 500 fell -17% in just 11 market days. But only those in our industry would remember that.

Now, back to the guy/gal who says they are buying-up stocks with both hands…

If this person truly did sell a ton of stock right before the market drop and have been waiting 3 weeks to deploy it back into stocks, more power to them. But you should know better. There is a difference between what someone says and what they do.

• Will they actually have the guts to buy as the market is tumbling?

• Will they invest all of that cash or just some of it?

• If they do buy now but the stock market has yet to fully bottom, will they hold onto their newly purchased stocks and ride out future losses until they eventually turn a profit? Furthermore, does that even qualify as buying the dip if the stock market isn’t done dipping? I digress…

I am skeptical of this person in the same way I am skeptical of someone who tells you about their successful investment decisions but never mentions their failures or losses.

I cringe a little when someone parrots that this is a buying opportunity because it is not smart or even compelling, it is disingenuous at best. As an investment management firm, we are relentless in our market analysis and I will humbly admit that we do not know how long the market will flounder or how much lower it will go before bottoming.

In the meantime, if the market does trend lower and continue to break down, we will respect that and continue playing defense. When the market eventually recovers (by our estimation) we will go on offense. Either way though, our actions will speak louder than words.

Consider this before taking advice from someone who tells you to buy the dip.

Brian E Betz, CFP®
Principal