Thursday, October 1, 2015

Time to remember Rule #1 and Rule #2 Yet? (i.e., "Don't Lose Money")

"Connect the Dots

The University of Michigan’s Consumer Sentiment dropped from 91.9 to 85.7 – the lowest level in a year.
Meanwhile the S&P 500 remains down, -5% year over year and -10% since July.

It’s no coincidence that consumer sentiment stumbled at the same time that the stock market plunged.
Coming back from Summer vacations, households saw:
  • The deepest drop in 401K wealth in years
  • The most prolonged drop in years
It has been a shock because investors have been conditioned to ignore the dips; or better still, to buy the foolish dips (BTFD) because time-after-time the dips reverse within a few weeks and the market plows onward and upward. In July last year, the market tumbled 3% and then fully recovered within four weeks.
This time is very different. Household 401Ks tumbled 10% and remain down after ten weeks – deeper and longer. That’s a big break from the normal routine. Another difference is that previous market drops had identifiable causes: a government sequester, a Greek bond collapse, and so on. Not this time, and that will create a lot more anxiety and uncertainty because without a clear reason for the collapse there can be no clear remedy.

Investors are asking what’s wrong and they can’t help but notice reports of negative economic news, from a slump in payrolls to slowing factory production. From The Economist to USA Today, the media is discussing a global economic slowdown. Once it hits USA Today, Middle America is informed. Fears of a slowdown accompanied by a very real hit to household wealth will make US consumers defensive. We recently warned that consumers were very sensitive to the stock market and that it would definitely hit spending if it did not reverse quickly.

...[article continues]

LINK (Consumer Sentiment Plunges on 401K Drop, by Andrew Zatlin, September 30, 2015)

DO NOT, however, try to trade or time the market, or follow anyone's recommendations to do so. These posts are simply economic data for informational purposes and suggest that the real wisdom is to exit the game of trading or timing markets altogether; thereby productively focusing your energy on your business instead of dissipating your most valuable asset (time) by wasting it on the anxiety of speculative timing.

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