Article by Robert Currie for the Times & Transcript published on August 27, 2019

Worrying about investments can often hijack too much of your attention. Markets seem to be overtaken by volatility where trade talks between China and the U.S. are being digested in tandem with conflicting global economic data leading to daily gyrations. Investors around the world are trying to decide if they’re in for another leg of economic growth or if they should prepare for pain.

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 are two very common scenarios that cause the market to go up and down. The first scenario is a manifestation of speculation (bubbles)This can be very painful for those involved. In 1637, prices for tulips(yes, the flower) in Europe had become so expensive and been so lucrative to anyone who owned one that people were trading pieces of land for a bulb! This led to a dramatic crash, eliminating the savings of many – an iconic lesson in asset bubbles and the madness of crowds. In 2000, we had the bubble where companies were seen as highly probable lottery tickets expected to make you a fortune instead of unprofitable risky companies with high levels of cash investors in 2000didn’t just lose money from earnings fluctuations, they lost money from value impairments. Those investments were worthless (or at least worth less), never to recover what investors gave them.

The second is a manifestation of the market’s connection to the economy. Over long periods of time corporate earnings and stock prices in aggregate appreciate, however, over shorter time spans corporate earnings can fluctuate significantly moving stock prices and corporate bond spreads with them. This is called the business cycleSince the Great Recession in 2009, the US has gone more than 122 months without a recession making it the longest US economic expansion on record. If history is any predictor, corporate profits are likely peaking,making the next recession top-of-mind for investors.This, however, is near impossible to predict by even the smartest people in finance.
It seems unlikely that the stock market is in a bubble like the tech enthusiasm of the early 2000’sor the real estate securitizationboomof the mid-2000’s, but it’s very possible we are nearing a global economic slow-down. Why is it important to know the difference? If you owned an internet stock in 2000-2003, you may have been tempted to buy more as its price fell. This would have been a very bad idea on average (look at the Nasdaq Index historical price chart) as prices were irrationally high. However, the opposite is true for the broader market when it starts falling yet many investors find themselves selling out of fear

The point I want to get across is, assuming your portfolio is a diversified group of stocks and bonds, selling your investments when the market is falling really only makes sense if the market is in some kind of bubble. Given it doesn’t seem like that’s the case, it might make more sense to collect your dividends and coupon payments and hold on. In other words, don’t let daily price moves hijack your attention.