Economics Investing

Pause, Think, Research, Act

I’ve been silent for several weeks now. With the market volatility in October, the midterm elections and earnings season, I’ve been watching what’s going on carefully. The unfavorable short-term trend has gotten all sorts of people riled up in the financial media as usual. I think a lot of the chatter is a result of people grasping for some sense of certainty while not really knowing what’s going on. We naturally like explanations for why things happen the way they do but sometimes things just happen without a known reason at the time. This leads me to one of the tenets of my investment philosophy.

When faced with uncertainty or a lack of conviction about what to do when there’s a lot of commotion (like a stock market correction), avoid the urge to follow the crowd. Just sit still. It’s critical to slow information intake and processing down so you can think more clearly and avoid impulsive decision-making. As with anything in life, perspective is critical. Plus our brains can’t reasonably and rationally process all the nonsense the 24 hour news cycle hurls at us.

I’ve come across two things in the past few days I wanted to share. The first is a comment from Mark Chaikin, a very experienced Wall Street trader, who has monetized his trading strategies into an informative and useful online platform (Disclosure: I subscribe to Mark’s online platform). In his most recent weekly commentary he stated the following:

“Bear markets start in a a climate of undue optimism and in my 50 years on Wall Street have never been widely advertised.If this is the start of a bear market then it is the most widely anticipated bear in history…and that’s not how the stock market works.”

This commentary really resonated with me when I read it because it’s a voice of reason at a time when there is so much fear-mongering in the public market discourse. As a side note, Mark believes the only correction occurring right now is in FAANG stocks, which makes sense given how much they ran up in the past few years.

On the other side of the spectrum, Ed Yardeni  authored an insightful blog post about earnings expectations for 2019 and 2020 which you can read here. Dr. Yardeni argues that 2019 and 2020 Wall Street analyst EPS estimates for the S&P 500 are too high based on revenue and profit margin expectations.

Here we have two very experienced and well regarded investment professionals, not necessarily disagreeing, but talking about current expectations through different lenses and providing valuable context within the current environment. It’s always a good idea to pause and think before acting. You won’t be “right” 100% of the time (ever), but the quality of the decisions made will dramatically increase, especially as you give yourself time to glean meaningful insight through your own research and/or through the research/experience  of other reputable investment professionals.  .