The Power of Fear

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Government shut down, erratic tweets, broken trade deals, fed policy, inverted yield curve, recession… there is no shortage of articles out there that will give you a reason to make a selling decision right now!  Fear is an extremely powerful emotion in our society, in fact, the millennials have even created a acronym around it… “FOMO” or fear of missing out.  A condition that is rampant in the market now.  Investors are heading for the exists and not stopping to ask, why or is this the right decision for me? 

It is well studied that decisions made while experiencing the condition of fear violates your minds normal decision-making process, thus clouding our judgement.

While the ‘behavioral attack’ reigns down on us from the media, we wanted to take a quick moment to highlight a few conditions that have taken place in the market place many times when we have experienced such declines.

At one point this move was called a ‘correction’, however, we have now moved into what is referred to as a ‘bear market’.  Typically, a ‘correction’ is defined by a 10% decline, while a ‘bear market’ is defined as a 20% decline.  Let us highlight market behavior during past market sell-offs:

Average Market Recovery after Initial Downturn – US Large Cap Equity – January 1926-December 2015

Market Declines - US Corrections.JPG

As you can see from the charts above, more often than not, moves like this present opportunity in the markets place as opposed to exit points.

This is not only true in a ‘correction’ or ‘bear market’ but seemingly during our past crises, as illustrated below:

The Market’s Response to Crisis - Performance of a Balanced Strategy: 60% Stocks, 40% Bonds
Cumulative Total Return

Market Declines - US Crisis.JPG

Since our founding we have always been focused prudent diversified investing for our clients, focusing on long term outcomes.  While Santa has decided to leave the markets holding a lump of coal this year please take this time to celebrate with your family and loved ones.  Be excited for the new opportunities and challenges the New Year will bring.  And finally, remember, this too shall pass.