By Charles Cohn
When the media notes that the stock and bond markets have become rocky (as if this isn’t normal behavior for markets), the general public sometimes loses perspective, that, over the course of the last couple hundred years, stocks go up and outperform all other asset classes (bonds, real estate, art, diamonds, and, yes, even gold). “Corrections,” as in sell offs, take place at least once a year, on average, and big sell offs, often referred to as “crashes” take place every few years. The markets always recover (while the stocks of individual companies may not), sometimes in a few months, but, occasionally, it takes ten years.
I’m a veteran of over forty years as a financial advisor. I had a highly successful practice. I am retired now, having surrendered my licenses. I take no clients, nor any remuneration. But on this basis, when I sense inquiries about current conditions are genuine, I try to give my best perspective. I’m used to trying to communicate complex matters to individuals who are fairly unsophisticated. Here are a few tidbits of my thinking. Keep in mind, there are many, often very different from one another, successful approaches to investing.
Given the opportunity, I buy in down markets, and in markets where there’s a lot of uncertainty or straight out fear in the air. What frightens me more than crashes, are screaming, uninterrupted up markets. When I sense many of those getting in have no experience and little knowledge, but are participating in panic buying, I want to be building cash. I want my dividends in cash. I want to be taking some selective profits, but not necessarily of whole positions, a little here, a little there. I’ll be preparing myself to be a buyer when that next crash comes, if my clients can be patient, and if I can be patient.
I take time to look at the allocation of my investments. I’ll do some repositioning, selling from positions, individual stocks or sectors that have become disproportionately larger than others. Tech, financials, utilities, are all examples of the many different sectors. In different markets, one or two sectors will outperform others. I may do some selling of my best performers here, and reevaluate to see if I still believe in my under performers. If I can realistically see that I’ve been wrong and that position ABC really isn’t going to do better, I’ll reason, “If I now believe that this one is not likely to perform, then it’s not going to do well in the next down market. Why not sell that one near the top of the market cycle, now, too?” If I’m selling some highly appreciated positions, why not also weed out the underperformers, even taking some offsetting losses? Nothing feels better to me than going into a crash with cash available. I try to keep a list of those sectors or stocks “I’d love to buy if they ever pull back.”.
I try to train myself to recognize my own greed or fear. I don’t push them off. I try not to make myself insensitive to my own emotions. I try to recognize them. I try to know when to listen. I try to know when and how not to react to these extreme feelings. As a long experienced investor, I recognize that when I begin to become afraid, I can bet everyone else has already been there ahead of me, and is more so. I find that if I am feeling fear, with all my experience with up and down markets, that’s worth paying attention to. It’s an alert to me that the time is either near or at hand for deploying my cash.
Let’s talk about the current, March, 2025, correction: Here are things that should help you have perspective today. If you want to know how I know these things, that’s more than I have space and time for right now. A). Inflation is coming down. Everyone relies on CPI for this but some very good non government AI, far more sophisticated than CPI, tells a much more nuanced story. B). Private Sector (non-governmental) employment is increasing, not decreasing. C). Earnings have continued to trend up, not down. D). Hundreds of billions of new investment capital is flowing into the US to build plants and production facilities: New capital means new jobs, it means to foreign manufacturers producing products within the US that they can sell here and will not have to pay tariffs to import.
Am I absolutely sure this market won’t go (a lot) lower? Absolutely not. Ten percent is a decent correction. We haven’t had one in a while, so thank goodness for this one now to sow the seeds of reasonable caution in the minds of those who tend to be too aggressive. Could it go to minus 20%? Sure, it does that every few years too. It could even go 50%, or more, but I doubt we’ll see that. My own inner self thinks the markets began to turn up from the Covid crash in October of 23, and moved steadily up right through January 25, because of latent (as opposed to overt) optimism that Trump would run, and would win. That’s behind us. Now, all that optimism is in this place called, “Oh, it’s happened. Now what? Can he do it?” “Can he get the tax cuts extended?” “Can he equalize trade among our trading partners?” “Can a moribund private sector experience new life?” I’m betting he will, and we have an unprecedented great boom ahead. I was in the business, so maybe for that reason I have less caution than I would confer on an intelligent client, and I position myself to be able to withstand long sell off recoveries. You’ll want to set your own parameters, based not so much on greed, but on your own ability to stomach and withstand risk. If you need help with this, call on an experienced advisor (today, they’re called “wealth managers”) to assist.
