Well, what really did happen to markets?

Further to my earlier post about some possible reasons for the recent correction in stock markets globally, I found a thoughtful explanation.

Ben Carlson of A Wealth of Common Sense, who I follow pretty regularly, posted his thoughts yesterday on his site.

Basically he thinks there isn’t a simple and satisfying explanation of causes for the pullback now.  He cautions investors that headlines tend to get blown out of proportion by financial news organizations.

He also makes the important point that anyone in the accumulation phase is now presented with an opportunity to buy good companies on sale.

Further, he predicts that this is not the beginning of a 2008-type crash. It is more likely a correction like we saw in the summer of 2015 (-12%) or the early part of 2016 (-13%).

Ben admits no one can predict what’s next:

The biggest thing to remember is that no one has a clue what’s going to happen next. Short-term market moves are controlled by human emotions, which are impossible to predict.

I couldn’t agree more.

That’s why I have done nothing during the correction and will monitor asset allocations until March 2018, when I reach my next self-imposed trading date. If stocks are still off their highs I may need to add to positions to remain at target weighting.

Author: Michael


4 thoughts on “Well, what really did happen to markets?”

  1. This post from Ben Carlson is right on. I wish there were more people out there with this basic common sense. Unfortunately the financial environment is just littered with those who are constant bears, worried about every little move, and how it might end the world. To make matters worse,the media backs it all up and sensationalizes this fear hour by hour. It wreaks havoc on the little investor who may not be as disciplined as most professionals. I am glad to see this view explored and brought here to the OSC. I also like that you backed up the view with the correct decision of standing your ground and not bowing to the fear pressure.

    Thanks for this post.


    1. Hi Raven,

      There sure is a lot of noise out there about investing – certainly enough to scare a lot of people. To me there is a big difference between checking your portfolio (sometimes I do it daily) and doing nothing, and thinking you must do something if you don’t love what you see.

      To me it’s mostly about timeframes. Long-term investors know they have historical probabilities in their favour and understand the power of compounding. To others it’s about riding the latest momentum and trying to time when to get in and get out. I just can’t do the latter – there’s too much luck involved.

      I like to think I am taking calculated risks, not gambling. And I try to ignore the noise if I can. Having said that, there are certainly others making higher returns than me. But that’s alright – provided I make the returns I need and can sleep well at night.

      Thanks for dropping by.

      1. Retirement as a goal is almost always achieved, its the path that difers from person to person. I believe that ultimately one must not try and over achieve by taking on too much risk, my experience is that this leads to eventual underperformance when your luck runs out. Being too cautious is also a disaster as low safe returns get eaten by inflation and having to work into your seventies to build more of a nest egg sucks.

        There is a sweet spot somewhere between 6-10 percent (very longrun returns) that most people should set as goals. The only difference in the end is that some people who are averaging market returns of 10 percent will retire 10-20 years earlier than those making 6 percent. The extra time is the cost of lowering your short term volatility by using a asset allocation strategy of stocks, bonds and cash. There is nothing wrong with this approach as long as the individual is comfortable with the tradeoff of working more years for a more stable return outlook.

        I look at those who from time to time get higher returns than me and wonder if they should get pulled over for excessive speed, as they almost always end up crashed on the side of the road. I know, because i was like them once a long time ago… you have a better chance of making it to the finish line if you stay within the speed limit.

        Happy investing.


        1. Indeed, it is remarkable how many do manage to retire. Timeframes and trade-offs, that’s what it is about for savers/investors.

          I agree inflation is a danger – one that may be starting to increase given “policies” south of the border lately.

          In addition to rates of return, spending patterns are also key to how early one can retire. Living modestly without buying too many things helps. On the other hand, some people actually like their work – certainly not everyone, but some do.

          Like we’ve been agreeing on, having a decent plan, reasonable expectations, and discipline is a huge part of the potential for success.

          Cheers for now.


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