04 September 2015
If you’ve never experienced a stock market correction until now (technically defined as -10% or more), you have either never invested or have only been investing since 2012. For the vast majority of others, you should know that markets “correct” on average at least once every 12-18 months. One reason why this feels worse than other corrections is because we just went 47 months without a correction of -10% or more! (third longest streak on record)
For a refresher, stock market corrections are short and sharp declines of -10% to -20%. They’re typically accompanied by sensationalized stories such as the European sovereign debt crisis, Greece’s exit from the Euro, or the “fiscal cliff”. For all those investors that ducked for cover and went to cash during the last correction you saw the Dow Jones move up over 6,000 points. Were you able to correctly “time” your reentry into the market? No…and you’re not alone. No matter what you read or hear there is not a single person or professional advisor that owns a crystal ball and can consistently time the market.
If you’re new to this monthly series…remember what we’re doing. This exercise, as we like to call it, is not an attempt to pick the best stock or “time the market”. We leave that futile task to those who own time machines and accurate crystal balls. For a refresher, see our first article on the MPG Core Tactical 60/40 Portfolio.
Here’s the current summary of the MPG Core Tactical 60/40 portfolio mix, which is updated as of this writing (September 1, 2015).
Click here to compare our portfolio against the benchmark.
From the last week in July to this writing the MPG Core Tactical 60/40 portfolio went down -4.49%. How did the rest of the markets do?
S&P 500 -7.29%
Mid Cap -5.58%
Small Cap -6.71%
Emerging Markets -13.50%
The bottom line is this: While it feels worse this time…it’s not. Those that are close to or in the retirement phase will naturally get spooked or feel more emotional than others. Times like this allow fear to creep in and make you second-guess your investment strategy. Making investment decisions or allocation changes due to this natural emotion is the worst thing you can do. Fear is not a strategy and mistakes made in times like these, or attempts to jump in and out of markets are often regretted for years.
What adjustments did we make?
Losses clearly hurt. Behavioral economists have studied the human brain and the emotions caused by loss. It’s been documented that people feel the effect of market losses twice as powerfully as they do market gains. Although we’re not advocating burying your head in the sand, we want to remind you that unless your goals changed drastically you need to stay calm and disciplined.
The MPG Core Tactical 60/40 portfolio made the following changes:
8/25/15: Sold 339 shares of Direxion Indexed Managed Futures (DXMIX) ~$13k
8/25/15: Sold 2,000 shares of Merk Absolute Return Currency (MABFX) ~$18k
8/26/15: Bought 300 shares of Apple (AAPL) @ $106.70 ~$32k
As vomit inducing as that Monday (8/24/15) morning may have been, there is some reassurance in long-term strategy by having something in your portfolio that you can sell in order to buy something that is being overly punished. Everyone wanted to buy Apple before it split at $700/share. Why not now? Is it really done being one of the best companies the world has ever seen? Do you think it might be over $200 in five years or under $50?