All That Crap About Not Panicking?

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It is still true.

As I write this post Monday after the close there is still a lot of uncertainty on how Greece will precisely play out. Markets were down on Monday of course, right now the S&P 500 is at 2057 right around where it started the year and is flirting with its 200 day moving average.

We have seen this sort of thing many times before and after this clears up there will be other big scary events, a term Ken Fisher has used previously. In a way, we have no idea what will happen and in a way we know exactly what will happen.

As I write this, again on Monday afternoon, we don’t know when the global selling in equities will end (it might already be over by the time this post is published), we don’t know whether or not China, Puerto Rico or anything else will pile on to send markets lower, even into a bear market (this is not a prediction). This could be serious or it could be one of the many big scary events that are quickly forgotten, we don’t know.

We do know that the media will overreact. More importantly we know that whenever the market finishes going down it will then go up and make a new high with the variable being how long it takes. The FTSE 100 recently eclipsed a high dating back to 2000, of course the NASDAQ broke its high from 2000 as well. At some point the Nikkei will break the high from 1989 but again, no one knows when.

There are different implications for different types of market participants but they all revolve around the same things; not panicking and sticking to the strategy you thought would be a good idea when things hit the fan as they occasionally do.

People in the accumulation phase need to keep accumulating. While the FTSE did just make a new high from 2000, that index has about doubled since 2009,so someone who kept accumulating should have caught most of that up move with the equity portion of their portfolio. People in the withdrawal phase should be prepared to take defensive action if that is the strategy they laid out for themselves ahead of time or stand pat if that is the strategy they laid out for themselves ahead of time.

A defensive strategy, which is what I believe in doing, offers the opportunity to make it a little easier emotionally to ride out large declines (remember, at this point we have no idea whether a large decline is coming) and standing pat (save for rebalancing) relies on remembering ahead of time that large declines will be uncomfortable but that they end and then markets recover with the only variable being how long it takes; repeated for emphasis.

I realize none of this is new and at a high level this is something everyone knows but knowing and doing can be two different things and a reminder is hopefully useful.

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